How are US citizens taxed in Portugal?

The world of taxation is as complicated as it is annoying to navigate, but next to sleeping, eating, and breathing, it seems that the world won’t let us live unless we do our taxes as well. Additionally, all administration takes on more complexity whenever you need to deal with a foreign language and foreign rules.

So we thought of providing a quick breakdown of when and what taxes you pay so that your borderless experience of a few months living in Portugal can be as problem-free as possible.

The short answer is almost always yes, but the devil is in the details. The laws are relatively complex, and we recommend always approaching a professional for more info. Still, the general basis is that you are only paying taxes on your Portugal-sourced income if you do not have residency in Portugal. All other income (worldwide income) is paid to the US. But this is a very different story with a residency in Portugal.

For the tax code, you are a resident if you stay in Portugal for longer than 183 days within 12 months or if you have an abode (any home, not just a place of business, even a mid-term rental). If you do, you will be expected to pay taxes on your worldwide income in Portugal. The good thing is that the US and Portugal have a tax treaty, meaning that you won’t be double-billed for your payment.

All told, there are six categories of income that can be taxed: real estate income, investment income, business and professional income, your regular income, pensions, and increases in net worth. Non-residents have a flat tax rate of 20%, while residents fall onto a progressive scale between 5% and 35% tax rate.

There are additional tax rates for foreigners you might be interested in, such as the stamp tax for shipping property, which has a rate between 0,5% to 20%. Similarly, gifts and inheritance have a 10% tax rate, with an additional 0,8% if the income is real estate. The good news is that there is no wealth tax.

All this is calculated every calendar year, and returns must be done by March 31st each year. But don’t forget that you are still legally required to file taxes in the US as well. Thankfully, the US has some deductions and exclusions to offset your tax liability.

You can also use the Foreign Tax Credit on your income to offset the taxes you paid in Portugal as long the Foreign Earned Income Exclusion hasn’t already excluded it. You can also use the Foreign Housing Exclusion, which allows for some household expenses incurred due to living abroad. So, all in all, while you have to do our taxes both in Portugal and in the US, there are ways to offset or even save on moving to Portugal.