7 Portugal Tax Myths Expats Must Drop (2025)

Published on 30th June, 2025

Myth 1: The Old NHR Scheme Makes All My Income Tax-Free.

Reality: This is perhaps the most pervasive myth, stemming from Portugal's previously generous Non-Habitual Resident (NHR) regime. The original, broad NHR programme, which offered significant tax advantages on foreign income and a flat 20% rate on certain Portuguese-source income for 10 years, officially ended for new applicants on January 1st, 2024. While individuals who secured NHR status before this date are generally grandfathered in for the remainder of their 10-year term (provided they meet the conditions), new arrivals cannot apply for the old scheme. There is a new, more targeted incentive often referred to as "NHR 2.0" or the Tax Incentive for Scientific Research and Innovation (IFRICI - Incentivo Fiscal à Investigação Científica e Inovação). This new regime primarily benefits those employed in specific high-value roles related to scientific research, higher education, and technology, offering a 20% flat tax on qualifying Portuguese-source employment/self-employment income and exemptions on certain foreign income, but its scope is much narrower than the original NHR.

Action: Do not assume you qualify for the old NHR benefits. Verify your eligibility for grandfathering rules if you initiated residency steps in 2023, or carefully check if your profession falls under the specific categories eligible for the new IFRICI scheme. Consult a qualified tax advisor to understand your precise situation under the current 2025 rules.

Myth 2: All My Foreign Income is Automatically Tax-Exempt in Portugal.

Reality: Even under the old NHR regime, the exemption of foreign income wasn't automatic for all types of income. Tax treatment depends heavily on the specifics of the Double Taxation Agreement (DTA) between Portugal and the country where the income originates, as well as the type of income (e.g., pensions, dividends, interest, rental income, employment income). Portugal generally uses the exemption method or the credit method as defined in the relevant DTA. If income can be taxed in the source country according to the DTA, Portugal might exempt it (under old NHR rules) or offer a tax credit. If the source country cannot tax it, Portugal usually retains the right to tax it. For standard tax residents (not under NHR or IFRICI), foreign income is generally taxable in Portugal, with credits available for foreign taxes paid to avoid double taxation, as per DTA provisions.

Action: Identify the DTA between Portugal and the source country of your income. Understand how your specific income streams (pensions, investments, salary, etc.) are treated under that treaty and Portuguese domestic law. Obtain professional advice to ensure correct reporting and tax payment.

Myth 3: Portugal is a Blanket Low-Tax Country.

Reality: While Portugal offered attractive incentives like the NHR, its standard income tax system is progressive and not inherently low-tax compared to all other nations. For tax residents in 2025, Portuguese-source income (and worldwide income, subject to DTAs) is taxed at progressive rates that climb steeply, potentially reaching a top marginal rate of 48%, plus potential solidarity surcharges (2.5% to 5%) on income exceeding €80,000. Without qualifying for a specific beneficial regime like the grandfathered NHR or the new IFRICI, your tax burden could be substantial.

Action: Calculate your potential Portuguese tax liability based on the standard progressive rates unless you are certain you qualify for and have registered under a specific incentive scheme. Budget realistically for your tax obligations.

Myth 4: I Only Become a Tax Resident If I Spend 183+ Days in Portugal.

Reality: The 183-day rule is just one of the criteria for establishing tax residency in Portugal. You can also be considered a tax resident if you spend fewer than 183 days but maintain a "habitual abode" (habitação própria permanente) in Portugal during the tax year – essentially, a home available to you that implies an intention to occupy it as your primary residence. If Portugal is your main centre of life and habitual home, you may be deemed a tax resident even with less than 183 days spent physically in the country.

Action: Understand all the criteria for Portuguese tax residency, not just the day count. Consider where your primary home is located and where your vital personal and economic interests lie. Don't assume staying under 183 days automatically avoids tax residency if Portugal is effectively your home base.

Myth 5: Reporting My Foreign Bank Accounts is Optional.

Reality: This is incorrect and potentially risky. As a Portuguese tax resident, you are generally required to declare your worldwide income. Furthermore, under international agreements like the Common Reporting Standard (CRS) and FATCA (for US persons), Portugal automatically exchanges financial account information with numerous other countries. Portuguese tax authorities require residents to report the existence of bank accounts held abroad on their annual tax return (Anexo J).

Action: Ensure full transparency and declare all worldwide income and foreign bank accounts as required by Portuguese law on your annual tax return. Failure to do so can lead to penalties. Consult a tax advisor if you are unsure about your reporting obligations.

Myth 6: Property Taxes in Portugal are Negligible.

Reality: While property might be more affordable than in some other Western European countries, the associated taxes are not insignificant and must be factored into your budget. Key property taxes include:

• IMT (Imposto Municipal sobre Transmissões Onerosas de Imóveis): A property transfer tax paid by the buyer before completing the purchase. Rates are progressive for urban residential properties (up to 7.5% or 8%, depending on the source) and flat for rural properties (5%).
• IS (Imposto do Selo): Stamp Duty, also paid by the buyer on purchase, typically at a flat rate of 0.8% of the property"s value.
• IMI (Imposto Municipal sobre Imóveis): An annual municipal property tax levied on the property's rateable value (VPT). Rates vary by municipality but generally range from 0.3% to 0.45% for urban properties.

Action: Obtain accurate calculations for IMT and IS before purchasing property. Factor the ongoing annual IMI cost into your homeownership budget. Be aware these taxes can represent a substantial cost, both upfront and annually.

Myth 7: Tax Advice from Expat Forums and Social Media is Reliable.

Reality: While online communities can be helpful for sharing experiences, tax advice found there is often anecdotal, outdated, oversimplified, or specific to someone else's unique situation. Tax laws change (as seen with NHR), and individual circumstances (income types, residency status, family situation, and other citizenships) dramatically affect tax obligations. Relying on informal advice can lead to non-compliance and penalties.

Action: Always seek personalised advice from a qualified tax professional who is knowledgeable about both Portuguese tax law and the tax system of your home country or other relevant jurisdictions. This is an investment in your financial security.

Conclusion: Navigate with Clarity

Moving to Portugal can be a wonderful experience, but navigating its tax system requires clarity and accurate information. Dispelling these common myths is the first step towards ensuring your financial well-being in your new home. Understanding the current rules for 2025 and seeking professional, personalised advice are crucial for a smooth transition and compliant tax affairs.

Which of these tax myths were you potentially holding onto?

Published in: Guide to Portugal / Portuguese Life / Property