Tax Outlook for Expats Moving to Portugal

When moving to Portugal or any other foreign country, you need to be aware of two things related to your tax situation:

  1. How living abroad will impact your home country tax requirements, and

  2. What your tax filing requirements will be in the foreign country you are moving to.

Taxes in Portugal

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Tax overview for expats in Portugal

Generally speaking, Americans are taxed in Portugal based on residency:

  • Portuguese residents (those who spend 183 days+ in Portugal over a 12 month period or maintain an abode) are taxed on worldwide income

  • Non-residents are only taxed on Portugal-sourced income

An "abode" is a domestic residence (purchased or rented) that you intend to keep and occupy habitually.

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Non-Habitual Resident Tax Scheme

Portugal has a progressive tax system (see table below), but new residents can benefit from the non-habitual residency (NHR) scheme. NHR gives newcomers different tax rates on certain types of income for 10 years. You can apply for NHR once you obtain Portuguese residence.

Tax under the NHR scheme
  • almost all foreign income is exempt

  • no wealth tax

  • 10% tax on pensions (as of 2022)

  • no tax on gifts or inheritance to direct family

  • 20% income tax for entrepreneurs and "high value" professionals working in Portugal

Typical Portuguese tax rates
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U.S. - Portugal Tax Treaty

The USA and Portugal have a tax treaty in place that prevents double taxation of US citizens residing in Portugal.

The US requires all citizens to file tax returns, although the amount of tax you must pay is likely to be greatly reduced if you are residing outside of the US.

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Foreign Earned Income Exclusion

The US requires all citizens to file a tax return, but also allows significant exclusions for expats. For 2021 you can exclude the first $108,700 of foreign earned income from your US taxes if you qualify. You can qualify by either the Physical Presence test or the Bona Fide Resident test. Most expats use the Physical Presence test, which requires you to be present in a foreign country (not necessarily just Portugal) for 330 of a 365 day period. Note that Social Security doesn't qualify as foreign earned income.

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Foreign Tax Credit

The Foreign tax credit system allows you to offset taxes you paid in Portugal for your US expat taxes (or vice versa) dollar for dollar. Note that you can't use the credit on income that has already been excluded by the Foreign Earned Income Exclusion.

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Social Security

The US and Portugal have a Social Security Agreement that prevents double taxation on benefits and allows you to claim Social Security by combining amounts you have paid to both countries. If you are working in Portugal, you should know Portuguese social security rates are 11% for employees and 23.75% for employers. Self-employed pay 21.4%.