Tax in Portugal applies to residents and foreign nationals alike earning income in the country, either as employees or self-employed individuals. The latter are usually required to pay taxes only in Portugal. Those who have met the requirements for foreign residency for at least 183 days are taxed on income earned both in Portugal and overseas.
The Portugal tax year ends on December 31 of every year. The filing deadline is April 30 for individuals and May 31 for companies. Taxpayers can make up to three advanced payments in July, September, and December, with a fourth payment of 1% allowed on the day of the filing.
Like most countries, Portugal computes tax rates according to brackets, where higher earners pay a higher rate than lower earners. This applies to both individuals and businesses, with exemptions and deductions where applicable, and regular adjustments for inflation. For individuals, the rate is progressive, meaning it adjusts every year. In 2010, the individual income tax rate ranged from 10.5% to 42%. The minimum rate applies to those earning €4,793 or less, while the maximum is for incomes of €64,624 and up.
For corporations, the rate was 12.5% for those earning €12,500 or less, and 25% for those earning more. A local tax of up to 1.5% is also added, bringing the total up to 26.5%. However, in Azores and Madeira, which are free-trade zones, certain companies can qualify for reduced tax rates. This depends on the type of company and the year it was established in these zones.
Companies in Portugal also pay capital gains tax on top of regular income tax. Capital gain is profit earned from the sale of assets such as stocks and real estate. If proceeds from these sales were held for more than a year, the company only pays tax on 50% of the total, provided they were reinvested in full. Dividends and capital gains earned by holding companies are usually exempted, as are some types of dividend income.
Individuals selling real estate and using the proceeds to buy a new residence are exempt from capital gains tax. However, they must have used the old home as a primary residence and live in the new one as well. The sale and purchase must take place within a given time frame to qualify for the exemption. Proceeds from selling shares are subject to a 10% tax rate if held for less than one year.