Income Tax Liability

Who is liable to pay income tax?

Your liability for income tax in Portugal depends on whether you’re officially resident there.

Under Portuguese law you become a fiscal resident in Portugal if you spend 183 days there during a calendar year, either continuously or interrupted, or you have accommodation available in Portugal on 31st December and it can be assumed that you intend to use it as your habitual abode or residence.

A family is considered to be resident if the person responsible for the family resides in Portugal. However, if another country has a double-taxation treaty with Portugal, it will contain rules which determine in which country an individual is resident.

Note that the 183 day rule also applies to other EU countries, and many countries (e.g. Britain) limit visits by non-residents to 182 days in any one year or an average of 90 days per tax year over a four-year period.

If you’re a tax resident in two countries simultaneously, your ‘tax home’ may be resolved under the rules applied under international treaties. Under such treaties you’re considered to be resident in the country where you have a permanent home; if you have a permanent home in both countries, you’re deemed to be resident in the country where your personal and economic ties are closer. If your residence cannot be determined under this rule, you’re deemed to be resident in the country where you have a habitual abode.

If you have a habitual abode in both or in neither country, you’re deemed to be resident in the country of which you’re a citizen. Finally, if you’re a citizen of both or neither country, the authorities of the countries concerned will decide your tax residence between them by mutual agreement.

If you intend to live permanently in Portugal, you should notify the tax authorities in your previous country of residence. You may be entitled to a tax refund if you depart during the tax year, which usually necessitates completing a tax return. The authorities may require evidence that you’re leaving the country, e.g. evidence of a job in Portugal or of having purchased or rented a property there. If you move to Portugal to take up a job or start a business, you must register with the local tax authorities (finanças) soon after your arrival.

Double-taxation

Portuguese residents are taxed on their world-wide income, subject to certain treaty exceptions, while non-residents are taxed only on income arising in Portugal. Citizens of most countries are exempt from paying taxes in their home country when they spend a minimum period abroad, e.g. one year.

Portugal has double-taxation treaties with many countries, designed to ensure that income that has already been taxed in one treaty country isn’t taxed again in another treaty country. The treaty establishes a tax credit or exemption on certain kinds of income, either in the country of residence or the country where the income is earned.

Portugal has double-taxation treaties with around 40 countries, including all EU countries plus Brazil, Bulgaria, Canada, China, Cuba, the Czech Republic, Hungary, India, Korea, Macao Mexico, Morocco, Mozambique, Norway, Pakistan, Poland, Romania, Russia, Singapore, Switzerland, Tunisia, Ukraine, the USA and Venezuela. Where applicable, a double-taxation treaty prevails over domestic law.

However, even if there’s no double-taxation agreement between Portugal and another country, you can still obtain relief from double taxation. When there’s no double-taxation agreement, tax relief is provided through direct deduction of any foreign tax paid or through a ‘foreign compensation’ formula.

Note that if your tax liability in another country is lower than that in Portugal, you must pay the Portuguese tax authorities the difference. If you’re in doubt about your tax liability in your home country, contact your nearest embassy or consulate in Portugal.

The USA is the only country that taxes its non-resident citizens on income earned abroad (US citizens can obtain a copy of a brochure, Tax Guide for Americans Abroad, from American consulates).


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