1. Introduction 

The Republic of Portugal comprises mainland Portugal and the two archipelagos of the Azores and Madeira. These archipelagos are autonomous regions with political and administrative statutes with the power to establish regional taxes and to adapt the national taxes to their specific regional interests.  For the time being the archipelagos have only adapted the national income taxes to their specific regional interests and have not established any regional taxes. 

 The currency is the Euro (“EUR”).  

A Value Added Tax system (“IVA”) according to the EU Sixth Directive is applicable. IVA tax rate applicable to the vast majority of products and services is currently 20%. 

2.  Individual Income Tax (“IRS”) 

Resident individuals are taxable on their worldwide income. An individual is deemed to be a resident if more than 183 days per calendar year are spent in Portugal. Sometimes lesser periods can be sufficient, for example if on 31 December, authorities believe that a property in Portugal is intended to be maintained and occupied as the individual’s habitual abode. Also, family ties in Portugal (i.e. if either the husband or the wife reside in Portugal) may in some situations be enough to deem a person resident in Portugal, even if such individual does not spend more than 183 days in Portugal. 

For residents the net income is taxed at progressive rates, between 10,5% and 42%. Please note that, as a general rule, all sorts of income are taxed on its net amount. 

Furthermore, resident taxpayers benefit from personal alowances regarding, notably expeditures related to health, education, house loans etc.. 

Non-resident individuals are only liable to IRS on income derived in Portuguese territory, by means of a final withholding tax, generally at the rate of 25%.  

3.  Non-habitual tax residents  

Further to the above, please note that, as of January 1, 2009 there will be a new tax holliday in force for non-residents moving into Portugal, the non-habitual resident regime.

Such regime applies to individuals that: (i) are deemed to be residents in Portugal, notably due to the acquisition of a property with the intention of using it as an habitual abode; (ii) have not been taxed as residents in any of the 5 previous years to its arrival to Portugal. 

The application of the aforementioned regime grants a number of benefits, notably the application of a (reduced) 20% withholding tax rate (net) over employment or business income, should the activities carried out are deemed to be of value added. Furthermore, in a great number of cases, certain sorts of income (interest, pensions etc.) derived in other other countries are exempted from taxation in Portugal. 

As an additional note, please be aware that Portugal benefits from an extensive (double taxation) treaty network, which results in the elimination of double taxation over income derived outside of Portugal, reducing, therefore, the impact of a redomiciation into Portugal. 

4. Taxpayer’s Number 

One of the first concerns of a non-resident when moving into Portugal (becoming a Portuguese resident) should be to obtain a Portuguese Taxpayer's Number (“NIF”) from the the local Tax Office.  Without a NIF it will not be possible, notably to execute deeds or contracts. 

Please note that non-residents deriving income in Portugal (that is not subject to a final withholding) must appoint a Tax Representative, that must be a Portuguese resident, that will be responsible for the fulfillment of the tax obligations of the non-resident. Usually the Tax Representative is an accountant that charges a yearly or monthly fee for his services. 

5. IMI Tax 

All Immovable property located in Portugal is subject to a municipal real estate tax (“IMI”). IMI Tax is levied annually on the tax property value, which is the value of the property as per the assessment of the Tax Authorities (usually lower than the purchase and sale price). 

IMI rates are as follows:  

IMI liability is triggered uppon the property of real estate on 31st December of each year and should be paid in April of the subsequent year. For amounts higher than € 250.00 IMI can be paid in two installments, respectively, due in April and September of the subsequent year. If the property is owned by an off-shore company (with domicile at a listed tax haven jurisdiction) IMI shall have an annual fixed rate of 1% over the tax property value.  

6. IMT Tax 

IMT tax is only paid once and, as a general rule, is due upon the transfer of ownership of the property. Usually the payment of this tax made a few of days before the deed of purchase and sale. IMT tax depends on the type of property and on the purchase and sale price.
On the purchase of urban properties with the exclusive purpose of permanent residential purposes of the purchaser, IMT is calculated as follows: 

 Example: for a property price  of €100,000.00: €100,000.00 x 2% =  €2,000.00; €2,000.00 – € 1,794.00 =  € 206.00 = Transfer tax to pay. On the purchase of urban properties exclusively for secondary habitation of the purchaser, IMT is calculated as follows: 

 On the purchase of other types of property, IMT is calculated as follows: 

 7. Corporate Income Tax - IRC 

Corporate entities are subject to corporate income tax (IRC), which is a tax on the profits of corporate bodies. IRC rate for resident companies and Portuguese permanent establishments of non-resident companies is subject to a progressive rate, according to which a 12,5% tax rate is applied to the first €12.500 of taxable profit and 25% tax rate to the remaining. In addition, corporate entities may be subject to a local surcharge (Derrama) levied by the municipalities that could go up to 1,5% of taxable profit.