Taxes In Portugal for US Expats: Everything You Need To Know

11/30/2021

This article was updated on February 23, 2023.

Living in Portugal is a great experience for many reasons. The climate, the beaches, the quality of life, the people… the list goes on! Thanks to some recently-launched visa options, it’s easier to move there than ever. Moving there as an American, of course, does carry some tax implications. 

For one, Americans living in Portugal still have to file a US tax return and possibly pay US taxes. Any US citizen or Green Card holder who meets the minimum reporting thresholds must file a federal US tax return, regardless of where in the world they live or where their income originates. And depending on how long you stay in Portugal and the visa you have, you may need to pay taxes to the Portuguese government as well.

The good news? We know the ins and outs of taxes for US expats in Portugal. This includes what you’re on the hook for, who you’ll be dealing with, and how to minimize your bill as much as possible. Continue reading for the full scoop.

Snapshot of taxes in Portugal

Here are some of the main details of Portuguese taxes at a glance:

• Primary tax form: Model 3
• Tax deadline: Forms must be submitted by June 30; any additional payments necessary must be paid by August 31
• Reporting website: Portuguese Tax Authority’s online portal
• Administrative language(s): Portuguese
• Tax treaty with the US: Yes
• Totalization agreement with the US: Yes

How do Portuguese taxes work for Americans living there?

Under the Schengen agreement, US passport holders can stay in Portugal for up to 90 days in a 180-day period with no need for an additional visa. Visitors like this are typically not subject to taxation. However, those living in Portugal on a long-term basis are typically considered tax residents (with a few exceptions, such as for students and volunteers), and must therefore pay taxes to the Portuguese government.

Who qualifies as a tax resident in Portugal?

You will be considered a tax resident by the Portuguese government if you either:

• Spend over 183 days in the country in a 12-month period (regardless of whether those days were consecutive or not)

OR

• Maintain a residence in Portugal at any time in a 12-month period

US expats who are considered to be tax residents of Portugal typically hold one of the following visas:

D1 Visa

The D1 visa is for individuals who will be working as employees for a Portuguese employer. It lasts for two years and can be renewed for an additional three years, at which point holders can apply for permanent residency.

D2 Visa: Entrepreneurship Visa

The D2 visa is for entrepreneurs and business owners who want to either start a business in, purchase a business in, or move their business to Portugal. It lasts for two years and can be renewed for an additional three years, at which point holders can apply for permanent residency.

D3 Visa: Highly-Qualified Activity Visa

The D3 visa is for individuals whose education and/or experience make them uniquely qualified for skilled or technical work (sometimes referred to as the tech visa). It lasts for two years and can be renewed for an additional three years, at which point holders can apply for permanent residency.

D7 Visa: Retirement/Passive Income Visa

The D7 visa is for individuals who can financially support themselves entirely through recurring passive income, such as payments from retirement plans or trust funds. It lasts for two year, and can be renewed for an additional three years, at which point holders can apply for permanent residency.

D8 Visa: Digital Nomad Visa

The recently-launched D8 digital nomad visa allows remote workers to legally work and live in Portugal. There are two options: a temporary stay visa for stays of up to a year, and a long-term stay/residence visa for stays beyond a year. Each visa can be renewed after expiration until the holder has lived there for five years, at which point they can apply for permanent residency.

Did you know the Spanish government recently launched a digital nomad visa? Learn everything you need to know about the digital nomad visa in Spain in our complete guide.

D9 Visa: The Golden Visa

The D9 visa is aimed at investors and entrepreneurs who will be creating jobs, making large capital transfers, or purchasing real estate in Portugal. It lasts for two years and can be renewed for an additional three years, at which point holders can apply for permanent residency.

Important note: The Golden Visa in Portugal is ending

On February 16, 2023, the Portuguese government announced that it is ending its Golden Visa scheme. According to Prime Minister Antonio Costa, the decision is expected to be formally approved by the end of March or early April.

Why is Portugal ending the Golden Visa?

Since it was first launched in 2012, the Residency by Investment Program (RIP), aka the “Golden Visa” has been a boon for the Portuguese economy, but not for the Portuguese people.

Lison and Porto are experiencing an acute housing crisis brought on by skyrocketing prices caused by foreign investment in real estate and stagnant workers’ wages, resulting in locals getting pushed out of the market. Although ending the Golden Visa will cost the Portuguese government money, the move is designed to neutralize public angst, and will likely be received favorably throughout the EU as well.

Read More: Moving To Portugal: Visa Options Explained

What’s the tax-governing authority in Portugal? 

Portugal’s governing tax body is the Autoridade Tributária e Aduaneira, or Portuguese Tributary & Customs Authority. They are responsible for:

• Informing & assisting taxpayers with their obligations
• Assessing & collecting taxes
• Inspecting, preventing, and combating tax fraud & evasion
• Enforcing tax law & defending the interests of the Public Treasury in court

You’ll manage your tax dealings through their online tax office portal, Portal das Finanças. 

Tax brackets in Portugal

Portugal has a progressive tax system in which the more someone earns, the higher their tax rate is. These rates vary from 14.5% for the lowest earners to 48% for top earners:

Portuguese Tax Rates for 2022

Property taxes in Portugal

Expats who own property in Portugal at any point in the year do have to pay Portugal’s property tax, which is referred to as the IMI (Imposto Municipal Sobre Imóveis). Portuguese property tax rates vary from municipality to municipality. However, urban properties are usually taxed at a rate between .3% and .45% while rural properties tend to be taxed at .8%. If you live in an urban property worth no more than 125,000€, however, you can get a three-year exemption from the IMI.

Capital gains tax in Portugal

Profit from the sale of real estate or investments is subject to capital gains tax in Portugal, although the exact tax rate depends on the asset type and value.

For example, the full profit of shares, securities, and bonds are subject to taxation at a flat rate of 28% (35% for assets based in “tax havens” like Gibraltar).

On the other hand, only 50% of the profit from real estate taxes is subject to taxation. This tax rate falls between 14.5% and 48% depending on the value (using the same bracket as the one for income tax). And if you’re moving from one primary home to another, you may qualify for an exemption.

Depending on the value of the asset, the Portuguese government may levy a solidarity tax ranging from 2.5% to 5% as well.

Payroll tax in Portugal

If you’re employed by a Portuguese employer, your income tax (again, between 14.5% and 48% depending on your salary) will automatically be withheld from the paycheck they give you. Independent contractors, however, do not have taxes withheld from their earnings and therefore must make separate tax payments. 

Do I have to pay social security in Portugal? 

The social security tax rate in Portugal is 34.75%. If you are employed by a Portuguese employer, you will only have 11% withheld from your check, with the other 23.75% coming from your employer. 

Independent contractors will not have social security contributions withheld from their earnings either, so they must make this payment separately as well. However, their social security tax is at a rate of 29.6%.

If you work as both an employee and a contractor for separate Portuguese companies, you may not have to pay social security taxes on contractor earnings if the withholdings from your work as an employee cover it.

Value Added Tax (VAT) in Portugal

The VAT is the tax levied on goods and services. In Portugal, there are three different VAT rates:

• Standard (23%): Levied on all goods and services that don’t fall under the reduced or super-reduced rate
• Reduced (13%): Levied on some food products, food/beverage services, and musical instruments (among others)  
• Super Reduced (6%): Levied on some essential food products, pharmaceutical items, books, hotel stays, and passenger transport, among others

What are the filing deadlines in Portugal?

Portuguese tax returns can be submitted starting on April 1st, but must be in no later than June 30th. Tax payments, on the other hand, must be made no later than August 31st.

Non-Habitual Residence (NHR) status

The Non-Habitual Residence tax regime grants new Portuguese tax residents 10 years of lower taxes (talk about a nice housewarming gift!). In order to qualify, US expats moving to Portugal must a) have already been granted a visa that allows them to meet the tax resident requirements and b) not have resided in Portugal within the last five years.

In turn, they receive the following benefits:

• No taxes on global income
• A flat 20% tax on income originating from Portugal
• No taxes on dividends, interest, or royalties
• No taxes on capital gains
• No taxes on rental income from properties outside of Portugal

After 10 years, these benefits expire, and you will go back to being taxed under the standard rates.

How do I file Portugal taxes?

At Bright!Tax, we specialize in filing US taxes for expats, but our clients also get access to a network of vetted foreign filing partners in other countries (including Portugal)! If you’re living in Portugal, contact us today to request additional information on filing Portuguese and US taxes.

Do US expats living in Portugal also have to file US taxes?

Yes, any expat who is a US citizen or US permanent resident must file a federal tax return with the IRS. The only way to opt out of this obligation is to formally renounce your citizenship or formally abandon your status as a long-term permanent resident. However, doing so can trigger expensive exit taxes and significantly complicate your ability to travel to or reside in the US in the future.

Does Portugal have a tax treaty with the US?

Portugal has a tax treaty with the US that helps expats living in Portugal avoid double taxation in theory. Unfortunately, there’s a clause that authorizes the US to act as if that treaty doesn’t exist. It’s called the Savings Clause (but doesn’t do much saving!). The best bet for US expats to avoid double taxation is to take advantage of a tax break (more on that later).

US tax deductions available for expats in Portugal

Three of the most common tax breaks for US expats in Portugal include the:

Foreign Tax Credit (FTC)

The FTC allows US expats to deduct what they have paid the Portuguese government in income taxes from what they owe the US government in income taxes on foreign-source income. And because income is taxed at a higher rate in Portugal, expats who make use of the FTC typically end up with either no US income tax bill at all, or surplus credits that can be applied toward future US income tax bills. To qualify for the FTC, the foreign taxes you have paid must be:

• Based on income
• Legal
• Levied by your country of residence
• Charged to you specifically

Read our complete guide for expats on the Foreign Tax Credit

Foreign Earned Income Exclusion (FEIE)

Another popular tax break for US expats is the FEIE. This provision allows expats to exclude a certain amount of their earned income (up to $112,000 for the 2022 tax year) from taxation. In order to qualify for the FEIE, expats must meet one of the two following tests.

Physical Presence Test

The Physical Presence Test requires expats to prove that they were physically present in another country than the US for at least 330 of 365 days.

Bona Fide Residence Test

The Bona Fide Residence Test requires expats to provide official documentation that demonstrates their status as a foreign resident, such as a residence card, foreign income tax records, or a housing contract in the US expat’s name.

Read our complete guide for expats on the Foreign Earned Income Exclusion

Child Tax Credit (CTC)

With the CTC, any US taxpayer — including expats — can claim a credit of as much as $2,000 for each of their qualifying children/dependents (as of the 2022 tax year).

Read our complete guide for expats on the Child Tax Credit

Tax implications of renting out your US residence while in Portugal

Many expats who own property in the US choose to rent it out while living in another country. If you choose to do so, be aware that you’ll need to report any income and expenses associated with it to the IRS on Schedule E and Part I of Form 1040.

Rental income while living in Portugal

Rental income is considered unearned income. So, it won’t be subject to Social Security or Medicare taxes, but you also won’t be able to exclude it using the FEIE.

If I own a rental property in the US or outside of Portugal, do I have to report it to Portugal?

Yes. You will need to report the income you receive on a rental property to the Portuguese government, even if it’s not actually located in Portugal.

Which country do I pay taxes to on my rental property income?

Technically, any rental income a US expat receives is subject to taxation by both the US and Portugal. However, if you play your cards right, you’ll rarely end up owing taxes on the same income to both governments. For as long as you’re granted NHR status in Portugal, you won’t have to pay any taxes on rental income originating from foreign properties.

Even after your NHR status expires, you can use the FTC to subtract any rental income taxes you’ve paid to the Portuguese government from what you owe in rental income taxes to the US government.

US expats living in Portugal may need to file an FBAR

If you have $10,000 or more in foreign financial accounts — even if it’s spread across multiple accounts — you’ll be required to file a Foreign Bank Account Report (FBAR) using FinCEN Form 114.

I’m a US expat who’s lived in Portugal for years. Do I owe past US tax returns?

Yes. Any expat who is still a US citizen or permanent resident must file a US tax return each year, even if they weren’t aware of their obligation. So if you’ve gone a few years without paying US taxes, you’ll have to catch up on them.

Getting caught up on your US taxes with the Streamlined Procedures

If you unintentionally fell behind on your US tax returns while abroad, don’t panic. The IRS offers an amnesty program called the Streamlined Procedures which allows expats to catch up penalty-free. Under this program, you’ll have to:

• file your last three tax returns and six FBARs (if/as required)
• pay any back taxes you owe
• declare that your previous failure to file taxes was due to a lack of awareness. 

Whether you want to get caught up on past US tax returns using the Streamlined Procedure or just make filing this year’s tax return easier, Bright!Tax can help. Our expat tax experts will make sure your tax returns are accurate, on time, and optimized for minimal liability.

Reach out today to get started!