Portugal

Individual - Significant developments

Last reviewed - 30 July 2020

Personal Income Tax (PIT) Reform

A PIT Reform, which has been approved and is in force since 1 January 2015, has introduced various changes in the PIT Code. These changes are reflected in this summary.

2019 State Budget 

In the 2019 State Budget proposal, a new tax regime is proposed to encourage the return of emigrants to Portugal. The proposal consists of a 50% relief from taxation of employment or self-employment income received after their return to Portugal.

Emigrants who return to Portugal in 2019 or 2020, becoming Portuguese tax residents in those years, have access to this regime, provided that they:

  • did not qualify as tax residents during the three years prior to their return
  • qualified as tax residents in Portugal prior to 31 December 2015
  • have their tax situation regularised, and
  • did not apply for the special tax regime for non-habitual residents.

This tax relief is applicable to income earned in the first year of residency after the return to Portugal and in the following four years, expiring after this period.

While the regime applies, entities required to withhold tax on the income covered by this regime shall apply the withholding tax (WHT) rates determined based on half of the income paid or made available.

2020 State Budget 

Regarding the non-habitual tax resident regime, a flat rate of 10% applicable to the net pension income from a foreign source obtained by non-habitual residents is introduced. The former exemption
is revoked.

New social security regime for the self-employed

As of 2019, the notional contribution basis (linked to IAS - Index of Social Support) ceases to exist.

The new regime establishes a new quarterly reporting obligation for the self-employed, where they should report their self-employment income until the last day of April, July, October, and January.

The monthly contribution basis will correspond to 1/3 of the relevant remuneration determined in each reporting period and produces effects in that month and in the following two months. The contribution basis will no longer be determined in October of each year.

For the determination of the relevant remuneration of the self-employed, it is considered the income received in the three months previous to the reporting month. The relevant remuneration corresponds to 70% of the amount of services rendered and to 20% of the income related to the production and sales of products. 

Self-employed individuals are subject to a contribution rate of 21.4% (instead of the previous contribution rate of 29.6%).