Portugal’s 2023 state budget: what you need to know

Who pays tax in Portugal?

Portugal has a tax system based on residency. If you spend 183 days or more in Portugal in a calendar year, you are considered a tax resident and must pay tax in Portugal on your worldwide income. If you're non-tax resident in Portugal, only income earned in Portugal is taxed.

Residents in Portugal for tax purposes are taxed on their worldwide income at progressive rates varying from 14.5% to 48% for 2023.

Portugal has a PAYE (pay as you earn) system for employed workers, where taxes are automatically deducted. Personal Income Tax (PIT) is known as Imposto sobre o rendimento das pessoas singulares (IRS).

2023’s revised resident income tax rates

Note that the longstanding Non-Habitual Resident (NHR) regime remains unchanged.

The main highlights of the 2023 State Budget Law include:

Taxation of real estate capital gains of non-residents

• Non-resident taxpayers will no longer be able to take advantage of the flat rate of 28% on capital gains from the disposal of property.
• The rules for residents, which non-resident taxpayers will now have to follow, involves including 50% of the capital gains and taxation at the general and progressive rates (up to 48% plus a single rate of up to 5%).

Real Estate Transfer Tax (IMT)

The IMT (Imposto Municipal sobre as Transmissões Onerosas de Imóveis) is a real estate transfer tax due whenever property ownership is transferred.

• The exemption on buying real estate for resell will now apply to taxpayers who can show that they have sold property they bought for this purpose in the last two years. (Before, they only had to show that they had done this in the last year.)
• If the real estate is transferred within a year of the date of the exchange, it will no longer be subject to the rule that says the taxable value is the higher of the difference in values or the taxable asset value.
• The exchanger who transfers property must notify the Tax Authority within 30 days of the transfer.
• IMT is only due in the case of an acquisition of an urban property or building unit in an urban property, exclusively for permanent residential use, if the taxable basis exceeds € 97,064 (formerly, € 93,331).

See also: Live in Portugal – your residency options

Municipal Property Tax (IMI)

The IMI (Imposto Municipal sobre Imóveis) is charged by your municipality and is used towards maintaining local municipal services and infrastructures.

• There will be an increase in IMI on vacant buildings and houses used as local accommodation. Buildings or ruins that are in bad shape because of a natural disaster or other calamities will not be subject to the MPT increase that applies to vacant buildings.
• Municipalities may raise the IMI rate that applies to buildings in urban pressure zones as follows:
  • In cases where the buildings are used for local accommodation, up to 100%
  • In cases of homes that are not rented or used as the taxpayer's primary residence, up to 25%
  • In cases where a taxpayer is a legal person or other equivalent entity can go up to 50% 

Stamp Duty

• Exemption on housing loans.
  • Any mortgage loan extensions signed between 1 November 2022 and 31 December 2023 will be exempt.
  • Additionally, any new contracts for debt refinancing and, in some cases, the giving of new guarantees or security for loans that are already in place will also be exempt.

Value Added Tax (VAT)

• The VAT exemption limit will be increased. The previous VAT exemption limit of 12,500 will be raised to 13,500 in 2023, 14,500 in 2024, and 15,000 in 2025, from 12,500 in 2018.
• The deadline for filing the VAT returns for the month of June or the second quarter is extended to 20 September, and the payment deadline is extended to 25 September.
• VAT will be reduced on vegetable-based drinks, yoghurts, butter, margarine, and creams, which will now be taxed at 6%.
• There will now be a 6% tax on the supply and installation of solid biomass local space heaters with a rated thermal input of less than 50 kW and solid biomass boilers with a rated thermal input of less than 500 kW that meet certain conditions, as well as on biomass pellets.
• Taxpayers will be able to deduct a portion of the VAT paid by any member of the household for a subscription to a periodical newspaper or magazine, either in print or online.

Taxation of crypto active assets

A taxation regime for crypto assets has been defined, including digital representations of values or rights that can be transferred or stored electronically using distributed ledger technology.

• Unique and non-fungible crypto assets will be excluded.
• The same rules as those applicable to income in kind apply for the equivalent cash value of crypto assets.

The following highlights the tax measures that directly impact individuals:

Category B (Business and Professional income)

• Transactions involving the issuance of crypto assets, including mining, or the validation of crypto asset transactions via consensus mechanisms will be classified as commercial and industrial activities i.e. business income and taxed accordingly.
  • If such income is acquired by a taxpayer subject to the simplified regime for determining taxable income, only 15% of it is taxable. The remaining 85% is considered a business expense (i.e., only € 15 of every € 100 is effectively taxed). When a taxpayer exceeds the €200,000 limit in a previous year, the net income is calculated using the Organised Accounting regime. This requires proof of actual expenses incurred.

• In the case of mining income, the taxable base will be 95% of the total amount (i.e., € 95 of every € 100). Mining activities will face increased taxation as a result of their environmental impact.
• Income generated by the aforementioned transactions is considered realised when the crypto assets are transferred for consideration. Both the termination of the activity and the loss of Portuguese residency are considered transfers.
• Regardless of the method used to calculate taxable income, business income will be subject to progressive tax rates.

Category E (Investment income)

• Remuneration derived from crypto asset transactions (e.g., staking, off-chain operations, etc) will be considered capital income for PIT purposes.
• Capital income will be taxed at a rate of 28%, with no withholding required. Although there is no withholding tax, taxpayers are required to report it to the tax authorities.
• When remuneration is in the form of crypto assets, the income is taxed as capital gains at the time the crypto assets are disposed of.

Category G (Capital Gains)

• The income from the non-professional sale of crypto-assets is included in the exhaustive list of capital gains taxable under Personal Income Tax (IRS).
• A full exemption scheme is planned for income derived from the sale of crypto-assets held for 365 days or more, taking into account the period before the entry into force of the State Budget (i.e., the exemption applies to the sale of crypto-assets held for more than one year, even if this period elapsed before 2023).
• If the consideration is provided in the form of another crypto-asset, tax deferral will occur at the moment the income is realised (e.g., when crypto-assets are exchanged for fiat currency) or when the taxpayer changes his tax residence (exit tax).
• The above-mentioned exemption and tax deferral will not apply, however, if the taxpayer or counterparty is not a resident of a member state of the European Union, the European Economic Area, or another country with which Portugal does not have an agreement to exchange information for tax purposes.
• The taxable capital gains are calculated based on the difference between the sale value and the acquisition value, with the possibility of deducting some expenses incurred in acquiring the crypto-assets disposed of.
• If taxpayers do not choose progressive tax rates, capital gains from the sale of crypto-assets with a positive balance will be taxed at a 28% rate.

Taxation of the gratuitous transfers of crypto-assets

• The disposal of crypto-assets through gratuitous transfers (e.g., donations, inheritance, etc.) that do not result in taxable capital gains may be subject to 10% stamp duty.
• Gratuitous transfers will be subject to a stamp duty whenever:
  • The crypto-assets are deposited in institutions with registered offices, effective management or permanent establishment in Portuguese territory 
  • The deceased was domiciled in Portugal, in inheritance cases 
  • The beneficiary is domiciled in Portugal, in the remaining operations
• In general, the beneficiary of the gratuitous transfers should pay the stamp duty. Nonetheless, some stamp duty exemptions may apply (for example, transfers in favour of spouses, ascendants and descendants).

Taxable value for property transfer tax

• When exchanging crypto-assets for real estate, the transaction's taxable value for property transfer tax purposes will be, in theory, the market value of the crypto-assets on the date of the transaction.

Stamp duty on crypto-asset service providers' commissions

• The purchase and maintenance of crypto-assets, as well as commissions and other types of consideration charged by crypto-asset service providers, will be subject to 4% stamp duty.

Although the legal obligations in connection with the assessment and payment of the tax lie with the providers of crypto-assets, these providers may pass on the burden of this tax to their customers.

Tax benefits

• Rental income generated by municipal programmes that provide student housing for displaced students and have a rent limit will now be exempt from PIT and CIT.
  
• The percentage of relevant investments that may be deducted in calculating CIT has been raised from 25% to 30%.

Corporate Income Tax (CIT)

• Expenses incurred in acquiring travel cards for employees will be deductible at 150% rather than 130%.
• Autonomous taxation at a rate of 10% will apply to cars that can only run on electricity and whose purchase price is higher than the value set by the government resolution.
• Taxation of income related to crypto assets under the simplified tax regime, which is not considered capital income, capital gains, losses, or asset increases, are taxed by applying a coefficient of 0.15. Income from asset mining activity is subject to a coefficient of 0.95.

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