In 2024, Portugal’s Personal Income Tax (PIT) system defines taxable income comprehensively, including all sources of employment and self-employment earnings, benefits, and capital gains. For both expats and residents, understanding these provisions is essential for managing tax obligations effectively.
Employment Income
Employment income encompasses all forms of payment from an employer, including salary, bonuses, commissions, various allowances, and benefits in kind, such as company cars and housing benefits. Special allowances, such as those for travel and lunch, are also taxed if they exceed predefined state-permitted limits.
Benefits in Kind: Many employer-provided benefits, including housing and car usage, are subject to PIT. For example, if an employee is assigned a company car, the taxable benefit is calculated based on the car’s market value. Housing benefits enjoy a temporary PIT exemption until December 2026, provided specific criteria are met.
Redundancy Payments: These are taxed on the amount that surpasses the average annual salary received over the past year. Higher-level employees, such as managers, may find their redundancy payments fully taxable.
Self-Employment and Professional Income
Self-employed individuals and sole traders have two primary taxation options: a simplified regime for incomes below EUR 200,000 or taxation based on detailed accounts. Under the simplified regime, tax rates differ by activity type, with general service incomes taxed at 0.75% and others at 0.35%. The system requires verification of professional expenses to qualify for deductions, which can help reduce the taxable amount.
Capital Gains and Investment Income
Capital gains are generally taxed at a flat 28% rate, though certain reductions apply for gains from small companies. Property sales are partially exempt, with only 50% of the gain subject to tax, and full or partial exemptions are possible if the proceeds are reinvested in another primary residence within Portugal or the EU.
Dividend and Interest Income: Dividends and interest income are also taxed at 28%, with reductions or exemptions available under certain conditions. For instance, half of the EU-sourced dividends may be subject to tax if disclosed.
Rental Income
Rental income from residential properties is taxed at 25% for contracts signed or renewed after recent legislative changes, though the taxpayer may opt to aggregate this income in some situations. Additionally, individuals who consistently rent out properties may treat this income as business income, which can affect its tax treatment.
Key Takeaways
Portugal’s tax system for 2024 offers various exemptions and structured tax options for residents and non-residents. Navigating these opportunities allows individuals to optimize their tax positions by leveraging deductions and available exemptions. Understanding these rules enables proactive tax planning, ensuring tax efficiency under Portugal’s evolving regulations.
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