English speaking accountants in Portugal

Income Tax (IRS)

Income Tax Rates for 2023

In 2023 individuals will be taxed at the following rates:

Income	Rate
Up to €7,091	14.5%
Between €7,091 and €20,261	28.5%
Between €20,261 and €25,000	35%
Between €25,000 and €36,856	37%
Between €36,856 and €80,640	45%

Income over €80,640 is taxed at 48%

Income between €80,000 and € 250,000 is subject to an additional solidarity tax of 2.5%. For income over € 250,000 the additional solidarity tax is charged at 5%. 

If the tax payer is married the combined income of the couple is halved to apply the above table and the tax calculated doubled.

These rates apply to employment and self employed  income.

In the case of self employed income the tax payer can opt to be taxed either using the simplified system or on their real profit. In the case of the simplified system it is assumed for professional service providers that their taxable income is 75% of their income.(35% for other types of freelancers). If the tax payer has self employed income of over € 200,000 they will automatically fall into the real profit system.

Other types of income can either be accumulated with the employment and self employed contractor income and taxed at the above rates or taxed autonomously at a flat rate. If the income is taxed at a flat rate and the tax payer opts not to have this income accumulated with their other income there is no need for the tax payer to present a tax return and pay any additional tax.

The following types of income are taxed at a flat rate of 28%;

• Interest income
• Dividends
• Life Assurance redemptions in some cases
• Rental Income
• Other capital income
• Capital gains.

In calculating the capital gains on property there are a number of factors which reduce the liabilty. 

The cost price of the property is ajusted to take into account inflation based on a index which is published earlier. It is also possible to deduct obligatory costs incurred in the purchase and sale as well as the estate agent's fees. For residents if the proceeds are reinvested from one year before the sale to three years in a property which will become the tax payer's home loacated anywhere in the EU no tax is payable. Properly documented improvements made to the property in the 12 years prior to sale are also deductible. For Portuguese residents who choose not to reinvest the proceeds or the property sold was not not their main residence only 50 percent of the gain is taxable.

Tax Deductions in 2018

The system allows the tax payer to deduct a number of types of expenses to reduce their tax liability. The total amount of deductions which vary between €0 and € 1,250 depends on the income of the tax payer.

Main Residence deduction - Interest paid on mortgages  on the tax payer's main residence is limited to € 296 or 15% of the morgage interst paid if lower. In the case of rent paid under an authorised contract the limit is 15% of the rent up to a maximum of € 502 which can be increased to € 753 if the tax payer has a low income.

Education - The tax payer can deduct their and their families education costs up to €800 or 30% of the cost if lower. In families with more than 3 dependents the deduction is increased by € 142.50 for each dependent.

Heath Expenses - The tax payer can deduct  health expenses ,exempt from or liable to VAT at the lower rate of 6%,  of up to € 1,000 or 15% of the cost if lower.If the family grouping has more than 3 dependents then the limit is increased by € 125.77 for each dependent. If the tax payer has incurred heath costs at ther higher VAT rate and has a doctor's prescription the above limits can be increased by € 65.

Special IRS deduction for VAT paid - The tax payer can deduct up to an amount of € 250, 15 percent of the VAT incurred in the following expenses:

- Maintenance and repairs of motor vehicles

- Maintenance and repairs of motorcycle as well as parts and accessories

- Restaurant and hotel expenses

- Hairdressers, barbers and beauty salons

- Veterinary Services

Household Expenses Deduction - The tax payer can deduct up to an amount of € 500, 35 percent of the VAT incurred in respect of costs  where an invoice issued in the name of the tax payer has been made. The deduction is increased to 45 percent in cases of single parent families.