PIT | Tax guide 2020 | PwC Portugal

PIT is levied on income obtained by individuals. Taxation depends on the individual’s tax status. There are six different income categories.

Taxable person	Taxation
Residents	Liable to pay PIT on overall global income (Portugal and abroad)
Non Habitual Residents	Liable to pay PIT, at a flat rate of 20%, on income derived from the net employment salary and any self-employment income from "high value-added activities". Foreign-sourced income may be exempt, under specific conditions (pensions may be taxed at a 10% rate)
Non residents	Liable to pay PIT on Portuguese sourced income

Category	Type of income
Category A	Employment income
Category B	Business and professional income
Category E	Investment income
Category F	Rental income
Category G	Capital gains
Category H	Pensions

Taxpayers covered

Taxpayers whse annual gross income in Category B (business and professional income) does not exceed € 200,000, and have not opted for an organized accounts regime can apply for the simplified regime.

Taxable income

The taxable income under the simplified regime will be calculated by applying the following coefficients to the gross income:

Income	Coefficient (%)
Sale of goods and products, as well as provisions of services in the hospitality, food and beverage sector, except those related to local accommodation establishments	0.15
Services related to local housing located in containment areas (apartments and villas)	0.5
Listed service-rendering activities (Article 151 of the PIT Code)	0.75
Other services	0.35
Income from royalties, know-how and other sources (investment income, rental income, capital gains)	0.95
Non business-related subsidies	0.30
Business related subsidies and remaining income under Category B	0.10
Income from services rendered by a shareholder of a company subject to the tax transparency regime	1.00
Income arising from services rendered to an entity in which, for more than 183 days in a given tax year: - the taxpayer holds, directly or indirectly, at least 5% of the respective share capital or of the voting rights; - the taxpayer, its spouse or “de facto” spouse, and their ascendants and descendants hold, as a group, directly or indirectly, at least 25% of the respective share capital or of the voting rights.	1.00

In case of services listed in Article 151 of the PIT Code (coefficient of 0.75) and other services not specifically listed (coefficient of 0.35), the taxable income is assessed differently: the above coefficients are added to the positive difference between 15% of the gross income and the sum of a set of pre-established expenses, incurred with the acquisition of goods and services related with the activity developed and communicated to the tax authorities.

Accordingly, the application of the referred coefficients is partially dependent on a verification of the expenses effectively incurred by the taxpayer. Notwithstanding the eligible expenses effectively incurred, the legislation states that, a deduction of a fixed amount of EUR 4,104 or, if higher, of the total amount of the social security contributions paid is allowed (for the amount not exceeding 10% of the gross income).

Practical example

A taxpayer earning a total gross income of € 40,000 derived from the rendering of services (listed in Article 151 of the PIT Code) and incurring expenses in the amount of at least € 1,896, can benefit from the coefficient in full, i.e. 75%.

Gross Income		€ 40,000
Applicable coefficient		75%
Taxable income		€ 30,000
Validation of the application of the coefficient:
15% of Gross Income		€ 6,000
(-)	Specific deduction	€ 4,104
(-)	Deductible expenses effectively incurred	€ 1,896
(=)	Difference between 15% of gross income and the amount of deductible expenses	€ 0

Taxation of income, subventions and allowances

Description		PIT
		Taxation	Exemption
Salaries, holidays and Christmas allowances, commissions		x	–
Members of statutory board		x	–
Cash shortage allowance		–	Up to 5% of the monthly salary
Daily allowance in Portugal	Directors	–	Up to € 69.19/day
	Others	–	Up to € 50.20/day
Daily allowance for travels abroad	Directors	–	Up to € 100.24/day
	Others	–	Up to € 89.35/day
Mileage allowance (own car)		–	Up to € 0.36/Km
Company car – acquisition/private use		x ⁽¹⁾	–
Loans granted by the employer – acquisition of permanent private house		x	(≤ €180,426.40 ) and (rate≥ 70% x ECB rate)
Loans granted by other entity in which the employer bears an interest (totally or partly)		x	–
Loans granted by the employer – other purpose		x	Interest rate ≥ reference rate
Extraordinary profit distribution/profit distribution		x	–
Indemnity for the termination of the employment contract		–	Up to (average of the regular salary of the last 12 months)* years of work ⁽²⁾
Early retirement		x	–
Lunch allowance		–	Up to € 4.77/day
Meal vouchers		–	Up to € 7.63/day
Child expenses vouchers		–	x
Education voucher		x	–
Allowance for house rental		x	–

^{(1) The benefit obtained from the private use of a company car is only liable to taxation when there is a written agreement on the matter.

(2) Managers, board members, directors of companies, public managers or representatives of permanent establishments in Portugal of non-resident entities: the amount received for the termination of the employment contract is fully taxable, but only the value relative to the exercise of those functions.}

^{Remark:

As of January 1st 2020, the monthly minimum wage is € 635.}

Taxable income (€)	Portugal mainland
	Rate (%)	Deductible Amount
Up to 7,112	14.5	–
+ 7,112 up to 10,732	23	604.54
+ 10,732 up to 20,322	28.5	1,194.80
+ 20,322 up to 25,075	35	2,515.63
+ 25,075 up to 36,967	37	3,017.27
+ 36,967 up to 80,882	45	5,974.54
+ 80,882	48	8,401.21

Taxable income (€)	Madeira
	Rate (%)	Deductible Amount
Up to 7,112	11.6	–
+ 7,1121 up to 10,732	20.7	647,19
+ 10,732 up to 20,322	26.5	1.269,60
+ 20,322 up to 25,075	33.75	2.743,06
+ 25,075 up to 36,967	35.87	3.274,54
+ 36,967 up to 80,882	45.95	6.631,14
+ 80,882	48	9.098,42

Taxable income (€)	Azores
	Rate (%)	Deductible Amount
Up to 7,112	10.15	–
+ 7,112 up to 10,732	17.25	504.97
+ 10,732 up to 20,322	21.38	947.67
+ 20,322 up to 25,075	28	2,293.99
+ 25,075 up to 36,967	29.6	2,695.19
+ 36,967 up to 80,882	36	5,061.05
+ 80,882	38	7,002.27

Taxable income (€)	Rate
80,000 up to 250,000	2.5%
Above 250,000	5%

Withholding tax rates

Residents and nonresidents

			Residents		Non residents
Income		Category	Rates %	Note	Rates %	Remark
Employment income		A	0 up to 45,1*	WTA	25 ⁽¹⁾	FR
Remuneration of board members		A	0 up to 45,1*	WTA	25	FR
Commissions		B	25	WTA	25	FR
Rendering of services		B	11,5/25	WTA	25⁽¹⁾	FR
Royalties earned by the author/original owner		B	16,5	WTA	25	FR
Royalties earned by the non original author/ technical assistance		E	28	WTA ⁽²⁾ ⁽³⁾	25	FR
Lease of equipment		E	16,5	WTA⁽²⁾	25	FR
Dividends		E	28	FTW ^{(2) (3) (4) (5) (6)}	28	FR ⁽⁴⁾
Interest from bank deposits		E	28	FTW ^{(2) (4) (5)}	28	FR ^{(4) (7)}
Interest on shareholders’ loans		E	28	FTW^{(2) (4) (5)}	28	FR ^{(4) (7)}
Interest from debt securities		E	28	FTW ^{(2) (4) (5)}	28	FR^{(4) (7)}
Other investment income		E	28	WTA ⁽²⁾ ⁽³⁾	28	FR
Rental income		F	25	WTA⁽⁶⁾	25	FR ⁽⁶⁾
Capital gains:	Disposal of shares	G	28	⁽⁶⁾	28
Capital gains:	Disposal of real estate	G	14,5 up to 48	⁽⁷⁾	28	⁽⁸⁾
Pensions		H	0 up to 39.84	WTA	25	FR

^{FR: Flat rate

WTA: Withholding Tax on Account of the final tax payment}

^{(1) The employment and self-employment income paid to non-resident individuals as a result of services provided to a single entity, is not liable to withholding taxes, up to the amount corresponding to the monthly minimum wage.}

^{(2) Taxed autonomously at a rate of 28% if paid by non-resident entities, and not subject to withholding tax.}

^{(3) Investment income obtained by non resident entities, without a permanent establishment in Portugal, and resident in tax havens, is subject to a tax rate of 35%.}

^{(4) Income paid, or made available to bank accounts opened in the name of one or more holders acting on behalf of one or more unidentified third parties, is subject to a final tax rate of 35%, unless the beneficial owner of the income is identified.}

^{(5) Income received by residents in the Portuguese territory, and paid, or made available by a third party on behalf of non-resident entities domiciled in a more favourable tax regime, is subject to a tax rate of 35%.}

^{(6) Subject to taxation at an autonomous rate of 28%. For rental income the tax rate will depend on the duration of the contracts, as per the applicable legal framework.}

^{(7) May be exempt from taxation, provided that the sales proceeds are reinvested in the acquisition of a primary private residence, under certain conditions.}

^{(8) The capital gains obtained by non-resident entities, without a permanent establishment in Portugal, who are domiciled in jurisdictions with more favourable tax regimes, are subject to a tax rate of 35%.}

Withholding tax rates applicable in 2020: Category A (employment income) and Category H (pensions)

Deductions on gross income

Category of income	Deductions
A	€ 4,104 or the total amount of the mandatory social security contributions. if higher. This amount can be increased to € 4,275, provided that the difference stems from expenses incurred with mandatory fees paid to professional associations which are indispensable to the exercise of the respective activity - Severance payments made by the employee for the termination of an employment contract without prior notice - Trade union fees, up to 1% of the gross income increased by 50%
B	- Simplified regime: taxpayers whose annual gross income in Category B (business and professional income) does not exceed € 200,000 and have not opted for organized accounts regime, are eligible to apply - Organized accounts: expenses related to the activities carried out, with some limitations
F	- All the expenses effectively incurred and paid by the taxpayers, excluding financial costs, furniture, households appliances, decoration and comfort accessories, as well as the additional to the Municipal Property Tax (“AIMI")
G	50% of the positive or negative balance arising from disposals made by tax residents: - Sale of real estate (except if arising from the sale of property which benefited from non-refundable support of the State or other public entities) - Sale of intellectual or industrial property, or know-how, when obtained by the non-original author - Assignment of position in contracts regarding immovable property
H	- Deduction of € 4,104 per taxpayer - Trade union fees, up to 1% of the gross income, increased by 50% - Mandatory contributions to social protection systems and legal health coverage sub-systems, in the part that exceeds € 4,104

PIT deductions

Type of deduction	Married	Unmarried
Type of deduction	Amounts in €
Personal and family deductions
Dependants	600	600
Dependants <= aged 3 years old (households with 1 dependent)	726	726
Ascendants living in the same household as the taxpayer, and whose income does not exceed the minimum pension payable under the general regime	525	525
Only one ascendant living in the same household as the taxpayer, whose income does not exceed the minimum pension payable under the general regime	635	635
Deductions for disabled people
i) Per taxpayer	3,800 ⁽¹⁾	1,900
ii) Per dependant with disability	1,187.5	1,187.5
iii) For each ascendant with disability living in the same household as the taxpayer, and whose income does not exceed the minimum pension payable under the general regime	1,187.5	1,187.5
iv) 30% of education and rehabilitation expenditures	No limit	No limit
v) 25% of life insurance premiums or contributions paid to credit unions	15% of computed tax	15% of computed tax
- Age-related retirement contributions	130	65
Disability expenses for each taxpayer and each dependant, whose level of permanent disability is ≥ 90%	1,900	1,900
Health expenses
Deduction of 15% of the following expenses:
a) acquisition of goods and services which are either VAT exempt, or subject to the reduced VAT rate of 6%;	15% of the expenses, capped at 1,000	15% of the expenses, capped at 1,000
b) acquisition of other goods and services duly justified by medical prescription c) Health insurance premiums or contributions paid to mutualistic associations or non-profit organizations that provide healthcare services The above is valid only for expenses within eligible sectors, and which are communicated to the Portuguese tax authorities through the official website	N/A
Education and training expenses
i) 30% of the expenses incurred capped at	800⁽²⁾⁽³⁾	800 ⁽²⁾⁽³⁾
ii) 30% of the expenses incurred with rented property, per member of the household, up to 25 years of age , who attends a recognised educational establishment located more than 50 km from the permanent residence of the household, capped at	300⁽²⁾	300⁽²⁾
Retirement homes
25% of the expenses incurred with retirement homes for the taxpayer, disabled persons, its dependants , ascendants and relatives ,up to the third degree, whose income does not exceed the minimum monthly wage	403.75	403.75
Alimony
20% of the amount spent	No limit	No limit
Expenses with real estate⁽⁴⁾
Deduction of 15% of expenditures related to real estate, namely:
a) rents paid, deducted from any subsidies or official contributions, concerning an urban property or fraction for permanent residence under the Urban Rental Regime or the New Urban Rental Regime (deductions may be increased under certain conditions)	502 ⁽⁵⁾	502 ⁽⁵⁾
b) amounts incurred related to time sharing (in the year that such income is taxed at the level of the owner)	502	502

Retirement Savings Funds and Retirement Savings Plans ⁽⁴⁾
Tax credit of 20% of the amount invested:
i) people under 35 years old;	800	400
ii) people between 35 and 50 years old;	700	350
iii) people above 50 years old.	600	300
Donations
Tax credit of 25% of the amount of the donations to:
i) central, regional or local administration; foundations (under certain conditions);	No limit	No limit
ii) other entities.	15% of the tax assessed	15% of the tax assessed
Deduction of VAT incurred
Deduction of 15% of the VAT incurred by any household member, regarding certain provisions of services ⁽⁵⁾, and deduction of 100% of the VAT incurred by any household member on monthly passes for the use of public transportation, in both cases if included on invoices communicated to the tax authorities	250	250
Family general expenses
Deduction of 35% of the amount of expenses incurred by any member of the household with the acquisition of goods and services, communicated to the Portuguese tax authorities, provided that the taxpayer number is included in the invoice	500	250
Deduction of 45% of the amount incurred by any member of the household of a single-parent taxpayers	N/A	335
Limitation on deductions and tax benefits
Limitation on the aggregate deductions⁽⁶⁾
- taxable income up to € 7,091	No limit

- taxable income above € 80,640

1,000

^{(1) Assuming that both taxpayers are disabled.}

^{(2) If the expenses mentioned occur simultaneously in i) and ii), the limit is € 1,000 instead of € 800.}

^{(3) The amount of the education and training expenses incurred by students attending education institutions located in inland regions ( as identified in Decree 208/2017 of 13 July), shall be increased by 10%. In addition, the overall cap of the tax deduction for education and training expenses shall be increased from € 800 to € 1,000, if the difference relates to the said expenses.}

^{(4) This limit is increased to € 1,000 for 3 years (the first year being the one of conclusion of the contract), if these expenses derive from the transfer of permanent residence to an inland territory (as defined in Decree 208/2017 of 13 July).}

^{(5) The deduction is allowed in respect to expenses incurred with the following services:

- Maintenance and repair of motor vehicles;

- Maintenance and repair of motorcycles and related parts and accessories;

- Accommodation and food service activities;

- Hairdressers and beauty salons;

- Veterinarian expenses including medicines.}

^{(6) Includes health and insurance expenses, education and training expenditures, retirement home fees, deduction for requesting the issuance of an invoice, costs with immovable property, alimony expenses and tax benefits. In households with three or more dependants , the above limits are increased by 5% per dependent or civil godson, which is not a taxpayer.}

Gross income of each category

(-)	Deductions on gross income
(=)	Net income of each category
(-)	Deductions of losses
(=)	Taxable income
(÷)	Family quotient (1 or 2)
(x)	PIT rate and additional solidarity rate
(-)	Deductions
(x)	Family quotient
(=)	PIT assessed
(-)	Tax deductions (including tax benefits)
(=)	Tax liability
(-)	Withholding tax + Payments on account
(=)	PIT (payable/to be refunded)

Simulate your PIT liability using PwC’s simulations

Former tax residents

Tax regime

This tax regime establishes a 50% relief from taxation on employment or self-employment income received by former tax residents upon their return to Portugal.

Entities required to withhold tax on the income covered by this tax regime shall levy the applicable withholding taxes on half of the income paid or made available.

Conditions

The regime applies to individuals who become Portuguese tax residents, under Portuguese domestic law in 2019 or 2020, provided that they:

did not qualify as tax residents in the Portuguese territory in the previous three years;
qualified as tax residents in Portugal prior to 31 December 2015;
have their tax situation regularized;
did not apply for the non-habitual residents tax regime.

The regime applies for 5 years, including the year in which the individuals return to Portugal.

Non-habitual residents

Taxation

Portuguese sourced employment and self-employment income, derived from “high value-added activities of a scientific, artistic or technical nature” (included in a list of activities published by the Portuguese Government), received by non-habitual residents in Portugal is subject to a special tax rate of 20%.

Additionally, the regime also establishes a tax exemption for foreign-sourced income, such as employment income, self-employment income, rental income, interest, dividends as well as other investment income, under specific conditions.

The regime is applicable for a period of ten consecutive years.

Conditions

The regime applies to individuals who become Portuguese tax residents, under Portuguese domestic law, in a specific year and have not qualified as tax residents in Portugal in any of the previous five years.

Specificities

The status of non-habitual tax resident becomes effective upon registration with the Portuguese tax authorities. Application should be filed until the 31st March of the year following that which the taxpayer becomes tax resident in Portugal.

Acquisition of shareholdings by employees

Gains derived from stock options plans, subscription plans, attribution plans or equivalent share plans on securities issued by the employer are exempt from taxation, with a cap of € 40,000, subject to certain conditions.

Retirement Savings Accounts

Interest are exempt from taxation on the amount of a balance of ≤ € 10,500.

Intellectual property

Author rights obtained by a Portuguese tax resident who is the respective original owner, benefit from a 50% tax relief. However, the amount excluded from taxation is capped at € 10,000.

Venture capital funds

Capital gains derived from the sale of participation units are taxed at a 10% rate.

Collective investment vehicles in forest resources

Capital gains derived from the sale of participation units in real estate investment funds, or shares in real estate investment companies in forest resources, are taxed at a 10% rate.

Capital gains realized by non residents

An tax exemption applies to the disposal of:

shares, other securities and autonomous warrants issued by Portuguese tax resident companies;
derivatives negotiated at a regulated stock exchange;
participation units in venture capital funds.

Exceptions apply in case of:

residents in tax havens;
disposal of shares in companies whose assets are comprised in more than 50% of real estate located in Portugal.

Employer contributions to social security regimes

Employers' contributions to pension funds (or other complementary social security regimes) are PIT exempt at the moment of the contribution, provided certain requirements are met.

Athletes

Prizes and awards granted to disabled athletes, high performance athletes and their coaches are tax exempt.;
Sports training grants awarded to non-professional sports agents (players, referees, judges) are tax exempt, up to € 2,375;
Compensations paid to non-professional referees and umpires are excluded from taxation, up to € 2,375.

Savings

Interest from deposits or from any investment scheme in a financial institution, as well as from public debt instruments, benefit from a tax exemption for 1/5 and 3/5 of the respective value, as long as the investment is not withdrawn for at least 5 or 8 years, respectively, and the maturity occurs at the end of the contracted period.

Tax benefits to expatriates

Employees that are displaced to a foreign country, which is not their habitual workplace, for a period of 90 days, 60 of which are consecutive, have a tax benefit. This benefit consists of a PIT exemption, applicable to the amount of the remuneration paid to the employee by the Portuguese employer, exclusively as a compensation for moving and staying abroad (up to € 10,000).

“Programa Semente” / Start-ups

This tax benefit is applicable to individuals investing in start-ups, allowing a PIT credit of 25% of the eligible investment. This investment is limited to shareholdings not exceeding 30% of the share capital or of the voting rights. It should be represented by cash contributions actually paid, and, among other requirements, the annual amount of the eligible investment cannot exceed € 100,000.00 per taxable person.

This deduction is capped at 40% of the PIT payable, carried forward to the two following tax years in case of insufficiency of the PIT.. However, the eligible investments cannot exceed the de minimis threshold established by EU rules on matters of state aid.

Capital gains arising from the sale of shares are not taxable if the investment is held for at least 48 months and the sales proceeds are reinvested in the same year or the year following the sale.

Tax Guide 2020 | PIT