As a U.S. citizen or Green Card holder, you are required to pay taxes to the U.S. regardless of whether you live in the United States or not, even if you pay taxes to your country of residence. There are certain implications of this depending on the country where you reside. Today, the team at Evolution Tax and Legal is breaking down the tax implications for expats living in Portugal: who must pay, when taxes are due, and how our team can help.
U.S. Expat Taxes in Portugal
If you are living abroad in Portugal, you will be required to file both U.S. and Portuguese taxes. As with U.S. taxes, the paperwork may take some time to fill out. Luckily, the taxes in Portugal work similarly to the taxes in the U.S., and due to the U.S.-Portugal income tax treaty, you will not have to worry about double taxation on your income.
Personal Income Tax Rates in Portugal
Personal income tax rates in Portugal are progressive up to 48%. For individuals with up to 7,091 euros in personal income each year, they will pay a 14.5% tax with 0 euros deductible. For individuals with between 7,091 and 10,700 euros in personal income each year, they will pay a 23% tax with 602.74 euros deductible. For individuals with between 10,700 and 20,261 euros in personal income each year, they will pay a 28.5% tax with 1,191.24 euros deductible. For individuals with between 20,261 and 25,000 euros in personal income each year, they will pay a 35% tax with 2,508.20 euros deductible. For individuals with between 25,000 and 36,856 euros in personal income each year, they will pay a 37% tax with 3,008.20 euros deductible. For individuals with between 36,856 and 80,640 euros in personal income each year, they will pay a 45% tax with 5,956.68 euros deductible. For individuals with more than 80,640 euros in personal income each year, they will pay a 48% tax with 8,375.88 euros deductible.
Portugal Corporate Income Tax Rates
For corporate income, taxable profit up to 12,500 euros is taxed at a reduced rate of 12.5%, and anything in excess of that is taxed at 25%. A surtax is levied on taxable profits at rates up to 1.5%, resulting in a maximum possible aggregate tax rate of 26.5%.
Who Qualifies as a Resident of Portugal?
Both residents and non-residents are required to file taxes in Portugal: Anyone who is employed and makes more than 7,112 euros a year, is self-employed, earns money on dividends, investments, or capital gains, or earns rental income or money from a pension is required to file taxes when residing in Portugal. You are taxed differently depending on whether you are a resident or non-resident. You will be considered a resident of Portugal if: you reside in Portugal for 183 days within the given tax year, either consecutively or non-consecutively; you rent or own property within Portugal that you intend to make your habitual residence during the tax year; you are a member of a boat crew or aircraft crew that provides service to Portugal; you perform commissions or services in other countries on behalf of Portugal; or you are a Portuguese national but have tax residence in another country. If you are a U.S. expat working in Portugal, you may qualify for non-habitual residence, which offers tax advantages for expats working in high-value fields. To qualify, you must have been taxed as a Portugal resident for the past 5 years. You will then need to register as a resident and have a property you own or rent in Portugal by the end of the tax year.
When Are Portuguese Taxes Due?
Taxes in Portugal are due by June 30, and any additional tax payments will be due by August 31.
U.S.-Portugal Tax Treaty
The U.S. and Portugal have a tax treaty that was put in place to help residents of the United States and Portugal avoid double taxation. Due to a clause in the U.S., called the Savings Clause, it may occur that the U.S. does not honor the double taxation regulations set out in this treaty. As such, it is recommended that you work with a skilled Orange County expat tax attorney to determine how you can avoid double taxation as an expat in Portugal.
Social Security in Portugal
The social security tax rate in Portugal is 34.75%. If you are employed by a Portuguese employer, 11% will be withheld from your paycheck, and the other 23.75% will be paid through your employer. Independent contractors working in Portugal will not have social security withheld from their pay, and the social security rate they pay will be 29.6%.
Self-Employed Americans in Portugal
If you are a self-employed individual working in Portugal, you will be required to self-report quarterly taxes. These taxes should be reported in April, July, October, and January. You will be taxed at a rate of 21.4%.
Goods and Services Tax in Portugal
Established businesses in Portugal with a turnover of more than 10,000 euros in taxable goods and services each year must pay a VAT tax. Consumers will pay this tax while buying a good or service, and then the business will pass the tax along to the Tax and Customs Authority. There are three tiers of VAT taxes in Portugal:
- For reduced rate goods and services, the VAT rate is 6%.
- For intermediate rate goods and services the VAT rate is 13%.
- The standard rate for all remaining goods and services is 23%.
How To File a U.S. Tax Return From Portugal
You can file your U.S. tax return using the IRS’s online systems to submit all necessary information and required forms. Living and working abroad means you may be required to file additional forms, including Form 8938 or FBAR, the Foreign Bank Account Report. Forms and tax returns are due on April 15, with an automatic extension for expats to October 15.
File U.S. Taxes With Evolution Tax and Legal’s U.S. Expat Tax Services
Filing taxes in the U.S. can be complicated enough without also adding in living and working abroad, additional required forms, and the necessity of filing taxes in your country of residence. To ensure tax compliance without the added stress, you can work with our team of professionals. Contact the Evolution Tax and Legal team to learn more today!