What You Need to Know About Expat Taxes in Portugal
Portugal’s sunny weather and thriving culture make it a popular destination for Americans living abroad. However, most expats find themselves wondering what taxes they may owe—and to whom. To help shed some light on this issue, here are our answers to the most common questions about taxes for Americans living in Portugal.
Do US Expats Have to File Taxes in Portugal?
The first question many expats living in Portugal have is whether they’re required to file taxes at all. The short answer is yes. In fact, you’ll probably have to file taxes with both the Portuguese government and Uncle Sam. This is because:
- Virtually every expat living in Portugal is going to have some form of local tax obligations
- All US citizens are required to file a US tax return, regardless of where they live
The good news is that because of the US-Portugal tax treaty, you generally won’t have to worry about double taxation. Plus, the IRS provides multiple tax credits that expats can use to reduce or even erase their US tax debt.
How Is Income Taxed in Portugal?
As an expat, your Portuguese income tax will depend on your residency status.
- If you are considered a resident of Portugal, you will have to report your worldwide income
- If you are considered a non-resident, you will only have to report any income that comes from a Portuguese source
Who Qualifies as a Tax Resident in Portugal?
The Portuguese government will consider you a resident for tax purposes if you meet either of the following standards:
- You spent at least 183 days in Portugal within a 12-month period
- You own or rent a home in Portugal that you intend to use as a habitual or permanent residence
If you don’t meet those standards, you will generally be considered a non-resident.
What Is the Income Tax Rate in Portugal?
Once again, the taxes you owe in Portugal will depend on your residency status.
- Residents are taxed on their worldwide income at progressive rates ranging from 14.5% to 48%
- Non-residents are taxed on their Portugal-source income at a flat rate of 25%
When Is the Income Tax Deadline in Portugal?
Just like in the US, the Portuguese tax year runs from January 1 to December 31. The deadline for filing and paying your annual income tax return is March 31.
(Self-employment income must be reported quarterly, in January, April, July, and October.)
What Other Taxes Does Portugal Have?
Portugal imposes several types of taxation beyond the income tax, including:
- Stamp tax (8%)
- Capital gains tax (progressive rates for residents, 25% flat rate for non-residents)
- Gift and inheritance tax (10%, plus an additional 0.8% for real estate)
- Self-employment tax (21.4%)
There is also a solidarity tax on income above EUR 80,000, ranging from 2.5%–5%.
Does the US Have a Tax Treaty with Portugal?
Yes, the US and Portugal have agreed to a tax treaty. This helps Americans living abroad in Portugal avoid being taxed twice on the same income.
What US Tax Forms Do Americans Living Abroad Have to File?
As a US citizen, you will have to file a US tax return every year, no matter where you live. This is done using IRS Form 1040. You may also have to file additional tax forms. For example:
- If you have Foreign Earned Income you may choose to file Form 2555 to exclude up to $112,000 of your foreign earned income in 2022 ($108,700 for 2021).
- Since the top tax bracket in Portugal is higher than the top tax rate in the US you may prefer to file Form 1116 – The Foreign Tax Credit. This will give you a dollar for dollar tax credit on your US taxes for any amounts you pay to the Portuguese tax authority.
- If you own non-US financial assets above certain thresholds, you will need to file a Statement of Specified Foreign Financial Assets (FATCA) report
- If you have at least $10,000 in one or multiple non-US bank accounts, you will need to file a Report of Foreign Bank and Financial Accounts (FBAR)
What Tax Deductions Are Available for US Expats?
One of the best aspects of living abroad is that most expats don’t end up having to pay any US taxes. This is due to the tax treaties that the US maintains with various other countries, as well as the many tax credits the IRS offers, such as:
- Foreign Earned Income Exclusion
- Foreign Tax Credit
- Foreign Housing Credit
Using these deductions, you may be able to reduce your US tax liability to zero. (Though you will still have to file an annual return.)
Filing Your Expat Taxes Doesn’t Have to Be a Hassle
And that’s the rundown! We hope this article has given you a better understanding of how expat taxes work for Americans living abroad in Portugal. Armed with this information, you should be able to take the first steps toward meeting your tax obligations. Don’t hesitate to contact us if we can help you with your US expat tax preparation while you live in Portugal
Best of luck, and enjoy your new life overseas!