Taxes in Portugal for natural persons (private individuals)

There are various taxes in Portugal for individuals, ranging from income taxes (IRS), consumption taxes (IVA, IUC, ISV) and property taxes (IMI, IMT, IS).

As in most countries around the world, taxes in Portugal help to finance the public operations of the Portuguese state, including such aspects as healthcare, education, security, safety, justice, social security, and equality.

In this article we'll explore taxes in Portugal for natural persons (“pessoas singulares” in Portuguese). We have another article that explores corporate taxation in Portugal.

Taxes in Portugal: IRS - Personal Income Tax

Personal income tax (IRS) is a tax in Portugal that taxes the income of natural persons (private individuals). IRS is governed by the rules set out in the IRS Code.

What is IRS in Portugal?

IRS is a direct tax levied on the income of individuals (not companies and other legal organisations). It is divided into six income categories, each with specific rules.

Who pays IRS in Portugal?

All residents of Portugal are subject to IRS.  In addition, non-residents of Portugal must pay IRS on income earned in Portuguese territory.

In other words, if you are resident in Portugal, the IRS is levied on all your income, including that obtained outside Portugal. If you are not a resident of Portugal, the IRS is levied only on your income obtained in Portuguese territory.

Since the IRS is a personal tax, it distinguishes the origin of income according to the source from which it originates: employment contract, self-employment, pension, capital investments, rents, and other sources, treating each of these sources independently – the IRS categories.

What are the IRS categories in Portugal?

IRS is levied on the annual value of income in the following categories:

The law provides for specific deductions for each category, as well as deductions that take into account factors such as: 

• your marital status;
• dependants;
• type of activity;
• other aspects.

In this sense, this Portuguese tax cannot be calculated in the abstract, i.e. without a concrete and careful analysis.

How do you pay IRS in Portugal?

The IRS is paid through a tax substitution mechanism, provided for in Article 20 of the Portuguese General Tax Law.
Withholding tax is the tax substitution mechanism whereby employees have part of their income "withheld" and transferred to the Portuguese state, as if it were a monthly IRS payment.

The calculation of the monthly amount to be withheld is based on the income earned by the worker and varies according to factors such as their physical condition, family circumstances and location (mainland Portugal, Madeira, or the Azores).

Every year, an annual tax return – called “Declaração de IRS” – detailing the previous year's income must be submitted to the Tax Authority (AT). After it receives your tax return, the Tax Authority takes stock of the withholdings made throughout the year and compares them with the calculation of the amount of IRS to be paid. So, depending on the difference in values, you may be due a tax refund or have to pay an additional amount of IRS.

Married and common-law couples can choose to file their tax return jointly.

What are the IRS rates in Portugal?

In Portugal, there are three IRS tax tables: one for mainland Portugal, one for Madeira and one for the Azores.

Taxes in Portugal: TSU – Single Social Tax

The Social Security Contribution (“Taxa Social Única – TSU”) is a type of compulsory contribution that funds the country's social security system. Although not a tax, the TSU is a contributory obligation owed by all workers in Portugal.

Taxes in Portugal: VAT in Portugal

Value Added Tax is a consumption tax in Portugal. It follows the laws of the VAT Code.

What is VAT?

It is an indirect tax that applies to goods and services provided at a price. 

Who pays VAT?

VAT is paid by end consumers when they buy goods or services in Portugal.

What are the VAT rates in Portugal?

There are three VAT rates in Portugal: 

• Reduced rate: includes food and other essential goods:
• Intermediate rate: includes food and beverage services;
• Normal rate: most goods and services.

Different rates apply in mainland Portugal, the Autonomous Region of Madeira, and the Autonomous Region of the Azores.

VAT rates in Portugal – 2024

Taxes in Portugal: Property taxes 

There are two property taxes in Portugal:

• IMI: paid annually if you own a property in Portugal
• IMT: paid when you buy a property in Portugal

These taxes in Portugal follow the provisions of the IMI Code and the IMT Code, respectively.

What is IMI in Portugal?

IMI is a Municipal Property Tax. It is a direct tax levied on the taxable value of property (rustic, urban, or mixed buildings) located in Portugal.

IMI is payable by all owners of rural, urban, or mixed properties in Portugal

Who pays IMI in Portugal?

IMI is payable by all owners of rural, urban or mixed properties in Portugal

For the purposes of IMI, each independent unit that is part of the horizontal property regime is considered real estate property.

The taxable value of property is determined by a valuation made in accordance with the IMI Code.

What are the IMI rates in Portugal?

The following rates apply to the taxable value of all real estate property held by the taxpayer in Portugal:

IMI rates in Portugal - 2024

*IMI rates are lower for properties used by companies licensed at the International Business Centre of Madeira.

What is IMT?

IMT applies to the transfer, at cost, of property rights or partial rights applicable to property located in Portuguese territory.

IMT is paid when buying, selling, or exchanging a property in Portugal. Generally speaking, IMT is owed by the purchaser of the real estate property; however, there are specific rules for certain situations.

Who pays IMT in Portugal?

IMT is paid when buying, selling or exchanging a property in Portugal. Generally speaking, IMT is owed by the purchaser of the real estate property; however, there are specific rules for certain situations.

The amount of IMT payable is calculated by applying a rate to the value stated in the act or contract or to the taxable value of the property, whichever is greater.

What are the IMT rates in Portugal?

IMT rates in Portugal vary according to several factors, such as the property's asset value and the type of property (rustic, urban or mixed).

IMT rates in Portugal – 2024

• Rural real estate: – 5%
• Urban buildings intended for own and permanent residential purposes – between 0% and 6.5%
• Urban buildings intended for residential purposes – between 1% and 7.5%
• Urban buildings not intended for residential purposes - 6.5 %

If the purchaser of a building is resident in a country, territory or region subject to a clearly more favourable tax regime (tax haven), an increased IMT rate of 10% applies.

Young people aged 35 or under who buy their first property exclusively for their own permanent home up to the 4th IMT bracket (316,722 euros) are exempt from paying IMT. If they buy a property above that amount and up to 633,453 euros, they will only pay the IMT corresponding to the amount above 316,722 euros. Finally, all properties sold for more than 633,453 euros will not be exempt.

In addition, young people will also have access to Stamp Duty exemption on the purchase of the house, under the same conditions as the IMT exemption.

Other taxes in Portugal 

There are other taxes in Portugal that apply to specific tax situations and acts:

Stamp Duty (IS)

Stamp duty applies to a series of legal acts, contracts, documents, titles, paperwork, and other acts or legal situations that are listed in the General Stamp Duty Table. Given the diverse nature of the tax, it is necessary to consult the table in order to check whether a particular legal act is subject to this tax.

Vehicle taxes (ISV and IUC)

A Vehicle Tax (ISV) and a Single Circulation Tax (IUC) are levied on all vehicles registered in Portugal. ISV is paid when a vehicle is purchased, while IUC is paid annually.

Excise Duties

These are taxes levied on the selling price of certain products, such as tobacco (IT), alcohol (IABA), and fossil fuels (ISP).