Top Ten Tax Savings Tips
Article by Viv Europe - Official Legal and Relocation Partner to KipperTree
26 06 2023
Read the full article here.
Looking for a financially advantageous relocation? Check out experts’ top 10 tax-saving tips for ex-pats moving to Portugal!
Finance, Moving to Portugal
The sun-kissed beaches, vibrant culture, and delicious cuisine await you. But amidst the exciting offerings, you must know your money matters thoroughly. If you’re due to move to Portugal, it’s essential to know some crucial tax-saving tips for expats.
Will these tax benefits help you make the most of your financial situation and ensure a smooth transition? That’s our goal! So, whether you’re dreaming of spending your retirement here or expanding your business, we’ve compiled the top 10 tax-saving tips everyone should know before their move. Happy reading!
How does the tax system work in Portugal?
Before you learn about tax-saving tips for ex-pats, you should familiarize yourself with certain important tax-related aspects to get an overview.
The tax system in Portugal is an essential aspect to understand for ex-pats settling in the country. Portugal operates on a progressive tax system, meaning tax rates increase as income levels rise.
For your ease, we’ve listed a brief breakdown of how the tax system works in Portugal:
Personal Income Tax (IRS): Levied on your income, including employment income, self-employment income, and investment income. The tax rates range from 14.5% to 48%, depending on the income bracket.
Corporate Income Tax (IRC) applies to businesses operating in Portugal. The standard rate is 21%, but certain regions and activities may benefit from reduced rates or exemptions.
Value Added Tax (VAT): Portugal applies VAT like other European countries. The standard rate is 23%, with 6% and 13% reduced rates for specific goods and services.
Property Tax (IMI): An annual property ownership tax. Its rates vary depending on the property’s location, type, and value.
Capital Gains Tax: Capital gains derived from the sale of assets, such as property or investments, are subject to tax.
Inheritance and Gift Tax: Its rates vary depending on the relationship between the parties involved and the value of the assets transferred.
Nonetheless, you should know that tax regulations may change over time, so consulting a tax advisor or professional is recommended.
Who has to pay taxes in Portugal?
With the different taxes in Portugal discussed, let’s talk about who these taxes apply to.
Portuguese taxes are liable to residents and non-residents who generate income or own assets within the country.
Portuguese residents are subject to taxation on their worldwide income, including employment, self-employment, rental, and investment. They are also liable for taxes on their assets, such as property and capital gains.
But non-residents are taxed on their Portuguese-sourced income. This includes income from employment in Portugal, rental income from Portuguese properties, and capital gains from selling Portuguese assets. Non-residents are generally not subject to tax on their foreign-sourced income.
There is also a third category that ex-pats can fall under, which is called Non-Habitual Residents.
Non-Habitual Residents qualify for the special tax regime, which we will discuss in detail later. They’re eligible for up to 10 years of certain tax exemptions and reductions on specific types of income, including pensions, employment income from certain professions, and self-employment income. Keep reading!
Portuguese tax residents’ obligations and deadlines
As an expat, you have certain obligations and deadlines to adhere to. Here’s what you need to know:
As a tax resident, you must file an annual tax return to disclose your worldwide income and assets.
The tax return deadline is typically by the 30th of June, but there may be specific dates announced each year. Remember to stay informed and meet the filing deadline to avoid penalties.
You are responsible for paying any taxes owed based on your income and assets within the specified deadlines.
Ex-pats should explore available deductions and credits to minimize their tax liability.
Top 10 tax-saving tips
Now that you know the basics of taxes in Portugal, let’s move on to the awaited tax-saving tips for ex-pats. The tips we’ll share will guarantee a more straightforward understanding than what you knew.
1. The Non-Habitual Residence (NHR)
One of the most fantastic tax-saving tips for ex-pats moving to Portugal is to explore the Non-Habitual Residence (NHR) regime. This unique program offers significant tax benefits for the first ten years of residency.
By becoming an NHR, you can enjoy a flat tax rate of 20% on certain types of income, such as pensions, dividends, and royalties. This can be a considerable advantage, especially for retirees or individuals with high-earning potential.
To understand this regime in detail, check out our Complete Analysis of the Non-Habitual Resident Regime.
2. Different countries, different tax rules
Regarding tax-saving tips for expats in Portugal, it’s important to remember that different countries have different tax rules. This means things might not be the same as you’re used to, for better or for worse.
Put simply, your tax obligations and potential savings vary based on your home country’s tax laws and treaties with Portugal. This is why understanding your specific situation’s tax implications is crucial.
It’s also advisable to seek professional guidance from a tax expert specializing in international taxation. They can help you navigate the complexities and identify opportunities for tax optimization. Viv Europe ensures you take full advantage of applicable tax treaties or provisions specific to your home country.
3. Keep in mind the currency rates
Do keep in mind the currency rates, especially if you come from a country with a currency other than the Euro. Fluctuations in exchange rates can impact your tax liabilities and potential savings.
So, if your income is in a different currency, you should convert it to Euros for tax purposes. Remember the exchange rates when reporting your income to ensure accurate calculations.
Also, if you pay taxes in your home country on income earned there, you may be eligible for a foreign tax credit in Portugal. And if you have financial transactions involving currency conversions, like property sales or investments, consider the exchange rates to optimize your tax position.
KipperTree recommends using Spartan FX for currency transfers across the world. Contact them here
For tips number 4 to number 10, you are going to have to read the full article here
