Taxation in Portugal can be great. For you!

Living in Portugal has become a reality for many French expatriates. Thanks to the RNH status “non-habitual resident”, retirees are taxed at 10% on their pensions for ten years provided they spend at least 183 days per year in Portugal.

This is a great incentive for wealthy retirees, as the country has no wealth tax or inheritance tax. More modest retirees benefit from an increase in purchasing power of +30% in Lisbon and +40% in the rest of the country. For them, taxes in Portugal are quite low, which is one of the advantages of Portugal.

Out of 100 French people living in Portugal today, 80 are retired, and 20 are professionals or artists who also benefit from this tax exemption.

How to benefit from these exemptions?

To pay less taxes and especially to be exempted from taxes (at 10%) for 10 years, you must establish your new tax residence in Portugal. That is to say, you must obtain the CRUE certificate of residence. EU for European Union.

According to Portuguese tax law (article 16 of the IRS code), you are fiscally resident in Portugal if you reside in Portugal for more than 183 days in a calendar year. However, this definition is flexible.

Indeed, if you stayed less than 183 days, you must have a dwelling in Portugal on December 31 of the year under conditions that allow one to assume the intention to occupy it as your usual residence. A rental property can be used for this purpose.

The importance of the Tax Convention with France

What happens when you have one foot on one side AND one foot on the other? For example, if you have income on one side (rental, pension, dividends…) AND on the other. The situation becomes more complex but fortunately you do not pay tax on both sides, which is called non-double taxation.

There are tax treaties between, in other words agreements between countries to avoid double taxation. The basic rule is that you must have only one tax residence. The tax convention between France and Portugal dates from January 14, 1971. France has accepted that you will be taxed in Portugal only since you reside there.

For pensioners, this convention clearly stipulates that pensions paid to a resident of a contracting state, in respect of previous employment in the private sector, are only taxable in that state. This only concerns private pensions, not public pensions, which are taxed in France.

The RNH Status: a tax revolution

Since 2009, Portugal gives you a gift that was not at all mandatory. The tax system in Portugal has invented the tax status of non-habitual resident, which allows you to benefit from a special tax rate for certain income from Portuguese sources and, above all, to benefit from a light tax of 10% on income from foreign sources. This is the RNH status.

Therefore, any new person establishing tax residence in Portugal will be able to register as a non-habitual resident.

How to benefit from the RNH status

In order to qualify for the Non-Habitual Resident status, the following conditions must be met:

– Not to have resided in Portugal during the five years preceding the application for the regime,
– You must be resident in Portugal for tax purposes, i.e. you must stay in Portugal for more than 183 days per year, i.e. six months and one day,
– or even if you have stayed for less time, you must have a home in Portugal on December 31 of the year in question in conditions that allow us to assume that you intend to maintain and occupy it as your usual residence.
– Be covered by the private pension system if you are talking about retirement income.

How much tax can you save if you are retired?

Private pensions from French sources of a non-habitual resident will not be taxed in France and taxed at 10% in Portugal for 10 years.

But that’s not all. Expatriate retirees do not pay any social security deductions (CSG, CRDS) either, which represents a gain in purchasing power of 6.6% on the basic pension and 7.6% on the supplementary pension.

Finally, financial income is also exempt from social security contributions. The CSG and CRDS (approximately 15% tax) will no longer be deducted from your retirement pension. A real breath of fresh air for all pensioners whose pensions are used as an adjustment variable in French economic policy.

Public sector retirees: no advantage

Retired civil servants cannot benefit from the status of non-habitual resident, insofar as the remuneration and pensions paid by the State, one of its local authorities or by one of their legal persons under public law are taxable in the State of source.

What happens after 10 years?

After 10 years of tax peace, the Portuguese common law personal income tax system will apply by right. Non-usual residents will be subject to the progressive income tax scale reserved for Portuguese individuals. Note that the Portuguese rates are higher and the limits lower.

However, it should be noted that if expatriates return to live in their country of origin, or elsewhere, for at least five years, they will be able to benefit from this status again by recreating a tax residence in Portugal. A bit of gymnastics but with a nice saving in the end.

Income tax (IRS) in Portugal

Taxation in Portugal of incomeThe scale and tax rate of income 2015 (tax return 2016) are as follows:

Less than 7035 euros: 14.5
Between 7035 and 20 100 euros: 28.5
Between 20,100 and 40,200 euros: 37%.
Between 40 200 and 80 000 euros: 45
Above 80,000 euros: 48%.

A single person without children who earns 20,000 euros gross per year as an employee benefits from an allowance of 4,200 euros for expenses. Thus only 15,800 euros are subject to income tax. This person is therefore in the second bracket of the 28.5% tax scale. 8765 euros will be taxed at 28.5% and the rest at 14.5%.

The total income tax for a single employee without children who earns €20,000 gross in Portugal is €3518. This income tax is deducted at source.

Corporate tax in Portugal

The corporate tax in Portugal is the IS, applicable to companies resident and non-resident in Portugal, it ranges from 12% to 40%.

Portugal offers various tax incentives for companies:

Tax credit or tax reduction through exemption.
Partial or total exemption from municipal taxes on the transfer of real estate

The standard VAT rate in Portugal (IVA) is 23% and 6% and 13% for basic necessities such as food products.

Wealth and property taxes (IMI)

The property tax in Portugal is very light. This tax concerns the owners of real estate in Portugal. The municipality of your place of residence levies it at a rate of 0.8% of the property’s value each year.

You can request an exemption from IMI for a period of 5 years for a property worth less than 90,000 euros. This application must be made when filing the documents with the Financas.

Stamp duty (imposto do selo)

The stamp duty is levied when signing certain contracts or legal acts. Its value is 0.8% on the value of the purchase or contract.