Tax residency in Portugal: is it worth changing your tax residency to Portugal in 2024?
The number of immigrants to Portugal has grown exponentially in recent years. Consequently, the number of digital nomads who choose Portugal as their habitual residence has also grown.
Whether by acquiring Portuguese nationality or through the digital nomad visa, Portugal has become one of the most sought-after and preferred countries in Europe for digital nomads from all over the world.
However, in addition to the issue of financial planning and migration planning, the digital nomad will inevitably have to deal with tax issues if they intend to stay in Portugal for more than 183 days, or if they want to opt for Tax Residency in Portugal for any other reason.
Before going into the central theme of the article, it is worth clarifying what Tax Residency itself is and also the figure of Double Tax Residency.
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 assertion that, because they have no fixed abode, they don't have to declare their taxes anywhere is false.
It doesn't matter if the digital nomad travels every 3 months, every month or every week, everyone in the world will have a tax residence somewhere.
If you declare taxes for two countries at the same time, you will have double tax residence, i.e. you will be subject to declaring and paying taxes for two countries at the same time.
Taxes in Portugal
Portugal levies income tax on individuals through the "Imposto sobre o Rendimento das Pessoas Singulares – IRS".
All individuals 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, applying progressivity according to the total amount of income (table updated to 2024):
Taxable Income | Rates |
Up 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% |
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 think about tax issues before moving to Portugal.
Note: in the case of workers who have an employment contract with a Portuguese company, the IRS will be deducted directly from the payroll, in addition to the obligation to declare the IRS later, as is the case in Brazil.
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 regime will be abolished and replaced by the new Tax Incentive for Scientific Research and Innovation regime.
Anyone wishing to register under the Non-Habitual Resident regime will have until December 31, 2024, if they meet the legal requirements to do so.
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 a flat rate of 20% for income earned in Portugal and exemption for income earned abroad.
I have commented in detail on the new Tax Incentive regime and its transition in this article.
However, it's important to note that, in the case of self-employed people or entrepreneurs who want to set up a business in Portugal, in addition to paying the IRS, they will have to worry about declaring and paying VAT (Value Added Tax), which is the tax on the consumption of goods and services instituted by all the member countries of the European Union.
In the case of entrepreneurs, in addition to VAT and IRS, they will also have to worry about IRC (Corporate Income Tax), which is the tax levied on companies.
In the future, I'll write an article aimed at entrepreneurs and the self-employed, in which I'll go into VAT and CIT in more detail.
After all, is it worth changing your tax residence to Portugal?
There is no right answer to this question. Everything will depend on each specific case. In other words, the reality and objectives of each individual.
In law, especially when it comes to taxation, although it is largely a matter of calculations, the answer will never be the same for everyone. In other words, there is no 2 + 2 = 4 for all cases and all people. What fits perfectly for one person may not fit for another because of a simple detail, which can often go unnoticed or even ignored because the person considers such a detail "irrelevant".
For this reason, it is extremely important for those who intend to create a link in Portugal, whether by choosing to reside in Portugal for a period of more than 183 days, or to carry out some economic activity within the territory as a self-employed person or entrepreneur, to carry out tax planning.
A Warning about Dual Tax Residency
As mentioned above, 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.
Generally, taxpayers have the habit of declaring 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: tax evasion.
Portugal exchanges information on tax matters with several countries, in view of the Convention signed with them to avoid double taxation. This exchange of information is carried out using artificial intelligence, which searches and cross-checks the data of its taxpayers in order to detect fraud.
In addition to the risk of being held criminally liable for tax evasion and, as a result, having your passport invalidated, the amounts evaded could be collected by the tax authorities, with interest and monetary correction.
Those whose passports are invalidated will not be able to leave the country and will have their visas automatically invalidated, since Portugal requires immigrants to have a valid passport in order to apply for and remain on visas. In other words: no passport, no visa.
If you are interested in hiring professional legal services to avoid double tax residency, tax evasion and double taxation, we are a law firm specializing in the subject and we can help you, just get in touch via email: thyanipuppio@gmail.com, or via WhatsApp.
