All tax residents in Portuguese territory are subject to certain tax obligations in Portugal, as well as contributory and reporting obligations.
Among the tax obligations in Portugal are the payment of monthly social security contributions, the payment of taxes, and the submission of an annual income statement, for example.
Tax Residence and Tax Obligations in Portugal
The issue of tax residence is very important, as persons residing in Portuguese territory must comply with their tax obligations in Portugal, from reporting all of their income, including any obtained outside Portugal, as well as providing details of bank accounts held in institutions based in other jurisdictions.
For instance, a citizen with tax residence in Portugal who obtains income from self-employment, but also receives a pension from abroad, must also include the income from that pension in their annual income tax return, as one of their tax obligations in Portugal.
Who is considered a tax resident of Portugal?
The Personal Income Tax Code (IRS) stipulates that residents of Portuguese territory are those people who during the years that the income pertains to:
- Have resided in Portugal for more than 183 consecutive or non-consecutive days within any 12-month period beginning or ending in the year in question;
- Having resided for a shorter period of time, the person has housing under conditions that indicate an intention to maintain it and occupy it as a habitual residence, at any time during the aforementioned 12-month period beginning or ending in the year in question;
- On 31 December, they are crew members of ships or aircraft, provided that they are working for entities that reside within that territory or have their head office or administration there;
- Perform duties or carry out commissions of a public nature abroad while working for the Portuguese State.
What are your tax obligations in Portugal?
People who are tax residents of Portugal must comply with a set of tax obligations in Portugal.
Alongside the issue of tax obligations in Portugal, we must also mention obligatory contributions (related to contributions to the social security system) and reporting obligations (related to the act of declaring your income).
The following is an overview of all your tax obligations in Portugal, detailing the obligations common to all residents of Portugal; and those specific to self-employed workers, remote workers, property owners and vehicle owners.
Tax obligations in Portugal Obligations Common to All Residents of Portugal
IRS and TSU are two of the most important tax obligations in Portugal.
Income obtained by natural persons is taxed in several different ways, depending on the IRS (income tax) category it falls into. Each of these categories has specific forms of taxation and is subject to different tax rates.
Social security contributions are made monthly through payment of the Single Social Tax (Taxa Social Única - TSU), which corresponds to a percentage of your gross salary.
TSU is divided into two parts: one is paid by your employer (23.74%) and the other is paid by you (11%). If you are a dependent worker (i.e. you work for an employer), your employer retains both parts of the TSU and delivers the total amount to the Portuguese State.
Reporting Obligations in Portugal – Submission of the Annual Income Statement
Another of your tax obligations in Portugal is precisely that of reporting your taxable activities.
Most tax residents of Portugal must submit an Annual Income Statement (IRS Model 3), as the IRS (Income Tax) Code provides very limited exceptions to this obligation.
The Annual Income Statement consists of several sections covering different types of income, deductions, tax benefits and applicable rates, allowing you to report your dependent and independent employment income, capital gains and earnings from property.
Completing the Model 3 tax return correctly is crucial for the calculation of the amount of IRS to be paid, determining whether the taxpayer is entitled to a rebate or must pay an additional amount.
This tax return is submitted online, between 1 April and 30 June and refers to income obtained in the previous year.
Dependent workers only need to submit the annual income statement. The company ensures compliance with monthly tax and contributory obligations (i.e. withholding IRS at source and delivery of contributions to social security).
Tax obligations in Portugal: Specific Obligations for Self-employed Workers
In Portugal, self-employed workers, or liberal professionals, need to be mindful of several legal deadlines related to their professional activity.
For example, as a self-employed person you must issue an invoice for each service you provide.
You must also submit your periodic VAT statements quarterly or monthly; and pay your Social Security contributions monthly.
These are some of your tax obligations in Portugal, with self-employed workers in Portugal paying 21.4% of their gross salary in monthly contributions to social security.
However, if you provide more than 80% of your services (in total value) to the same entity in a calendar year, that entity is responsible for making a TSU payment corresponding to 10% of your gross salary.
During your first year of activity, you may benefit from an exemption from social security contributions.
