Individual - Income determination

Last reviewed - 18 August 2021

Employment income

Employment income/remuneration is specifically defined in the PIT Code and covers all payments made by the employer, such as salary, bonuses, commissions, tax reimbursements, redundancy payments, pensions, allowances (e.g. cost-of-living and housing allowances), and benefits in kind (e.g. company cars), regardless of where the payment originates.

Domestic and foreign travel allowances, as well as mileage and lunch allowances in excess of those permitted to employees of state departments, are also taxable as employment income.

Benefits in kind

In general, benefits in kind provided by an employer are subject to income tax at the employee level. There are specific provisions on taxation of employer-provided housing or housing allowances, use and acquisition of company cars, and share plans.

The taxable benefit from the use of a company car is taxable at the employee level if there is a written agreement between the employer and the employee regarding the allocation of a specific car to the last. In these circumstances, the benefit corresponds to 0.75% of the market value of the car, multiplied by the number of months of use of the car. If the company car is then acquired by the employee, a further benefit in kind will correspond to the positive difference between the market price of the car and the total amount already taxed as a benefit in kind to the employee as a result of using the car plus the acquisition price. The market price corresponds to the difference between the acquisition price and the balance derived from that value considering a depreciation factor published by the relevant authorities.

Termination of employment

Redundancy payments are taxable on the portion that exceeds the average remuneration paid during the last 12 months of employment, multiplied by the number of years of employment, unless a new employment contract or service contract is concluded with the employer or a related person within 24 months from the date of termination of the employment contract.

However, in case of a manager or administrator, the redundancy payments are fully liable to taxation. This measure is also applicable for public sector managers and PE representatives.


EUR 4,104 of pension income is tax exempt.

In 2015, the regressive rule applicable to the specific deduction to pensions when the gross annual income exceeds the amount of EUR 22,500 was revoked, being now only a deduction of a fixed amount of EUR 4,104, in line with the value of the specific deduction applicable to the employment income.

Business and professional income

Income from a commercial, industrial, or agricultural activity and income from a sole trader (including scientific, artistic, or technical services) or from intellectual rights (when earned by the original owner) may be taxed either in accordance with a simplified regime or based on the taxpayer’s accounts. The simplified regime will apply only to taxpayers who, not having opted for organised accounts, have a turnover or a gross business and professional income lower than EUR 200,000 (for 2021) in the previous year. Under this simplified regime, the above income is taxed on 0.15% of sales of products or 0.75% of income arising from business and professional services listed in the table referred to in Article 151 of the PIT Code.

A coefficient of 0.35 is applicable to services not expressly foreseen in the table referred to in Article 151 of the PIT Code.

The income 'deduction' arising from the application of the coefficients of 0.75 and 0.35 (i.e. the generality of the service-rendering activities) is partially conditioned by the verification of expenses and charges effectively incurred and related to the activity. Therefore, to the taxable income determined by applying the coefficients will be added the positive difference between 15% of the gross income and the sum of the following amounts:

  • EUR 4,104 or, when higher, the total amount of mandatory social security contributions (in the part not exceeding 10% of the gross income received).
  • Staff expenses, wages, or salaries communicated to the Portuguese tax authorities.
  • Property rentals allocated to the professional activity communicated through the issue of an electronic receipt or a specific statement, whose invoices and other documents are communicated to the Portuguese tax authorities (if only partially assigned to the professional activity, it is considered only 25% of the total amount).
  • 1.5% of the tax registration value of the properties assigned to the business or professional activity or 4% of the tax registration value of properties assigned to hotel or letting activities (if only partially assigned to the professional activity, it is considered only 25% of the total amount).
  • Other expenses with the acquisition of goods and services related to the activity, duly communicated to Portuguese tax authorities, namely expenses with current consumption materials, electricity, water, transports and communications, rents, litigation, insurance, leasing rents, mandatory fees paid to professional associations and other organisations representing professional activities to which the taxpayer belongs, travels and stays of the taxpayer and one's employees (if only partially assigned to the activity, it is considered only 25% of the total amount).
  • Imports and intra-Community acquisitions of goods and services related to the activity.

In addition to the amount of the above deduction, the amount of mandatory social security contributions paid, exceeding 10% of gross income and related to such professional activities, may also be deducted to the self-employment income if not deducted for other purposes.

Capital gains

As a general rule, capital gains will be subject to tax at a flat rate of 28%. Only 50% of capital gains arising on the sale of shares held on micro and small companies not listed in the stock exchange will be subject to taxation.

In 2021, 50% of capital gains arising from the sale of real estate by tax residents in Portugal is taxed at the marginal rates varying between 14.50% and 48%. The gain may be wholly or partially exempt if the property being sold is the taxpayer's primary residence and the sale proceeds, reduced by the value of any outstanding loans relating to the purchase of the property being sold, are reinvested in the acquisition, improvement, or construction of another primary residence in Portugal or within the European Union within 36 months from the sale or in the period of 24 months previous to the sale.

Capital gains earned by non-residents that are not borne by a PE in Portugal are fully taxable at a flat rate of 28%.

Dividend and interest income

Dividends and interest are liable to taxation at a flat rate of 28%. However, the taxpayer may opt to be liable to tax on dividends and interest received at the marginal rates varying between 14.50% and 48% (in 2021).

A credit against the Portuguese tax liability is available for the lower of the tax paid in the foreign country on those dividends and interest or the amount of tax payable in Portugal on that income. For dividends and interest paid by countries with which Portugal has signed a double taxation treaty (DTT), the tax credit should not exceed the percentage established in the treaty.

If the taxpayer opts to disclose the dividends on the tax return, only 50% will be liable to taxation at the marginal rates in force if the paying company is tax resident in an EU country.

Interest income arising from current or saving accounts on Portuguese banks is taxed at 28% for residents. Interest paid by non-resident entities to tax resident individuals is also taxed at a rate of 28%.

Investment income paid or made available to recipients resident in the Portuguese territory by non-resident entities that also do not have a PE in the Portuguese territory, but which are domiciled in a blacklisted jurisdiction, are liable to a tax rate of 35% (in 2021), either by WHT or by the application of a special rate.

Rental income

As a general rule, rental income earned by tax residents and non-tax residents is liable to a special tax rate of 28%, but the option for the inclusion of such income in the total aggregated income is possible.

The rental income that results from a consistent practise of the lease of properties, by option of the taxpayer, may be taxable as income from business and professional activities (self-employment [Category B]). However, in order to determine the income subject to taxation, the same rules used for determination of the rental income in ‘Category F’ should be taken into account.