Are you living in Portugal and registered as a tax resident? If so, you must complete and send in your IRS (income tax) declaration every year. To understand how it works, you should start by knowing some basic principles of this tax system. Thankfully, it is quite simple.
You must submit the IRS declaration electronically through the Tax Authority’s website between April 1 and June 30 of the year following the year in which you earned income in the country. You can complete your tax return in Portugal on time and without complications. Let’s find out how!
Portugal’s Personal Income Tax (IRS) derives from the constitutional principle of tax progressivity. Individuals’ income is subject to taxation by the Portuguese Personal Income Tax Code on the annual value of income in the following categories:
The progressive nature of the IRS, which means that the tax rate increases as the taxable amount increases, helps to decrease social inequality, as enshrined in Article 104 of the Constitution of the Republic. The IRS affects all income of individuals residing in Portuguese territory.
If you do not reside in Portugal, the IRS is only levied on income obtained in national territory.
Individual taxpayers, with or without a professional activity, are responsible for submitting their personal income tax return. Parents or legal guardians are responsible for the tax return of dependents. Alternatively, you can get an accountant to do it for you. At Pearls of Portugal, we forward you directly to our trusted tax advisor partners.
As previously said, the IRS works by applying progressive tax rates to declared income. Income is divided into categories, each with its tax table. The final tax payable is calculated based on the sum of the taxes in each category.
The IRS is calculated individually, but couples or unmarried partners can choose to file the IRS jointly. In this case, the tax is levied on the sum of the incomes of the people who make up the household. This also includes children (expenses from education, for example, play a big part) and adults up to 25 years old – after 18, you can either submit your application individually or choose to stay in your parents’ declaration. It all depends on what’s more beneficial for you.
The tax return in Portugal is free and must be done and submitted through the AT (Autoridade Tributária e Aduaneira). To log in, you need your Tax Identification Number (NIF) and password.
The IRS brackets are taxable income ranges, each with two different rates: standard and average (see table below). These rates are progressive, i.e., they increase as you move up the tax bracket. These brackets determine the gross tax (IRS payable before applicable deductions and withholdings) according to taxable income.
This is the new IRS bracket table (and a comparison with the current one) proposed by the government for 2024:
Taxable Income | 2023 | State Budget 2024 | Government proposal | 2023 vs SB24 | Total reduction |
< 7 703 € | 14,50% | 13,25% | 13,00% | -1,25 p.p. | -1,50 percentage points |
7 703 € – 11 623 € | 21,00% | 18,00% | 17,50% | -3,00 p.p. | -3,50 percentage points |
11 623 € – 16 472 € | 26,50% | 23,00% | 22,50% | -3,50 p.p. | -4,00 percentage points |
16 472 € – 21 321 € | 28,50% | 26,00% | 25,50% | -2,50 p.p. | -3,00 percentage points |
21 321 € – 27 146 € | 35,00% | 32,75% | 32,00% | -2,25 p.p. | -3,00 percentage points |
27 146 € – 39 791 € | 37,00% | 37,00% | 34,00% | 0,00 p.p. | -3,00 percentage points |
39 791 € – 51 997 € | 43,50% | 43,50% | 43,00% | 0,00 p.p. | -0,50 percentage points |
51 997 € – 81 199 € | 45,00% | 45,00% | 44,75% | 0,00 p.p. | -0,25 percentage points |
> 81 199 € | 48,00% | 48,00% | 48,00% | 0,00 p.p. | 0,00 percentage points |
In Portugal, different tax regimes can be applied to residents. Here is the context for each main tax regime for nationals:
They are taxed on all income earned (in Portugal and abroad).
The IRS Jovem (18 to 26 (28 for those studying for a PhD)) is a tax measure aimed at increasing the disposable income of young people at the start of their working lives. Grants partial exemption (total in the first year of the benefit, from 2024) on income from dependent work (category A) and/or self-employment (category B) for five years, consecutive or interspersed.
The IRS works differently for foreigners, depending on their situation. For example:
Mainly, non-residents only pay the IRS on income earned in Portugal. To qualify as a tax resident in Portugal, one must satisfy at least one of the following conditions:
For tax purposes, non-residents are foreign nationals who have resided in Portugal for less than 183 days without obtaining permanent residence status.
The tax return in Portugal is a free process that must be submitted through the AT web portal. Here is a quick summary of this process:
Before validating and submitting your IRS, you should definitely do some simulations to see what’s more beneficial for you. For example, sometimes it’s not optimal for couples to submit their declaration together due to different expenses and income under their NIF. This also applies, for example, to children up to 25 years old, still living with their parents. The family should check if it’s better for the children to stay in the household IRS or to submit their tax returns individually, under the “IRS Jovem”. Throughout the year, you should coordinate with family what makes more sense to count as an expense for each person. We’ll look at expenses and deductions next.
A tax advisor is recommended in these cases. When you work with Pearls of Portugal, we take you directly to our trusted tax and accounting partners.
There are various types of tax deductions allowed by the IRS. Every kind of deduction has its ceiling, i.e., a maximum deductible amount. Here they are:
Categories of expenses deductible by the IRS | Deduction | Deductible limit |
General and family expenses | 35% | 250 per taxable person. 500 for couples (with or without dependents). |
Health expenses | 15% | 1,000 per family aggregate |
Education and training expenses | 30% | 800 per family aggregate |
Real estate expenses | 15% of interest on loans taken out up to December 31, 2011. 15% of the rent for permanent housing. | 296€ 502€ |
Household expenses | 25% | 403,75€ |
Maintenance costs | 20% | Without Limit |
VAT deduction by invoice requirement | You can deduct 15% of VAT on all invoices. | 250€ per family aggregate |
The IRS declaration form (Modelo 3) is available online at the Portal das Finanças. The form is filled in automatically with some data, but checking and correcting any wrong information is important. Some fields to pay special attention to are:
You can check the declaration status (Modelo 3) using the “Consult Declaration” option as soon as you receive an email from the AT informing you that the declaration has been validated. If you want to correct the declaration, use the “Correct” option if it contains central errors. The deadline for correcting these errors is 30 days. The declaration will be considered void if you don’t correct it within the deadline.
Every year, after submitting your tax return, the payment, or the IRS refund is eagerly awaited.
If your IRS declaration states that you must pay the state, it must be submitted by August 31 of the year you filed your tax return if the amount to be paid or received, i.e., the assessment, was made by July 31. Or by December 31 if it was made by November 30.
There are several options for making the payment:
By law, the AT has until August 31 to return the over-withheld IRS. However, this is only when the tax return is submitted on time, i.e., by June 30, and validated without any discrepancies. However, the refund is usually paid earlier. Recently, the deadline has been two weeks for the automatic IRS and three weeks for the normal IRS declaration.
This declaration is mandatory for individuals who are tax residents in Portugal or non-tax residents who generate income here, barring specific circumstances.
The income statement must be submitted between April 1 and June 30 of the year following the year in which the income was obtained. The deadline for registering for a foreign tax deduction may be extended to December 31. Failure to submit or file the declaration after the legally mandated deadline may result in the imposition of penalties and compensatory interest, which is calculated at a rate of 4% annually on the outstanding tax liability.
The Income Statement is electronically submitted via the personal area of the Portal das Finanças.
No, you can choose. Again, you should do various simulations to see what’s more beneficial for you and your family.
Incomplete or late tax returns in Portugal are subject to monetary penalties ranging from 200€ to 2,500€. Penalties for overdue payments may range from 10% of the total outstanding tax to a maximum of 55,000€ (plus interest).
It is not mandatory to hire an accountant, but it can be very useful, especially if your tax situation is complex.
Currently, at the time of this guide (May 2024), this tax regime is on hold and you can no longer apply. If you were lucky enough to be accepted before its termination, you can enjoy the NHR benefits for as long as it is valid for you.
The Autoridade Tributária e Aduaneira (AT) provides a lot of information about the IRS on its website. Also, you can contact us any time.
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