0% tax on foreign income is a myth or a reality in Portugal

Tax residents of Portugal must declare all their income – received in Portugal and any other country in the world.

By what criteria can you consider yourself a tax resident of Portugal – after staying in the country for 183+ days and with permanent residence. For citizens of Ukraine, additionally – after obtaining temporary protection.

So, if you are a tax resident in Portugal, it is your responsibility to file a tax return for the previous year. This should be done annually, between April and June of the current year. For example, in 2023, income for 2022 was declared.

Since the next year of declaration has passed, we will tell you our results, what to pay attention to, and how to prepare for submitting the declaration for the next year. We recommend not postponing the latter for later.

How to prepare for submitting a declaration for the next year?

Preparation generally looks like this:

1. We determine the types of income received (for example, dividends, wages, income from business activities, etc.).
2. We check what tax rates apply to such types of income and whether there are grounds for exemption from taxation.
3. We collect information for filling out the declaration and documents for confirmation (marital status, bank accounts, types and amounts of income and taxes paid from them, NHR status, and other personal data on the declarant).

If everything is ready information and documents have been collected, then we proceed to fill out and submit the declaration. The declaration goes through several stages of checks. The final step is receiving tax invoices with the tax rate and the amount to be paid

When can a declarant get a 0% tax bill and not pay tax on foreign income?

Among the most common cases in our practice are the following cases:

1. Availability of NHR status (received by March 31 of the following year in the year of acquisition of residency, for ten years).

The status gives the right to pay income tax from Portugal at a flat rate of 20%. Certain types of foreign passive income (dividends, royalties, etc.) are not taxed in Portugal, i.e., the rate is 0%. More details about the status of NHR are in our article.

      2. Compliance with specific requirements, including:

– high-skill professions (IT specialists, designers, directors, etc.), where 0% on income such as wages or income from entrepreneurial activity; a complete list of professions at the link;

– a convention on the avoidance of double taxation between Portugal and the country of receipt of income;

– payment of taxes in the country of receipt of income or the possibility of payment of such income (where applicable).

If everything is done correctly, the specified foreign income is exempt from taxation in Portugal and is taxed only in the country of payment. That is, 0% tax on foreign income when declared in Portugal, for example, wages from certain professions, certain entrepreneurial activities, and passive income (royalties, dividends, rental properties, etc.).

It is also important to make a risk assessment and check, such as a permanent base (the possibility of providing services in another country or a connection with it) in the country of receipt of income, the substance of foreign companies (office, staff, bank account, etc.), CIC and the potential risks of being recognized as a tax a resident of other countries.

Each case is individual, and a set of different tax exemption criteria is considered. That is, this does not mean that if you received a salary in Ukraine, the tax would automatically equal 0% in Portugal. It is necessary to check compliance with other requirements, have supporting documents, and consider the status and convention on the avoidance of double taxation.

Conclusion

You should approach the declaration carefully and prepare ahead of time. Therefore, if choosing an income tax strategy for 2023 is relevant for you, we recommend doing it now.

From our side, we will be happy to help determine a tax resident’s status, prepare evidence, and submit declarations. Leading Ukrainian and Portuguese law specialists will be involved in implementing these tasks.