About real cases of 0% IRS in Portugal and the summary of the 2024 declaration

Let’s start with the basics – who and when declares income in Portugal

Tax residents of Portugal are required to declare all their income, regardless of where it was earned or what type of income it is. Whether it’s income from business activities in Portugal or dividends paid in Ukraine, all income must be declared – both earned in Portugal and in any other country.

We remind you that the status of a tax resident is determined by criteria such as staying in the country for 183+ days, having a residence, NHR status, temporary protection, etc.

Note: If you have relocated from another country, you should check whether you might be considered a tax resident in both countries simultaneously. The link provides more information on tax residency and Ukrainian CFCs.

The declaration is submitted annually for the previous year. For example, in 2024, income for 2023 was declared; in 2025, we will declare income for 2024.

The declaration submission period is from April 1 to June 30. After that, the tax authority reviews the declarations and issues tax assessments based on the calculated tax amount due.

Preparation and stages of declaration

In general, the declaration process can be divided into several stages.

First, the preparatory steps:

• Identify the types of income received (e.g., dividends, royalties, salary, income from business activities, etc.).
• Check which tax rates apply to these types of income and whether there are grounds for tax exemptions.
• Gather information to be included in the declaration and the supporting documents (expenses for housing, business trips, purchase of equipment, child support, etc.; marital status and dependents; bank accounts; types and amounts of income and taxes paid on them, NHR status, and other data).

The next stages involve preparing the declaration and validation by the tax authority:

• Complete and submit the declaration through the Portal das Finanças.
• The declaration goes through several stages of verification (validation).
• Receive tax assessments with the applicable tax rate and the amount due.

Declaring foreign income at a 0% tax rate

We can draw the following conclusions based on the results of declaring income for 2023.

In our practice, declarants achieved a 0% tax rate on foreign income. These cases met the following conditions:

1. Holding NHR status, under which certain types of foreign passive income (dividends, royalties, etc.) are not taxed in Portugal, resulting in a 0% tax rate.
2. Engaging in high-skill professions (IT specialists, designers, directors, etc.), where there is a 0% tax on income such as salary or income from business activities, a complete list of professions can be found via the link.
3. We have a “permanent base” in the country (the ability to provide services specifically in another country or a connection with it, such as a residence).
4. A Double Taxation Convention (DTC) between Portugal and the country where the income is earned.
5. We pay taxes in the country where the income is earned or have the option to do so (where applicable).

If the declaration is filled out correctly, the specified foreign income is exempt from taxation in Portugal and is only taxed in the country of payment. This means a 0% tax rate on foreign income when declaring in Portugal, such as salaries in certain professions, certain business activities, and passive income (royalties, dividends, income from renting out real estate, etc.).

Declaring income with a progressive tax scale

We want to emphasize that a progressive tax scale may be advisable in certain cases, and if you do not have NHR status, not all is lost.

Despite the “high tax rates” ranging from 13.25% to 48%, instead of the NHR status and the fixed tax rate of 20%, it is worth considering the following:

1. These rates do not apply to the entire income amount; each rate applies to its income range.
2. Taxes may not be paid on income as the whole amount. For example, with the same business activity, you can get a tax base of 75% of your income and benefit from preferential deductions in the first years.
3. When filing a declaration, you can use other deductions (family composition, dependents, etc.).

As an example from some declaration cases, with a self-employed income of around €30,000, the tax under NHR was about €2,000, while the tax under the progressive rates was up to €600.

Conclusion

Filing a tax declaration is a legal obligation in Portugal. Additionally, a submitted declaration serves as proof of legal sources of income for residing in the country, which can be used for legalization, obtaining credit, and other purposes.

We recommend planning your tax strategy and preparing for the 2025 declaration. Our team will be happy to form a working group of Ukrainian, international, and Portuguese specialists who will be glad to help you understand the specifics of tax residency and provide consultation on the tax systems in Ukraine, Portugal, and other countries. As a result, we can develop the most optimal tax strategy and carry out the necessary declarative actions (CFC, tax declarations, etc.).

Disclaimer: This article is not legal advice or a recommendation for tax declaration. The material is for informational purposes only.