Taxable persons

PIT is levied on income obtained by individuals, under six different categories, and its taxation will depend on the individual’s tax status.

Taxable person Taxation
Residents Liable to PIT on worldwide income (Portugal and abroad)
Non Habitual Residents Liable to PIT on the net employment and self-employment income from "high value-added activities" at a flat rate of 20%. Foreign-source income may be exempt, under certain conditions
Non residents Liable to PIT only on the Portuguese source of income 

Income categories

Category Type of income
Category A Employment income
Category B Business and professional income
Category E Investment income
Category F Rental income
Category G Capital gains
Category H Pensions

Salaries, subventions and allowances

Description PIT Social Security
Taxation Exemption Taxation Exemption
Salaries, holidays and Christmas bonus, commissions x x
Members of statutory board x minimum of 1 IAS (1)
Cash shortage allowance Up to 5% of the monthly salary Up to 5% of the monthly salary
Daily allowance in Portugal Directors Up to € 69.19/day Up to € 69.19/day
Others Up to € 50.20/day Up to € 50.20/day
Daily allowance for travel abroad Directors Up to € 100.24/day Up to € 100.24/day
Others Up to € 89.35/day Up to € 89.35/day
Mileage allowance Up to € 0.36/Km Up to € 0.36/Km
Company car – acquisition/private use x (2) x (2)
Travel expenses not related to the company’s activity x –  x – 
Loans granted by the company – acquisition of permanent private house x (≤ €180,426.40 ) and (rate≥ 70% x ECB rate)
Loans granted by other entity - the employer supports the interests (totally or in part) x x
Loans granted by the company – others x (3) Interest rate ≥ reference rate
Extraordinary profit distribution/profit distribution x –  x (4) – 
Overtime/regular bonuses x x – 
Working hours exemption x –  x – 
Indemnity for the termination of the labour contract –  Up to (average of the regular salary of the last 12 months)*years of work (5) –  Up to (average of the regular salary of the last 12 months)*years of work (5)
Retirement pension, company’s complement/Social Security x –  –  x
Early retirement x –  x – 
Retirement insurance x –  –  x
Share plans x –  –  x (6)
Lunch allowance –  Up to € 4.52/day –  Up to € 4.52/day
Meal vouchers –  Up to € 7.23/day –  Up to € 7.23/day
Housing allowance x –  x – 
Employer subsidies (health, education) x –  –  x
Sickness benefit, paid by Social Security x x – 

(1) Portuguese reference remuneration for 2017 (Indexante dos Apoios Sociais) – € 421,32.
(2) The benefit from the private use of a company car is only liable to taxation when there is a written agreement. For the purpose of liability to Social Security Contributions, additional conditions are required. The annual taxable income derived will be quantified by the application of 0.75% to the market value of the car at 1 January of the relevant year.
(3) Reference rate has not yet been determined.
(4) Profits distributions attributed to employees are subject to Social Security contributions. However, this liability to Social Security will only enter into force when regulated.
(5) For managers, members of the board, public sector managers and representatives of permanent establishments of non-resident entities, the amounts received for the termination of the employment contract are totally taxable only on the part that respects to these some functions. The part of the compensation concerning the periods in which they exercised their duties as regular employees may continue to benefit from the tax exclusion. For Social Security purposes, no liability to contributions arises in respect of the compensation for termination of employment contract in the event of collective redundancy; non compliance with legal notice; extinction of employment; individual redundancies or dismissals caused by inadaptability of the employee; obsolescence; for resolution by the employee; for termination before the term of the employment contract.
(6) Provided the benefits from the Share Plans are not paid on a cash – Settlement basis.

Note:
As from 1 January 2017, the Portuguese monthly minimum wage is increased to Eur 557.

Additional solidarity rate

The additional surcharge is progressive and it is applicable on the income subject to the marginal tax rates, exceeding € 80,000.A rate of 2.5% is applicable to taxpayers with a taxable income exceeding € 80,000 up to € 250,000 and a rate of 5% is applicable to the taxable income exceeding € 250,000.

Rates

Taxable income
(in euros)
Mainland-Portugal Madeira Azores
Rate (%) Deductible Amount Rate (%) Deductible Amount Rate(%) Deductible Amount
Up to 7,091 14.50 12.41 10.15
+ 7,091 up to 20,261 28.50 992.74 28.50 1,140.94 21.38 796.32
+ 20,261 up to 40,522 37.00 2,714.93 37.00 2,863.13 29.60 2,461.77
+ 40,522 up to 80,640 45.00 5,956.69 45.00 6,104.89 36
5,055.18
+ 80,64 48.00 8,375.89 48.00 8,524.09 38.40
6,990.54

Withholding tax rates

PIT taxes 2017
  Residents Non residents
  Category Rates % Note Rates % Note
Employment income A 0 a 44,5 WTA 25 FTW
Remuneration of board members A 0 a 44,5 WTA 25 FTW
Comissions B 25 WTA 25 FTW
Rendering of services B 11,5/25 WTA 25 FTW
Royalties earned by the author/original owner B 16,5 WTA 25 FTW
Royalties not earned by the author/original owner/technical assistance E 16,5 WTA (1) 25 FTW
Equipment lease E 16,5 WTA (1) 25 FTW
Dividends E 28 FTW (1) (2) (3) (4) (5) 28 FTW(3)
Interest from bank deposits E 28 FTW(1) (3) (4) 28 FTW(3) (6)
Interest from shareholder loans E 28 FTW(1) (3) (4) 28 FTW(3) (6)
Interest from debt securities E 28 FTW(1) (3) (4) 28 FTW(3) (6)
Other investment income E 16,5 WTA (1) 28 FTW
Rental income F 25 WTA(6) (7) 25 FTW(7)


Capital gains:
-capital gains on shares G 28 -6 28
-capital gains arising the disposal of real estate G 14,5 a 48 (8) (9) 28
Pensions H 14,5 a 48 WTA 25 FTW

FWT: Final Withholding tax
WTA: Withholding Tax on Account of the final tax payment

(1) Taxed autonomously at a rate of 28% if paid by non-resident entities and not subject to withholding tax.
(2) Income paid or made available to recipients resident in Portuguese territory by non-resident entities without permanent establishment in Portugal, domiciled in jurisdictions with more favourable tax regimes is subject to a withholding tax rate of 35%.
(3) Income paid or made available to accounts opened in the name of one or more holders acting on behalf of one or more unidentified third parties is subject to a final withholding tax rate of 35%, unless the beneficial owner of the income is identified.
(4) Income paid or made available to recipients resident in Portuguese territory by a third party on behalf of non-resident entities domiciled in a more favourable tax regime is subject a withholding tax rate of 35%.
(5) The taxpayer can opt to include 50% of the dividends earned to be taxed at the progressive rates in the annual income tax return. This is only applicable to dividends of Portuguese source and paid by a entity resident in European Union or in the European Economic Area.
(6) The taxpayer can opt to include this income in the annual income tax return.
(7) The capital gains obtained on real estate by fiscal residents are only considered by 50% of his value.
(8) Included 50% of this income in the annual income tax return.
(9) May be excluded from taxation, provided that the sale value is reinvested in real estate, i.e. for private residence purposes.

Taxation of company car in Category A

Private use of company car Acquisition of company car:

Benefit in kind

  • Not subject to tax withholdings- Taxed at the marginal rates of PIT
     

Benefit in kind

  • Not subject to tax withholdings
  • Taxed at the marginal rates of PIT
     

Taxable Income:

  • 0.75% of the vehicle's market value x months of use in a year market value = acquisition price - (acquisition price x depreciation factor)

Taxable Income:

  • Market price (annual amount already taxed as benefit in kind on the employee for use of the car + acquisition price paid by the employee)market value = acquisition price - (acquisition price x depreciation factor) 

Depreciation Factor:

Car's Age Annual Depreciation Accumulated Depreciation
0 0.0 0.0
1 0.20 0.20
2 0.15 0.35
3 0.10 0.45
4 0.10 0.55
5 0.10 0.65
6 0.05 0.70
7 0.05 0.75
8 0.05 0.80
9 0.05 0.85
10 or more 0.05 0.90

The taxpayer may opt for the standard organised accounts regime.


(1) Should a tax return not be submitted, net income of category B is determined according to the rules of the simplified taxation regime, with the application of a coefficient of 0.75.

Simplified regime of Category B

Taxpayers who have not exceeded an annual gross amount of € 200,000 in this category are covered by the simplified regime in the previous year.

Under the simplified regime taxpayers who obtain self-employment from professional activities (listed in the table referred in article 151 of the PIT Code) or income from other activities not included on the table can deduct the mandatory social security contributions, related with the referred activities, that exceed 10% of the gross income received provided that those contributions are not deducted for that purposes. Under this regime, taxpayers can not deduct any other professional expenses against their annual gross income. The taxable income of this category will be computed by applying the following coefficients to gross income:

Income Taxable bases
Sales of goods and services in the hospitality and leisure sector, with the exception of operating activities of local accommodation establishments in the form of apartments/houses 0.15 (1)
Listed service-rendering activities, by the article 151.º of PIT code 0.75 (1)
Services not expressly foreseen in the table referred in article 151 of the PIT code 0.35 (1)
Royalties, know-how and other income (investment income, capital gains, rental income) obtained in connection with the self-employee/entrepreneurial activity 0.95
Non business-related subsidies 0.30 (1)
Business related subsidies and remaining income of category B 0.10 (1)
Income arising from services rendered by a partner to a transparent company for tax purposes 1.00

Tax regime for non-habitual residents

On September 2009, the Portuguese Government approved new legislation establishing a regime for non-habitual tax resident individuals.

The tax regime for non-habitual residents is part of the Investment Tax Code and is intended to attract individuals and investments to Portugal.

Taxation

Under the regime’s rules, employment and self-employment income derived from “high value-added activities of a scientific, artistic or technical nature” (included in a list of activities plublished by the Portuguese Government) earned by non-habitual residents in Portugal will be taxed at a flat rate of 20%.

Additionally, the regime also establishes a tax exemption for foreign-sourced income, such as, employment income, self-employment income, rental income, interest, dividends as well as other investment income, under certain specific conditions.

The regime is applicable for a period of ten consecutive years.

Conditions

The regime will apply to individuals who become Portuguese tax residents under Portuguese domestic law in a certain year and have not qualified as tax residents in Portugal in any of the previous five years.

Practicalities

The status of non-habitual tax resident becomes effective upon registration with the Portuguese tax authorities, which should be applied for until 31 March of the following year to which the taxpayer becomes tax resident in Portugal.

Deductions against the gross income

Category Deductions
A
  • € 4,104 or, when higher, the total amount of the mandatory social security contributions
  • Increasing to 75% x 12 x RMMG for the year 2010 (€ 4,275) provided that the difference results from expenses incurred with mandatory fees paid to professional associations indispensible for the exercise of the respective activity
  • Severance payments paid by the employee when he or she terminates the labor contract without timely notice without early warning
  • Fees for the Trade Unions of up to 1% of the gross income, increased by 50%

B

  • Simplified regime: there is no deduction of expenses, with the exception of the taxpayers who obtain self-employment from professional activities (listed on table of article 151 of the PIT Code) or income from other activities not included on the table, can deduct the mandatory social security contributions related with the referred activities that exceed 10% of the gross income received, provided that those contributions are not deducted for that purposes- Organized standard accounting system: expenses related to the activities of the enterprise
F
  • All the expenses effectively incurred and paid by the taxpayers in order to obtain or assure such income, excluding the financial costs, furniture, households appliances, decoration and comfort accessories and from real state tax additional
G

Consideration of 50% of the positive or negative balance arising from Resident’s transmissions:

  • Sale of real estate
  • Sale of intellectual or industrial property, or know-how when obtained by the non-original author- Assignment of position in contracts regarding immovable property

H

  • Deduction of € 4,104 for each taxpayer
  • If the annual income, for each household member, is higher than € 4,104.00, the deduction is equal to the amount set on it
  • Trade union fees, up to 1% of the gross income, increased by 50% -  Mandatory contributions to social protection systems and health coverage legal 

Personal allowances and tax benefits

Amounts in Euros Married Not married
Tax credits in respect of taxpayers and their relatives
i) Taxpayer N/A N/A
ii) Single-parent taxpayers
iii) Dependants 600.00 600.00
Dependants <= 3 years old on December 31 of the year to which the tax relates 725.00 725.00
iv) Ancestors actually living in the same household with the taxpayer who do not receive income greater than the minimum pension payable under the general regime 525 525
v) Only one ancestor actually living in the same household with the taxpayer who does not receive income greater than the minimum pension payable under the general regime 710.00 710
People with disabilities
i) For each taxpayer 3,800.00 (1) 1,900.00
ii) For each dependant with disability 1,187.50 1,187.50
iii) For each ancestor with disability 1,187.50 1,187.50
iv) 30% of education and rehabilitation expenditures No limit No limit
v) 25% of life assurance premiums or contributions paid to credit unions 15% of computed tax 15% of computed tax
- Age-related retirement contributions 130.00 65.00
Disability expenses for each taxpayer and each dependant, which level of permanent disability is ≥ 90% 1,900.00 1,900.00
Health Expenses (2)
Deduction of 5% on the following expenses:    
a) acquisition of goods and services which are exempt from VAT or that are liable to the reduced VAT rate of 6%; 15% of the health expenses, with limit of 1,000.00 15% of the expenses, with limit of 1,000.00
b) acquisition of other goods and services duly justified with a medical prescription N/A
c) the health expenses limit shall be increased for households with three or more dependants in their care, for each dependant, in N/A
d) Health insurance premiums or contributions paid to mutualism associations or institutions without profit intention N/A
Education and training expenses    
i) 30% of amounts spent up to a limit of 800.00 800.00
Nursing home fees
25% of charges for nursing homes fees and institutions to support the taxpayer, as well as charges with disabled persons, dependants, ancestors and relatives until the third degree who do not have income equal to or above the minimum monthly wage 403.75 403.75
Alimony
20% of the amount spent No limit  
Real estate costs
Tax credit of 15% of the following expenditures:
a) amounts, spent by way of rent , net of subsidies or official contributions, concerning an urban real estate or fraction for permanent housing under the Urban Rental Regime or the New Urban Rental Regime 502.00 502.00
b) debt interest, for contracts concluded until 31 December 2011, incurred on the acquisition, construction or improvement of permanent private residential property used as the taxpayer’s permanent private residence, or rent (paid) in respect of a tenant's duly substantiated permanent residence 296.00 296.00
c) instalments payable as a result of contracts concluded until 31 December 2011 with housing cooperatives or under the group purchasing regime, for the purchase of residential property for use as the (taxpayer’s) personal and permanent residence or rental paid in respect of a tenant's duly substantiated permanent residence, to the extent in which they refer to interest of related debt 296.00 296.00
d) amounts paid by way of rent under a leasing contract concluded until 31 December 2011 in respect of a personal and permanent residence under their regime, to the extent that it does not constitute repayment of capital 296.00 296.00
The limit set out in paragraphs a) is increased as follows:
taxable income up to € 7,091.00;  800.00 800.00

taxable income higher than € 7.091, 00 and up to € 30.000,00

The limits set out paragraphs b) to d) are increased as follows:

taxable income up to € 7. 091,00;

450

450

taxable income higher than € 7.091,00 and up to €30.000,00

Retirement Savings Funds and Retirement Savings Plans (3)
Tax credit of 20% of the amount invested:

i) people under 35 years old;

800.00

400.00

ii) people between 35 and 50 years old;

700.00

350.00

iii) people above 50 years old.

600.00

300.00

Donations

   

Tax credit of 25%:

   

i) central, regional or local administration; Foundations (with conditions);

No limit

No limit

ii) donations to other entities.

15% of computed tax

15% of computed tax

Capitalisation public Regime

Tax credit of 20% of the amount invested in individual accounts managed under the capitalisation public regime.

800.00

400.00

Value Added Tax (VAT) borne (4)

Deduction of 15% of the VAT incurred by any household member included on invoices communicated to the tax authorities regarding certain provision of services.

250.00

250.00

Family general expenses

Deduction of 35% of the amount of expenses incurred by any member of the household provided that the taxpayer number is included in the invoice for expenses incurred and services previously communicated to the Portuguese tax authorities

250.00

250.00

Deduction of 45% of the amount incurred by any member of the household of a Single-parent taxpayers

335.00

335.00

Limitation to computed tax deductions and tax benefits 2017
Limits to aggregate computed tax deductions (5)
For 2016, the limits to aggregate computed tax deductions are:  
  • taxable income up to € 7,091.00 
No limit
  • taxable income higher than € 7,091.00 and up to € 80,000.00;
   
  • taxable income higher than € 80,000.00 

1.000,00

(1) Assuming that both taxpayers are people with disabilities.
(2) This limit applies to paragraphs a) and d). Should training and education expenses have been made outside of Portuguese territory, the taxpayer may report them using the Portuguese Tax Authorities' website.
(3) Amounts invested after the retirement date are not deductible.
(4) Deductible expenses incurred with services acquired in the following sectors of activity:
      Maintenance and repair of motor vehicles;
      Maintenance and repair of motorcycles and related parts and accessories;
      Accommodation and food service activities;
      Hairdressers and beauty saloons;
      Vet expenses.
(5) Health and insurance expenses, education and training expenditures, nursing home fees, invoice requirement, costs with immovable property, alimony and tax benefits are included. In households with three or more dependents, the above limits are increased by 5% for each dependent or civil godson, which is not a taxpayer.

Other tax benefits

Retirement Savings Accounts

Interest on capital ≤ € 10.500 is exempt

Intellectual property

Author rights of the original owner, resident in Portugal are taxed only at 50%, with the amount excluded from taxation limited to € 10.000

Venture capital funds

Capital gains derived from the sale of participation units are taxed at a 10% rate

Real estate investment funds in forest resources

Capital gains derived from the sale of participation units are taxed at a 10% rate

Capital gains obtained by non residents

The following disposals are exempt:

  • shares of Portuguese companies;
  • other securities issued by Portuguese companies;
  • autonomous warrants issued by Portuguese companies;
  • derivatives negotiated on the regulated Stock Market;
  • participation units in venture capital funds.

Exceptions

  • residents in tax havens;
  • disposal of shares in companies whose assets are comprised in more than 50% of real estate located in Portugal.

Contributions to social security regimes made by employers

Employers' contributions to pension funds (or other complementary social security regimes) are exempt from IRS if certain conditions are met

Athletes

  • premiums and financial aid for disabled athletes and high performance athletes are excluded from taxation.
  • financial aid for sport training of non-professional sport agents (sport apprentices, referees, judges) are excluded from taxation, up to € 2,375.

Deposits

Interest of deposits of any applications on public debt, benefit from a tax exemption in 1/5 and 3/5 of its value, if the capital is not withdraw during 5 and 8 years, respectively, and the remuneration maturity occurs at the final of the agreed period.

Expatriates’ tax benefit

Is created to employees that move from their normal work place to perform professional activity in a foreign country during at least 90 days, of which 60 days have to be consecutive. This benefits consists in a tax exemption applicable to the part of the remuneration paid to the employee, by the Portuguese employer, exclusively as compensation for moving and staying abroad (up to € 10,000)

Other

The income obtained by the following individuals will be excluded from taxation:

  • staff from diplomatic and consular bodies and international organizations;
  • staff from peace missions;
  • agreements and cooperation relations;

contractors or auctioneers working on NATO shared infrastructures.

PIT Calculation

  Gross income of each category
(-) Deductions against the gross income
(=) Net income of each category
(-) Deductions of losses
(÷) Marriage coefficient/splitting (1 or 2) 
(x) PIT rate and additional solidarity rate
(-) Deductions
(x) Marriage coefficient/splitting (1 or 2)
(=) Subtotal
(-) Tax deduction
(=) Tax liability
(-) Withholding tax + Payments on account
(+) Surtax
(=) PIT (underpayment/reimbursement)
  Surtax calculation
  Net income
(-) Annual minimum salary
(x) Rate
(=) Surtax
(-) Deduction per each dependent
(-) Withholding (surtax)

Based on the following assumptions, we have prepared an estimate of the PIT due by the Pereira family.

Pereira Family
Both spouses are employed; in addition, the wife works as a salaried employee and as a self-employed individual.

  Exemple – background
Mr. Pereira Salary – € 12.000
Dividends – € 750
Rent from own real estate – € 8.000
Capital gains from the sale of rented real estate – € 10,000
Mrs. Pereira Salary – € 7.000
Lunch allowance – € 1.550
Rendering of services – € 13.000
Expenses Retirement Saving Plan (PPR) – € 2.000 x 2
Plumbing repairs of the rented real estate – € 300
Health expenses – € 1.200
Mortgage loans – € 5.200 (€ 2.600 regarding interests and € 2,600 regarding capital repayments)
Family general expenses – € 1.500

Withholding tax
Assuming a global amount withheld from the couple's income: € 4,769 for 2016. Surtax withholding amounts to € 19.

Income of each category
Cat A   Salaries 19.000.00
(-) Deductions against the gross income  
  Specific deduction x 2 - 8.208.00
(=) Net income 10.792.00
Cat B   Services rendered 13.000.00
(x) Simplified regime - coefficient 75% (2016) 0.75
(=) Net income 9.750.00
Cat E   Dividends (by option to be taxed at progressive rates) 750.00
(-) Amount of the income not subject to taxation: 50% - 375.00
(=) Net income 375.00
Cat F   Rental - own real estate (by option to be taxed at progressive rates) 8.000.00
(-) Deductions  
  Maintenance and repair expenses - 300.00
(=) Net income 7.700,00
Cat G   Capital gains on the sale of the rented real estate 10.000.00
(-) Amount of the income not subject to taxation: 50% - 5.000.00
(=) Net income 5.000
Sum net income of the categories = Taxable income 33.617
  (÷) Marriage coefficient ÷ splitting (1 or 2) ÷ 2
      16.808,50
  (x) Tax rate 28.5%
      4.790,42
  (-) Deduction -992,74
  (x) Mariage coefficient ÷ splitting (1 or 2) x 2
  (=) Subtotal 7.595.37
  Healthy expenses 180.00
  Mortage loans 296.00
  Family general expenses
500.00
  20% payments to retirement saving plans (x2) 800.00
  (=) Tax liability
5.819.37
  (-) Withholding tax 4.769.00
  (=) Underpayment ÷ (reimbursement) 1.050.37
  (+) Extraordinary tax (2017) 0
  (-) Surtax withholding tax 0
  (=) Final underpayment ÷ (a reimbursement) 1.050,37

Withholding tax

Mainland

The personal income tax withholding rate tables for 2017, applicable to employment income and pensions earned on the Mainland, have been published by Order number 843-A/2017, of 3 January 2017.

Madeira

The personal income tax withholding rate tables for 2017, applicable to employment income and pensions earned on the Autonomous Region of Madeira, have been published by Order number 55/2017, of 24 January 2017.

Azores

The personal income tax withholding rate tables for 2017, applicable to employment income and pensions earned on the Autonomous Region of Azores, have been published by Order number 936-A/2017, of 18 January de 2017.

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