Financial Matters in Portugal
We are well placed to support you if you are thinking of making the move to Portugal. If you are embarking on this life changing move we can support you to understand the financial and tax planning requirements in Portugal taking into account your current investment strategies, pension and estate planning.
We work closely with a number of strategic tax and accounting partners to offer you personalised and strategic financial advice to ensure that your wealth is protected and maximised whilst also ensuring tax compliance in Portugal and UK.
Taxation in Portugal
The taxation system in Portugal is based on a progressive income tax system, with rates ranging from 14.5% to 48% for residents. Non-residents are taxed at a flat rate of 25% on their Portuguese-source income.
The main types of taxes in Portugal are:
- Income tax: Residents are taxed on their worldwide income, while non-residents are taxed on their Portuguese-source income.
- Corporate tax: The corporate tax rate in Portugal is 31.5%, which is higher than the OECD average of 23.6%.
- Value added tax (VAT): VAT is a consumption tax that is applied to most goods and services. The standard VAT rate in Portugal is 23%, but there are reduced rates of 6% and 13% for certain goods and services.
- Property tax: Property tax is levied on the value of real estate. The property tax rate in Portugal varies depending on the location of the property and its value.
- Inheritance tax: Inheritance tax is levied on the transfer of assets to heirs. The inheritance tax rate in Portugal varies depending on the value of the assets and the relationship between the deceased and the heir.
Non-Habitual Residency for new residents
The Non-Habitual Resident (NHR) program is a tax incentive program in Portugal that allows individuals who are not tax residents of Portugal for the past five years to benefit from a reduced tax rate of 20% on their Portuguese-source income. The program also offers exemptions on certain types of income, such as pensions and passive income from foreign sources.
Here are some of the benefits of the NHR program:
- Reduced tax rate of 20% on Portuguese-source income subject to meeting eligibility criteria
- No capital gains tax on the sale of real estate outside of Portugal.
- No capital gains tax on the sale of real estate in Portugal.
- No inheritance tax on assets transferred to heirs who are also NHRs.
- Capital gains relating to the sale of real estate in the UK may still be subject to tax in the UK since April 2015 and 2019.
UK Pensions in Portugal
The taxation of UK pensions in Portugal depends on a number of factors, including your residency status in Portugal and the type of pension you have.
The following are the tax implications for different types of UK pensions in Portugal:
- State pension: Your UK state pension will be taxed in Portugal if you are a resident of Portugal. The amount of tax you pay will depend on your income and the tax bracket you fall into.
- Defined benefit pension: Your defined benefit pension will be taxed in Portugal if you are a resident of Portugal. The amount of tax you pay will depend on the amount of your pension and the tax bracket you fall into.
- Defined contribution pension: Your defined contribution pension will be taxed in Portugal if you are a resident of Portugal. The amount of tax you pay will depend on the amount of your pension withdrawals and the tax bracket you fall into.
The taxation of the above two pension benefits will also depend on other factors such as whether the pension is deemed a government service pension or a private pension.