As more individuals seek greener pastures, Portugal is one country where people want to live. It is due to its refreshing landscape, appealing lifestyle, and tax breaks. Understanding the process of becoming a tax resident is paramount for those considering a move to this European nation. This article serves as a comprehensive guide, outlining the essential steps and requirements for becoming a tax resident in Portugal.
When are you considered a tax resident in Portugal?
The classification of individuals or companies as tax residents in Portugal determine how much the government can impose taxes on their income. The rules regarding tax residency depend upon certain factors.
Foreigners are taxable when they:
- Spend more than 183 days, consecutively or not, in Portugal within 12 months from the start or end of the fiscal year; or
- Maintains a residence in Portugal regardless of length of stay.
On the other hand, companies are taxable in Portugal when they are:
- Registered in Portugal (Resident company)
- Operates within Portugal
Therefore, the company is a tax resident if you operate a business through any physical location in Portugal, whether a branch or management office.
Tax resident vs. Non-tax-resident
When you establish tax residency in Portugal, you must pay taxes in Portugal on all income regardless of where you are from. On the other hand, non-residents only pay Portuguese taxes on income originating from sources within Portugal.
How to become a tax resident in Portugal?
When you meet the criteria above, you must inform the authorities and are duty-bound to file tax returns. Failure to do so, even when unintentional, may lead to a tax audit and payment of hefty penalties.
Step 1: Register yourself at the FDSS
Register with the Finance Department and Social Security to get an individual taxpayer number if you have a tax obligation. You can go there in person by appointment at 217 206 707. If you live outside the EU, you can request through a fiscal representative in the online Finance portal.
Step 2: Get your documents
You may be familiar with it as a TIN, but in Portugal, this is known as a NIF (Número de Identificação Fiscal). To request one, non-residents must present an identification document or passport with the appropriate visa for entry into Portugal. Note that you must also have a fiscal representative with the residence.
Step 3: Wait for approval
Once your registration is approved, you will receive a message from the Finance Department and Social Security.
Why is the NIF important?
The NIF is essential to enter into various transactions in Portugal. It is necessary when complying with tax obligations such as filing tax returns and paying taxes. Foreigners who want to work in the country also need a NIF to be legally employed. Moreover, this is essential when engaging in various business activities, such as real estate investments, because you must buy or sell a property or enter rental agreements with a NIF.
What to do with tax residency when leaving Portugal?
You cannot cancel a NIF whether you decide to leave Portugal, but you should inform and cancel your ties with the fiscal representative to avoid incurring service charges.
Becoming a tax resident in Portugal can benefit individuals seeking a favorable tax environment and a high quality of life. However, there are a lot of nuances in the law, especially for non-EU citizens considering that European regulations are relatively different. Therefore, seeking professional advice and staying informed about any changes in tax regulations will ensure a smooth and compliant transition to becoming a tax resident in Portugal.
Frequently Asked Questions (FAQs)
Is Portugal still tax-free?
No, it is not tax-free. Although there are certain tax benefits for foreigners, individuals can still be subject to tax on their income in or outside Portugal if they fall under the definition of a tax resident.
How do I know if I am a tax resident in Portugal?
You need to consider two main factors: physical presence and permanent residence. If you spend more than 183 days in Portugal or have a home available there, you will likely be considered a tax resident. However, it’s advisable to consult with a tax professional.
Does Portugal tax non-residents?
Yes, Portugal does tax non-residents on certain types of income sourced from Portugal, such as income from Portuguese real estate or business activities carried out in Portugal.