Digital nomad in 2024: what are the tax advantages and disadvantages in Portugal?
Portugal has been going through a political crisis in parliament with new elections being called for 2024, but this hasn't stopped discussions on the Budget for 2024 which, it seems, will be approved before parliament is dissolved.
The 2024 Budget proposes the extinction of the Non-Habitual Resident (NHR) regime and the introduction of a new tax regime, a little more restricted than the previous one, called the "Tax Incentive for Scientific Research and Innovation".
I commented on the changes and the transition regime from NHR to the new Tax Incentive regime in this article.
Before going into the actual taxation, it's important to point out that the digital nomad visa has nothing to do with taxation. You can have the visa and fall under the tax incentive regime or not.
First, we'll talk about how Portuguese taxpayers are taxed in general and then move on to the most beneficial tax regime.
Taxes in Portugal
Portugal levies income tax on individuals through the "Imposto sobre o Rendimento das Pessoas Singulares – IRS".
All citizens who qualify as tax residents under Portuguese law are obliged to declare and pay the IRS.
To do this, they add up all the income earned over a period of one year, and apply the following rates, according to the progressivity of the income (table updated for the year 2024):
Taxable income | Rates |
Up to 7.703€ | 13,25% |
From 7.703€ to 11.623€ | 18% |
From 11.623€ to 16.472€ | 23% |
From 16.472€ to 21.321€ | 26% |
From 21.321€ to 27.146€ | 32,75% |
From 27.146€ to 39.791€ | 37% |
From 39.791€ to 51.997€ | 43,5% |
From 51.997€ to 81.199€ | 46% |
More than 81.199€ | 48% |
According to the table, in Portugal there is no limit to the amount you can be exempt from. No matter how much you earn during the year, you will have to pay income tax, even at the minimum rate of 13.25%.
Portugal adopts the principle of universality of income. In other words, taxpayers are obliged to declare all their income, regardless of where it comes from. It is therefore extremely important to plan your move to Portugal in advance.
If you are interested in hiring professional legal services related to tax planning for Portugal, we are a law firm specializing in the subject. To do so, contact us via Whatsapp or e-mail: thyanipuppio@gmail.com
However, there is a more beneficial tax regime, currently called the Tax Incentive for Scientific Research and Innovation, which we will talk about in the next topic.
"Tax Incentives for Scientific Research and Innovation"
From 2024, the Non-Habitual Resident scheme will be replaced by the Tax Incentive for Scientific Research and Innovation scheme.
Anyone wishing to register under the Non-Habitual Resident regime will have a general deadline of 12/31/2023. However, if they meet the legal requirements, they can register until December 31, 2024.
The difference between the NHR regime and the new Tax Incentive regime is the list of economic activities, which will be more restricted.
However, those who fall under the new Tax Incentive scheme will benefit from the flat rate of 20% of income earned in Portugal and the exemption of income earned abroad.
I have commented in detail on the new Tax Incentive regime and its transition in this article.
Digital nomad visa in Portugal: what is it and what are the advantages?
The digital nomad visa in Portugal was included in the Aliens Act in 2022, following the trend in several European countries.
One of the advantages of obtaining any visa is the granting of a residence permit. This permit allows the individual to move freely throughout the European Union community (Schengen area).
However, in order to be granted a digital nomad visa in Portugal there are a number of requirements, such as:
a) Proof of average monthly income earned in the last three months of at least the equivalent of 4 minimum wages (Portuguese minimum wage);
b) Proof of means of subsistence;
c) Presentation of employment contract - if you are an employee;
d) Presentation of the company contract or service contract - if you are self-employed.
Payment of taxes will depend on the digital nomad's tax residence.
Please note: obtaining a visa has nothing to do with taxation. How taxes are paid will depend on the tax residence.
What is Tax Residency?
Tax residence is nothing more than the place where an individual carries out their vital economic activities. This place can be their fixed residence or their habitual residence.
Digital nomads do not have a fixed residence, but they do have a habitual residence. Therefore, the belief that you don't have a fixed abode means you don't have to file your taxes anywhere is debunked.
It doesn't matter if you travel every 3 months, every month or every week, anyone in the world will have a tax residence somewhere.
If you file taxes for two countries at the same time, you have double tax residency, which is the next topic we'll cover.
Alert for Double Tax Residency
Individuals who have dual tax residency need to declare their taxes for two countries at the same time.
However, what few people know is that when you are a tax resident in a particular country, the principle of universal income declaration prevails. In other words, taxpayers must declare all their income, regardless of its origin.
What most people do is declare income from their country of origin only in their country of origin, and income from Portugal only in Portugal. However, by failing to comply with the duty to declare assets universally, the taxpayer commits a crime called tax evasion.
In addition to the risk of being held criminally liable for tax evasion and thus having your passport invalidated, the amounts evaded can be charged to the taxpayer, with interest and monetary correction.
Portugal exchanges information on tax matters with various countries, as it has conventions to avoid double taxation. This exchange of information is carried out using artificial intelligence, which searches and cross-checks the data of its taxpayers to detect fraud.
It is therefore extremely important to consider tax planning to avoid double taxation and tax evasion.
If you are interested in hiring professional legal services to avoid double tax residency, we are a firm specializing in the subject and we can help you, just get in touch via email: thyanipuppio@gmail.com, or via WhatsApp.
