The Portugal Tax Experts

We help expats use the generous tax breaks in Portugal

FRESH Portugal is a Portuguese desk of FRESH, an international legal practice with 15 lawyers spread between the US, UK, Israel and now Portugal. We advise expats who are coming to Portugal from all over the world.

Portugal offers incredible lifestyle. It is also has one of the highest tax rates in Europe, alongside some of the most attractive systems of tax breaks in the world.

Our firm is the only boutique international firm operating in Portugal. As such, we are able to holistically look at people's sources of income, assess their taxes from the perspective of different countries and identify the best solutions for them.

Zeev Fisher

Lawyer (England & Wales, Israel)

Zeev is an IP and tax lawyer, qualified in the UK, Ireland and Israel, a partner in the US offices of FRESH and an angel investor. His legal practice focuses on cross border aspects of ambitious international businesses.

Dirk Cluckers

Tax advisor (Belgium)

Dirk is a seasoned tax advisor who started his career working for IBM, later moving to private practice. He has over 20 years of experience dealing with international taxation. He lives in Portugal and advising expats in Portugal on cross-border tax matters.

Magda Feliciano

Lawyer (Portugal)

With approximately 20 years of experience as a senior tax lawyer in Portugal, Magda supports the Fresh team with a strong view on Portuguese taxes. Magda also resides in the Portuguese tax arbitration court as an arbitrator, giving her strong insights on the decision-making process of the authorities.

Rebecca Castro

Lawyer (Portugal and Brazil)

With over 7 years of experience spanning work in the United States, India, Brazil and Portugal, Rebecca adds a further international dimension to Fresh. As a tax lawyer, she focuses her practice on contentious proceedings versus the authorities, including civil and criminal tax proceedings

Pedro Abreu

Tax Lawyer (Portugal & Brazil)

Pedro is a specialized lawyer with a master's degree in tax law and with an accumulated experience of 6 years between works in Portugal and Brazil. In addition to his refined knowledge in the tax area, Pedro's previous experience in the public sector gives him a unique view of the legal aspects of taxation. Pedro's work at Fresh will be directly focused on the development and structuring of tax consulting strategies and administrative and tax litigation.

Bryan Rathgeber

Attorney (US)

Bryan is a tax lawyer, qualified in Texas (US), and working from our Lisbon office. His legal practice focuses on advising Americans who are moving to Portugal and he is in charge of setting up an operation of filing tax returns in the US for American expats living in Portugal.

Henrique Faria

Tax Lawyer (Portugal & Brazil)

Based in Lisbon, Henrique is a Portuguese tax lawyer and the digital nomad & crypto expert at Fresh-Portugal! He has a sound experience as international taxation lawyer for over 15 years working for renowned law firms like DLA PIPER and multinational companies such as BASF and SHELL. He holds a Master of Laws (LL.M.) from the University of California, Berkeley Law, USA. Henrique also brings to the Fresh team his tax expertise acquired in his last work cycle in Portugal within the web3 and crypto community.

Nicolas Danziger

Head of Collaborations

Nico is a lawyer by background and a communications specialist that had worked for several companies around the world, including Think Tanks and political communications agencies. He is a people skills professional that brings Fresh a close and dedicated approach to our client and partnership relations.

Tax consultation: If you want an understanding of how expat taxes work

A senior tax expert will help you plan your taxation when moving to Portugal.

PERSONAL TAX PLAN: if you want a comprehensive written report on optimising taxation

We offer a personal, tailored, tax planning to people who want to take their financial freedom in their own hands. Tax planning includes a drill down into your tax situation and an individual, tailored plan that you can follow.

Tax return for 2022 - Late Filing

Our most common tax return and is meant for people with income streams that include income from work, profits, pension and investments.

Self-employment / activity add-on for 2024 (previously "subscription")

This package supports people who need to use the self-employment system in Portugal.

Solving tax problems

We help people solve difficult problems with the tax authorities, such as lost NHR status, residency by error, mistaken tax returns etc.

One of our most popular services is helping expats file their annual tax returns. For the tax year 2023, we will offer for the first time an integrated tax return service - filing in both the US and Portugal under the same roof. Our tax return service is the only service designed specifically for dealing with taxes of expats. This includes utilizing the Foreign Earned Income Exclusion in the US and the NHR in Portugal. We are also covering also taxes that do not fall under that scheme. It incorporates our interpretation of the most recent case law and dealing with common income streams of expats. Our most common tax return and is meant for people with income streams that include income from work, profits, pension and investments. How much does it cost? Our early bird is now fully booked but we are still offering an introductory price of 1200 Euros + IVA for both tax returns. You can secure it by paying 75 Euros now and the remainder early in 2024. As this is the first year we offer this package, we expect to stop taking new bookings well ahead of the tax season. What does it include? Please read our tax return service description on the website. This service includes approximately 95% of personal tax returns in the US and Portugal. In special cases of very complex income in the case of the US (for example, foreign companies with additional reporting requirements) or Portugal (for example, a large number of capital gains transactions or crypto transactions), we may have to depart from our fix fee cost. The service also includes FBAR filing, but it does not include filing tax returns for businesses if such are needed (such as LLCs that you own) or state tax returns. Tax returns include a call to review the income streams but it does not include tax planning consultation.

One of our most popular services is helping expats file their annual tax returns. We are often approached by expats who have been consulting high street accountants and received conflicting information. The tax return form is confusing but is easy for a local accountant to fill. The challenge is in the classification of income. Our tax return service is the only service designed specifically for dealing with taxes of expats under the NHR scheme, covering also taxes that do not fall under that scheme. It incorporates our interpretation of the most recent case law and dealing with common income streams of foreigners. Our most common tax return and is meant for people with income streams that include income from work, profits, pension and investments. Who needs to file a tax return? You need to file a tax return if you were a tax resident in Portugal during 2023. You also need to file a tax return if you were not a tax resident but had income in Portugal (such as from a Property in Portugal). How much does it cost? In 2020, the cost of our tax return service started at 400 Euros and had gradually risen throughout the tax season to 700 Euros. This includes a return for an individual or a couple filing together. It covers almost any return, apart from returns with large amounts of capital gains transactions where we need to charge a bit more. If you book now, you can have the secure price of 500 Euros + IVA, 50 payable now and the remainder early in January 2024. What does it include? This service covers 95% of standard tax returns in Portugal. In very special cases where the returns are very complex, such as in the event of multiple capital gains/crypto transactions, we may need to depart from the standard fix fee, but we will give you ample notification of that.

Quality tax advice requires spending time understanding a person's individual situation.

We created Joana for two reasons:

1. We wanted everyone to be able to understand not just the basics of the NHR regime but also how it applies to them.

2. Since Joana collects a lot of valuable information, she saves us time and makes paid consultations with us more efficient.

Joana is not meant to replace a human tax attorney, but she is a very helpful member o our team and a great way to start.

Talk to Joana now (free!)
TAXBOT image
We designed a special service for filing tax returns under the NHR.

Try our tax calculator now to estimate your 2022 taxes.

Go to tax calculator.
Any time is a good time for tax planning, but the best time is as early as possible, preferably before coming to Portugal and before having a NIF issued.

People who are coming to Portugal with a certain business structure will very rarely be doubted, even if the structure is highly efficient from a tax perspective. People who change structures will often be questioned by the tax authorities. Changing structures after coming to Portugal is not impossible, but it's much harder than doing it early.

More on this here.
The Non-Habitual Residency tax regime is a 10-year preferential tax regime in Portugal, targeted at people who have not lived in Portugal for the last 5 years. See our guide to NHR.
Anyone who has not been a tax resident in Portugal for the last 5 years can use the NHR as long as they apply on time (up to 31 March the year after becoming tax residents).

People often confuse eligibility and use of the NHR system and more specifically, one of the benefits of NHR is a reduced tax rate in certain high value professions. However, having one of these professions is not a requirement in obtaining NHR status and we often advise people how to benefit from the NHR even if they are not working in any of these professions.
It depends on the type of advice that you want.

Tax lawyers are experts in tax planning. A tax lawyer looks at the sources of income and will suggest ways to utilise tax breaks and reduce the overall tax burden. The advice given by tax lawyers is confidential and remains between their clients and themselves. As experts of the law, tax lawyers are usually more expensive than accountants and charge for consultation.

Accountants are experts of auditing and doing the books. Their primary role is to help their clients with reporting requirements. Many accountants will offer tax advice to their clients . If a tax case is audited, tax accountants have to disclose the advice that they gave to their clients.

Ideally, you should use a tax lawyer for tax planning and an accountant for ongoing administration and bookkeeping.
Would you prefer to be operated by a surgeon or by a family GP?

Many firms in Portugal offer a wide range of services, ranging form immigration, to property, civil litigation and they also offer tax advice.

Indeed, we would expect any lawyer to know "a little bit about everything" but believe us - tax law is really complicated and it is also very creative. So yes, it is easier to use the same people you already know for everything you need, but it is unlikely that they will have the expertise and depth of tax knowledge to give the best advice.

Apart from being tax lawyers who focus our practice on advising expats, we are also an international boutique with qualified lawyers from Portugal and multiple other jurisdictions.  

The reason that this is so important is that the NHR system does not allow Portugal to impose tax in many cases when the other country has the right to impose tax. It is therefore impossible to advise on Portuguese taxation without understanding the systems that interact with it and who is better placed to understand such system than lawyers in these jurisdictions?

When we create a tax plan, we consider how the countries' different tax systems interact with each other, we understand the sources of income and the different forms of incorporation and investment vehicles used by people.

And finally, we offer big-4 quality advice and solutions in accessible prices.

We have qualified lawyers in the UK, US and Portugal but we advise expats who are coming to Portugal from all countries. We are experts of reading and understanding double taxation treaties and we have very good familiarity with exit taxes and similar situations.

We do not advise on taxation in countries where we are not qualified but we often coordinate advice with a tax expert in the country that people come from. Our advantage is knowing how to do that - what questions to ask, and how the systems interact with each other. 
Many people don't understand the difference between international tax lawyers and high street accountants. Think brain surgeons vs. a family doctors.

At FRESH, we do a lot as free service to the community. We encourage everybody to join our free FB group, read our free content , use our free taxbot or the free tax calculator.

However, our time and expertise is reserved to our good paying clients.
When a person moves from one country to another, more than one legal system is involved and often, more than one tax expert is needed.

At Fresh, we normally have a lead advisor whose responsibility is to collect all the facts. This advisor would be an expert in one jurisdiction. Such lead advisor will discuss the situation, as needed, with tax advisors qualified in all the involved jurisdictions.

In an interview with CNN Portugal, the prime minister of Portugal Antonio Costa had announced that the NHR scheme "no longer makes sense" and will "end in 2024". 

This raises many questions to people who are in Portugal, are planning to move to Portugal or are already in the process of moving. We decided to write this post to tell you what we know and what we don't know about this anticipated change. We will update it as we find out more. 

We will also discuss it in our upcoming webinar on October 12, 2023.

Is it actually going to happen? 

We cannot know for sure until the end of the legislative process, but probably yes. The socialist government has a majority and making a vague announcement followed by a change of legislation has been the typical way in which this prime minister operated in the past. 

When will NHR go away? 

The PM said "2024". This does not mean that on 1 Jan 2024, the NHR program will be gone. It is actually more likely that the program will persist through the entire 2024, since legislative changes take time. However, there is a possibility that the legislation will be rushed as part of the budget and the program will indeed by cancelled on Jan 1, 2024, but it will be hard for the government to achieve and open to legal attacks. We estimate that the program will end sometime in the middle of 2024, but we could be wrong.

Will it fully go away?

That is the biggest enigma. When the prime minister announced the end to the golden VISA program, public pressure eventually made him go back on his word and keep some of the golden visas routes alive. With the NHR, the prime minister mainly complained about the reduced tax on pension income. It is fairly likely that the anticipated loss of skilled labor will lead to some walking back and keeping parts of it. It is unfortunately impossible to tell.

What about people who already have NHR status?

People who already have the status are unlikely to be affected. This would be a violation of a constitutional principle in Portugal and the prime minister himself noted that "whoever has the status will keep it". 

I'm already in Portugal and am a legal resident. Should I apply for NHR as soon as possible?

Yes. Considering the risk, that would be the safest and smartest thing to do.

I'm in Portugal but not yet a legal resident. What should I do?

To the extent possible, you should try to rush in view of the uncertainty. 

I wanted to move to Portugal but haven't yet started the process. Should I continue?

It is likely that if you start the process now, you will still make it to Portugal and be part of the NHR regime. However, there is no certainty. If you tend to procrastinate, we advise against waiting. If you don't abandon your plan, you should rush.

What if I'm going to miss the deadline? Should I still move to Portugal?

We will be here to advise on the best strategy in a world with or without NHR. 

Need individual advice? Book here:


Tax residency is a crucial consideration for individuals who move to a new country, as it determines which country has the right to tax their worldwide income. Portugal has become an increasingly popular destination for expatriates. Yet, the question of "when does a tax residency start actually start?" remains nuanced and elusive.

  • First, we should understand what tax residency actually is.
  • Second, we need to understand the legal definition pertaining to obtaining tax residency. 
  • Third, we need to understand the Portuguese self-declaration system, when it applies and when it does not.
  • Forth, we will discuss what happens if someone is a tax resident in more than one place. 
  • And Fifth, we will discuss losing tax residency.

1. What is tax residency?

Tax residency is the legal status that determines where an individual or entity is subject to taxation. It is not solely determined by the number of days spent in a country; various factors, including ties to the country, economic interests, and intentions to reside, can also play a role. Different countries have different criteria for establishing tax residency and in many cases, it could be unclear where a person is tax resident.

Importantly, tax residency is different to legal residency. A person can be a legal resident but not yet a tax resident. A person can also be a tax resident, but not a legal one (such as in the case of illegal migrants - they may not have the right to live and work in Portugal, but they are still obliged to pay taxes). However, legal residency and tax residency interact as will be explained below.

2. Portugal's legal criteria for becoming a tax resident

In Portugal, the legal criteria for becoming a tax resident is based primarily on meeting one of the following tests:

1. The 183-Day Rule: if an individual spends 183 days or more in Portugal during a calendar year, they are generally considered tax residents for that year. 

2. Having a home (or "habitual residence") - even people who don't meet the 183-day threshold can still be considered a tax residents if they have a "habitual residence" in Portugal. This means having a permanent home available in Portugal and the intention to maintain and occupy it as their main residence. This criterion can be subjective and depends on various factors such as family ties, professional activities, and social connections in Portugal.

Residents who meet said criteria for a particular year should be considered tax residents for the entire year based on the law. Alas, the legal criteria does not reflect the practical treatment.

3. The self-reporting system 

The criteria described above is, as a matter of fact, not practical. 

The first option (183 days) cannot be determined because Portugal is part of the Schengen borderless travel area and people can leave and return to Portugal without any passport control. It is therefore impossible to know if a person has been in Portugal for 183 days in a given year.

The second option requires knowing the psychological state and mental intentions of people, since the criteria requires knowing if people intend to maintain a home.

Due to the difficulty to determine presence and intentions and also for practical reasons, Portugal in fact rarely relies on the legal criteria for tax residency. Instead, if relies on people's own declaration. People coming to Portugal are required to register as tax residents with the tax authorities within 2 months of obtaining their permanent home. The registration is done by associating a Portuguese address with their NIF number

In practice, the authorities treat the date that the NIF has been associated with a Portuguese address as the date of tax residency in the vast majority of the cases. So, although that date is hardly ever consistent with the legal definition, it prevails in practice. Furthermore, Portugal allows people to report a partial tax year that starts from that day and only declare the income from that date in a given year. This could create both anomalies and tax planning opportunities. 

So is the legal definition meaningless in practice? Unfortunately not. At times, the Portuguese tax authorities will backdate the tax residency dates and apply what it believes to be the legal definition. This is known to happen primarily in the following situations:

  • When people buy a home in Portugal and pay primary residency tax rates. We assume that this is because paying such taxes is seen as an admission of an intention to occupy as a primary home.
  • To the date of the SEF appointment. We assume that this is because obtaining legal residency normally requires staying in the country for 183 days so people are assumed to do so.
  • To a date reported by a Portuguese employer as a day that a person took a job in Portugal. This happens even when people have not been legal residents when they took a job, so it is very important that employers use non-resident codes, but employers often do not.  

As you can see, the important date is normally the date of the NIF with the Portuguese address but not always, and taxpayers are better off being careful trigger a backdating action.

4. What happens if a person is a tax resident in more than one place?

The criteria in different countries differ and it is possible that someone is considered a tax resident in Portugal based on Portuguese law and in another country based on the law of that country. 

Portugal has a network of double taxation treaties with various countries to prevent individuals from being taxed twice on the same income. These treaties often contain provisions that can override the domestic tax rules of either country, affecting how tax residency is determined. In the event of a clash, the tax treaty should be consulted and there would normally be "tie breaker" rules helping to identify where a person is a tax resident.

5. Losing tax residency

Many people are worried that if they do not spend 183 days each year in Portugal, they will lose their tax residency and thus their access to NHR benefits. 

This is a common misconception. The 183 days and habitual residence rule are meant to determine when a person becomes a tax resident. Once a person becomes a tax resident, tax resident is not normally lost even when a person travels extensively. Tax residency is lost if a person both does not meet the criteria in Portugal and meets the criteria in another country. In other words, a digital nomad based in Portugal who became a tax resident by self-registering (and normally, meeting the criteria in a given year) will normally continue to enjoy NHR benefits unless he settles in a new country and meets the criteria there. 

Needless to say, that residency rights can be impacted by extensive travel, but these are a separate issue to tax residency.


In Conclusion

Most people become tax residents in Portugal from a practical perspective when they associate a Portuguese address with their NIF. 

In some specific cases, the authorities will seek to overrule the date of the NIF and apply a different date based on a number of known (and perhaps unknown triggers).  

The legal definition of 183 days / habitual residence is vague and it may not apply if it is overcome by a double taxation treaty with another country. 

And finally, tax residency is not normally lost unless a person moves to a new country. 

It is important to remember that each individual's situation is unique, and seeking professional advice is recommended to ensure a smooth transition.

Tutorial on How to Request IRS Installment Payments

As the tax payment deadline approaches, it's essential to explore the available payment methods. Instead of paying the full amount upfront, you can opt to request an installment plan from the Tax Administration. Your request will be reviewed and decided upon.
This online request can be initiated through your Finances Portal. If your IRS debt is under €5,000, follow these steps:

Log in to the Finance Portal using your NIF number and password. Search for "Prestações" (installments) and select "Planos prestacionais" (installment plan). Choose "Simular/Registar Pedido" (simulate/make request) and select the IRS assessment you wish to pay in installments. Then click "Simular". Choose the condition "Sem apresentação de garantia" (without presenting collateral) and click "Confirmar" (confirm). Select the number of installments.Under "Razão Económica" (economic reason), state the reason for the request. In the field "Justificação do motivo indicado anteriormente" (justification for the reason indicated above), provide a brief explanation in Portuguese. 

Finally, click "Registar o pedido" (submit the request). If your debt exceeds €5,000 but can still be paid within 12 months, no collateral is required. Alternatively, you can make partial payments to reduce the debt to €5,000 and then proceed with the installment plan, which can extend up to 36 months.

If you can't adhere to these terms, and need an extended time to pay, you must present collateral along with your installment plan request. This collateral can be in the form of a bank guarantee, real estate, mortgage, or shares:
a)bank guarantee or guarantee from an institution legally authorized to provide it.

b) Surety bond or collateral issued by legally authorized insurance institutions

c) Mortgage. The guarantee should be provided for the amount of the debt and default interest, counting up to the date of the application, plus 25% of the sum of those amounts.

To proceed with this request, follow the same steps in the Portal. After selecting "Simular/Registar Pedido," indicate the type of collateral you intend to present, and then specify the number of installments.

After submitting the request, send a copy of the collateral to the Tax Office through e-balcão. You have 15 days to provide the original guarantee document to the Tax Office where you are registered.

To find out your competent Tax Office, log in to your Finances Portal, select the "Posição Integrada" (integrated position) option under My Area, and click "Dados Gerais de Identificação" (General Identification Data). There, you will find your competent Finance Service code.

Lastly, note that even if your debt is under €5,000 and no collateral is required, your request will be accepted only if you've met two additional requirements: timely submission of the declaration and absence of any other tax debt with the Portuguese Tax Authority.

The tax season is over now and as the leader in filing expat tax returns, we plan to soon publish some of our insights.

However, before that, we should be addressing something that came up quite a lot during the tax season - the cost of filing a tax return.

A bit like the Tardis, Portugal is sometimes bigger on the inside. From the outside, it seems like a relatively small country, but inside, there are a few completely different worlds and it's not just the Portuguese and expats but it's also different groups within the expat community. 

A little while ago, we left a post in the FB group that suggested that charging a few hundreds of Euros for a tax return is taking advantage of people and indeed, many people in Portugal are perfectly happy to do their own tax returns or pay a local accountant 30 or 50 or 100 Euros and feel that this is the right price for the task of filing a tax return. From their perspective, charging 400-700 Euros as we do (or more) is outrageous. 

At the same time, not a single one of the 150 people who used us to file a tax return this year considered the price to be anything other than reasonable.

During the tax season, we did not want to engage in too much of a debate and we are aware that this could be a heated subject, but we felt that the case for paying hundreds of Euros for a tax return need to be made for the future, so we are making it here.

These are the primary arguments:

1. getting taxes right is important.

Most procedures in Portugal would let you correct errors. If you mess up a form for exchanging a driving licence or even an immigration form, you will normally have an opportunity to correct the error. 

If you make an error in your taxes, you have a limited time to submit an amended return, there is normally a fine and an increased chance of an audit. If you miss the deadline, there is nothing you can do anymore.

So, getting taxes right in the first time is more important than any other administrative process.

2. Sometimes you can't get it right 

Importantly, getting the taxes entirely right is sometimes not possible. The NHR has many grey areas and the form is lacking on some points. This means that there are points where rather than submitting your taxes in only one way (as is the case for most nationals), there are multiple ways and you need to run a risk assessment and understand the risk-benefit analysis of each option. 

This is a nuanced and difficult exercise that needs to be understood and communicated very carefully. Local accountants will rarely be skilled in communicating nuance and possibilities even if they understand them well. Instead, they will tell their clients "let's see what happens" or "maybe it will work" which leads to anxiety and feeling of lack of control

3. Enforcement is minimal but when it happens, it is brutal

One of the reasons that very low quality services exist in Portugal is the low rates of audits. Many mistakes are never identified. Unfortunately, many mistakes lead to automatic assessments of high tax rates but some do not and these could go unnoticed for years. 

However, when a case is picked up for an audit, the authorities can be very aggressive. Since we also have a litigation department, we see the cases that are picked up and have seen people receiving tax assessments of hundreds of thousands of Euros. Many if not most of the people who engage with the tax authorities after an audit end up leaving Portugal.

4. Expat taxes aren’t normal taxes. Taxes are normally handled by accountants, but expat taxes are business for lawyers or very specialised accountants.

We see this ALL THE TIME – people looking for a local accountant to submit their taxes, assuming that just because they could use any accountant in their original country, they can do the same for expat taxes and failing to understand the complexity and nuance of the NHR system. 

The NHR system is so complex that each stream of income is treated differently and each source country is treated differently. US expats are exempt from capital gains on securities whilst everybody else isn’t. Canadian government pension is taxed in Portugal, whilst American and British isn’t. US board members generate foreign-sourced income, whilst British board members do not. 

Filing NHR taxes correctly requires understanding Portuguese tax law, following the most recent jurisprudence and being able to read and understand complex double taxation treaties. It also often requires collaboration between a qualified professional in Portugal and one in the US, UK or another country. This means that the pool of competent professionals who know how to do it correctly is narrow.

5. Failing to read the cultural cues.

Most expats come to Portugal with expectations engrained in their culture that the person who they speak to will tell them what they know and what they don’t know and refer them if needed to someone else. 

However, this is not how Portuguese service culture works. 

The Portuguese professionals are very polite and avoid conflict. 

They will rarely say “no” to work directly. They will take the work but if they encounter difficulties, they will normally address it by  making themselves unavailable and fail to respond to messages. 

Expats are often puzzled when not receiving a reply on the same day and are not sure what to do. In reality, a long pause in communication is normally an indication of a problem that is not being communicated directly.  

6. A 30 or a 100 Euro fee is paid to type the form. It's impossible, even for a small local firm, to do anything more than that

As experts in expat taxation, we are obsessed with figuring out the correct answer to every question. Some returns bring no new points but occasionally, we come across complex matters - income obtained on board ships out of territorial water, income obtained from the United Nations, income by pilots, employment income split between jurisdictions. When we do - we can spend hours researching the law and jurisprudence, we have panels of experts and external advisors and we dig in until we get to the bottom of it. Charging properly for our work allows us to do that.

What does a professional charging 30 Euros for a tax return do when coming across a complex matter? They aren't paid for research - they are paid for completing the form, so they would either disappear or make up an answer and hope not to get audited. 

7. Lawyers are better when things go wrong

Lawyers and accountants can both help clients with tax returns. For normal tax returns, accountants are a sensible choice, but for expat tax return, lawyers have the edge. 

The reason is that lawyers are better in dealing with grey areas and are also that they can have your back if there is a disagreement. If the tax authorities fail to accept your position, accountants would fold and refer you to a lawyer, but lawyers can take your position to arbitration or to court and continue to argue it. Having access to the judiciary allows lawyers to take bolder positions and defend them and this could be critical to tax rates. 

Importantly, all advice from lawyers on tax matters is confidential, whilst advice from accountants is not. This means that the tax authorities could demand to receive a copy of the advice given by accountants, whilst they cannot do the same for legal advice. 

8. Many returns aren't as straight-forward as clients think

Many people believe that their tax returns are simple and straight forward, but in reality, even pension income is tax differently depending on source and country and nearly all NHR tax return are fairly complex, certainly in comparison to a standard tax return in Portugal. 


It is clear to us that many people are struggling and are not in a position to pay hundreds of Euros. We hope to offer means-based support next year. In the meantime, we urge you to read our information and guides on the site - these are all free of charge. 


For other who can afford it, we hope that we have now made the case clear why it is good to be investing in doing taxes properly. We don't expect to convince everybody, but we believe that it is important to articulate our position.

We also take this opportunity to remind everyone that we are now taking super early bird bookings for our next year's tax return service in Portugal only or Portugal and the US

Portugal, like many other countries, has a requirement for individuals to file an annual tax return and classify their income.

It is for the taxpayer to make their best effort to classify their income correctly and the tax you owe depends on how you report it, so long as your report is uncontested by the tax authorities. 

The considerable movement of many expats to Portugal in recent years has inadvertently created some complex tax questions, with some income streams being rather hard to classify. 

One such complex income stream is distributions from a ROTH IRA for American taxpayers. 

ROTH IRAs are US retirement saving instruments that allow taxpayers to frontload the payment of tax to a type of investment account that can then be allowed to grow tax free. The taxpayer therefore pays tax on an amount that is released to the ROTH IRA at an early stage and then benefits from ongoing capital growth within the ROTH IRA. This is opposite to most private pensions, where the contributions to the pension provide a relief from taxation when they are made, whilst tax is payable when the money is received. 

Portugal does not offer any guidance on the taxation of ROTH IRA and to understand how they should be taxed requires an analysis of the Portuguese legislation. 

First and foremost, it is important to understand that a ROTH IRA is a type of savings account that becomes accessible during retirement. Under Portuguese law, this is precisely the definition of pension. Pensions in Portugal are subject to a flat tax rate of 10% during the Non-Habitual Residency (NHR) year and progressive rates apply thereafter. Portugal does not offer an equivalent product to ROTH IRA and the taxation should be analysed on the basis of Portuguese law. 

However, not all the income received from a ROTH IRA is pension. Article 54 of the Portuguese IRS code states that if an annuity scheme includes a portion corresponding to the reimbursement of capital, that portion is not taxable. This provision makes sense since it involves returning money to the taxpayer that was already taxed. 

The Portuguese law further states that if it is not possible to identify the capital reimbursement within the total payment received, 85% of the payment is deducted as an assumed capital reimbursement. Since in most cases, the capital growth is considerably larger than 15%, it would have been lucrative for taxpayer to attempt to argue that it is not possible to identify the capital reimbursement, but in fact, it is normally possible and the correct treatment is to treat all moneys paid from the ROTH to the taxpayer as capital reimbursement as non-taxable amounts and the money paid from capital growth as pension, taxable at 10% during NHR and progressive rates afterwards. 

This leads to another question – does the taxpayer have the flexibility to classify the return of capital or capital growth within the IRA as one or the other, so long as an amount lower than the total capital initially converted has been returned to the taxpayer? Our view is that the answer to this question is positive, but whether it is better for the taxpayer to treat all the initial amount as capital return or not depends on the individual circumstances of the taxpayer. For example, if the taxpayer intends to leave Portugal after the NHR period comes to an end, it would make sense for the taxpayer to classify all distributions as capital return and only start classifying distributions as capital growth once the entire initial amount has been returned. 

However, if the taxpayer intends to stay in Portugal and is in risk of progressive taxation that is higher than 10%, it is better for the taxpayer to classify the earlier distributions as pension and wait until a later time to classify the remainder as capital return. 

A more aggressive interpretation would be to attempt to apply the 85/15 rule despite the ability to identify the total amount of capital growth within the ROTH IRA because such application cannot be made in respect to specific payments. Such an interpretation is literally possible and could be helpful for taxpayers. 

In the absence of clear instructions from the authorities, it is for taxpayers to choose a reasonable manner to report their income. Ideally, in the future clear guidelines would be provided to help individuals accurately report their ROTH IRA income and fulfill their tax obligations. 

In conclusion, there are a number of ways to report ROTH IRA income in Portugal, but the guiding principle is that capital return is not taxable and capital growth is taxable as pension income.


While living in Portugal as a British expat can be an attractive proposition due to the tax-friendly environment offered by Portugal's Non-Habitual Residence (NHR) regime, the taxation of dividends from UK companies can be more complex than initially anticipated. 

In this blog post, we will explore the tax implications for British expats in Portugal receiving dividends from UK companies, highlighting the challenges of split-year taxation, returning to the UK within five years, and the risks associated with a UK company being deemed tax resident in Portugal due to effective management being located there.

Understanding the Tax Environment in Portugal: 

To comprehend the tax implications for British expats in Portugal, it is crucial to understand the NHR regime, which was introduced in 2009 to attract foreign professionals and high net-worth individuals. The NHR status provides tax exemptions on foreign-sourced income (including dividends) and reduced tax rates on certain Portuguese-sourced income for ten years. It is important to note that this tax scheme is only available to those who have not been Portuguese tax residents in the five years preceding their application.

Taxation of Dividends from UK Companies: 

Under the NHR regime, dividends received from UK companies are generally exempt from Portuguese taxation, as long as they are not sourced from a tax haven. The UK is particularly attractive as it normally does not impose a withholding tax on dividends paid to a non-resident despite having the right to do so.

Risks of Split-Year Taxation: 

When relocating to Portugal, a British expat's tax year may be split between the UK and Portugal, resulting in a 'split year.' 

This occurs when an individual leaves the UK in the middle of the UK tax year (which normally starts, inconveniently, from early April). 

Under the split-year treatment, income received during the UK part of the tax year is subject to UK tax, while income received during the Portuguese part of the tax year follows the rules of the NHR regime. 

This general rule does not apply to dividend income. Dividends paid to a non-resident in a split year cannot be considered excluded income and is therefore taxed in the UK fully.


Returning to the UK within Five Years: 

Another potential risk for British expats in Portugal is the "temporary non-residence" rule. This UK tax rule affects individuals who return to the UK within five complete tax years of leaving. If a British expat receiving UK dividends returns to the UK within this time frame, they may be subject to UK tax on the dividend income received while they were non-residents, even if the dividends were exempt from Portuguese tax under the NHR regime.

The Risk of UK Company Deemed Tax Resident in Portugal: 

British expats should also be cautious of their UK company being considered a tax resident in Portugal by virtue of its effective management being located there. 

According to the double taxation treaty between the UK and Portugal as well as domestic Portuguese legislation, a company can be deemed tax resident in the country where its "place of effective management" is situated. 

Consequently, dividends paid by a UK company deemed tax resident in Portugal may be subject to Portuguese taxation instead of being exempt under the NHR regime.

This risk can be mitigated in various ways, including by ensuring that strategic decisions and board meetings take place in the UK and that the majority of the company's directors are UK tax residents. Maintaining accurate documentation is essential to support the company's tax residency claims.

The tax filing season will shortly start. 

At Fresh Portugal, we file more tax returns for expats than any other company in Portugal. 

Despite our very best efforts to make our own tax return service affordable, some people have told us that they cannot afford our tax filing service priced at 700 Euro. We therefore decided to put together a guide to help people better understand how taxes in Portugal work and how they should file their tax return. 

As you will see below, the main issue with filing a tax return is not filling the form. The hard part is classifying the income. It is not always obvious or easy to understand what a certain type of income is and therefore we provide some guidance below. 

Those filing themselves or using neighborhood Portuguese accounting firms are welcome to use this guide to review how their income should be classified. Ready? Here we go! 


  • Apply for NHR!

The NHR scheme is not automatically granted for recent residents in Portugal, there is an administrative deadline to follow, which is March 31st of the following year in which you became a tax resident in Portugal. 

  • Getting familiar with Modelo 3

You can go into the IRS form – Model 3. You can find the digital form on your Finances Portal. The important thing to know about how to fill the Mod 3 form is that the burden of classifying and matching the income with the existing types provided by Portuguese law is entirely yours

You can check the types of income provided by the Portuguese tax law on articles 2 to 11 of the IRS Code. 

You will see categories A to H income: 

A: employment income
B: self-employment income
E: capital income
F: income from property (rental)
G: capital gains
H: pension income 

After correctly classifying and matching your types of income to the Portuguese classification, you have to identify whether the income is Portuguese sourced or foreign-sourced. 

A lot of people make mistakes at this point, because the decisive criteria here for the most important income types – employment and self-employment income - is not where your clients are, but where you do the work from

And finally, to access the 20% flat rate for employment and self-employment income, you have to identify if you have a high value activity. Portugal have changed this list over the years according to the professions most needed in the country. We have the current list of high value activities at another post of our blog. 

  • Common pitfalls:

 Here are a few mistakes that we see frequently: 

  • You don’t have to hold a high value profession to be eligible to the NHR. The only criteria you have to meet is not being a tax resident in Portugal for the last 5 years and inform the country where you were a tax resident before coming to Portugal.

  • Also, if you have been a tax resident just for a portion of the first year, you don’t need to declare the income incurred in the entire year. Also, if you have to file a partial declaration for the year and want to file together with your partner, you have to make sure your tax residence dates match.

  • Portugal has an accrual tax accounting system, different from the American system, so for example, you don’t need to report bonuses when received if it was incurred in the past years (when you were not a tax resident in Portugal).

  • Another typical mistake has to do with profit from a US LLC. Such profits are normally classified as self-employment income in the US, but in Portugal, the only known decision on the matter deals with this income as capital income.

  • As mentioned before, is very common to misunderstand foreign-sourced income with Portuguese income when your client base is outside Portugal or the company you work for is a foreign entity. The place where the work is done from that defines where the income is sourced.

  • Along with the domestic laws and the NHR rules, you always have to analyse the Double Taxation Treaties between Portugal and the country you have business with. The double taxation treaty leads to different outcomes depending on what country the income comes from.

  • Finally, it is important to be consistent between jurisdictions, so that the information you submit on both returns match as much as possible.

Classifying income

The below tables show how we normally classify income and could give a good indication to you and/or your accountant.

Kindly note that we are not responsible to how you choose to classify your income when working with other firms!


Income typeManagement / work donePT/Foreign sourcedNormal tax treatment Modelo 3
LLC (not S-Corp)PortugalPortuguese sourced incomePT capital income (28%)Annex E (4)
LLC (not s-Corp)Outside PTForeign sourcedForeign sourced capital income (0%)Annex J (8) + Annex L (6)
S-Corp/LLC Scorp election – salaryWork done in PTPortuguese sourced income20% + SS in PortugalAnnex A (4) + Annex L (4) (6)
S-Corp/LLC Scorp election – salaryWork done outside PTForeign sourced income0%Annex J (4) + Annex L (5) (6)
S-Corp/LLC Scorp election – distributionsPortugalPortuguese sourced incomePT capital income (28%)Annex E (4)
S-Corp/LLC Scorp election – distributionsOutside PortugalForeign sourcedForeign sourced capital income (0%)Annex J (8) + Annex L (6)


  • Income from other companies (UK, EU, but not black-listed)
Income typeManagement / work donePT/Foreign sourcedNormal tax treatment Modelo 3
SalaryWork done in PTPortuguese sourced income20% + SSAnnex A (4) + Annex L (4) (6)
SalaryWork done outside PTForeign sourced0%Annex J (4) + Annex L (5) (6)
DividendManagement in PTPortuguese sourced incomePT capital income (28%)Annex E (4)
DividendManagement outside PTForeign sourced incomeForeign sourced capital income (0%)Annex J (8) + Annex L (6)
  • Employment income
Income typeWork donePT/Foreign sourcedNormal tax treatment Modelo 3
In Portugal, high valueWork done in PTPortuguese sourced income20% + SS in PortugalAnnex A (4) + Annex L (4) (6)
In Portugal, not high valueWork done in PTPortuguese sourced incomeStandard rates + SSAnnex A
From outside Portugal, high valueIn PortugalPortuguese sourced income20% + SS in PortugalAnnex A (4) + Annex L (4) (6)
From outside Portugal, not high valueIn PortugalPortuguese sourced incomeStandard rates + SSAnnex A
From outside Portugal + effective taxFrom fixed base + DTTForeign sourced income0%Annex J (4) + Annex L (4) (6)
  • Self-employment income
Income typeWork donePT/Foreign sourcedNormal tax treatment Modelo 3 
In Portugal, high valueWork done in PTPortuguese sourced income20% + SS in Portugal (subject to coefficient)Annex B + Annex (4) (6) + Annex SS
In Portugal, not high valueWork done in PTPortuguese sourced incomeStandard rates + SS (subject to coefficient)Annex B + Annex SS
From outside Portugal, high valueIn PortugalPortuguese sourced income20% + SS in PortugalAnnex B + Annex (4) (6) + Annex SS
From outside Portugal, not high valueIn PortugalPortuguese sourced incomeStandard rates + SSAnnex B + Annex SS
From outside Portugal + not high value + risk of tax under DTTFrom fixed baseForeign sourced incomeStandard rates + SSAnnex B + Annex SS
From outside Portugal + high value + risk of tax under DTTFrom fixed baseForeign sourced income0%Annex J (6) + Annex L (5) (6)

  • Capital income (dividend, interest)

Income typeSourcePT/Foreign sourcedNormal tax treatment Modelo 3
Capital incomePortugalPortuguese sourced income28%Annex E
Capital income, risk of tax under DTTFrom outside PortugalForeign sourced0%Annex J (8) + Annex L (6)
  • Property income

Income typeSourcePT/Foreign sourcedNormal tax treatment Modelo 3
Capital gainPortugalPortuguese sourced income28% * coefficientAnnex G
Capital gain, risk of taxationFrom outside PortugalForeign sourced0%Annex J (9) + Annex L (6)
ALPortugalPT sourced income28% * coefficientAnnex B (15)
RentPortugalPT sourced incomeSee special ratesAnnex F
Rent, risk of taxationOutside PortugalForeign sourcedNormally 0%Annex J (7) + Annex L (6)
  • Capital gains (securities)

Income typeSourcePT/Foreign sourcedNormal tax treatment Modelo 3
Capital gainPortugalPortuguese sourced income28%Annex G
Capital gainFrom outside PortugalForeign sourced28%Annex J (9)
Capital gain, American citizens (risk of tax)From outside PortugalForeign sourced0%Annex J (9) + Annex L (6)
  • Pension (any retirement savings)

Income typeSourcePT/Foreign sourcedNormal tax treatment Modelo 3
Pension from PortugalPortugalPortuguese sourced incomeNormal ratesAnnex A (4)
Pension, NHR before 2020From outside PortugalForeign sourced0%Annex J (5) + Annex L (5) (6)
Pension, NHR before 2020From outside PortugalForeign sourced10%Annex J (5) + Annex L (5) (6)
Government pensionFrom outside PortugalForeign sourcedSee the DTTAnnex J (5) + Annex L (5) (6)

  • Using

Fresh Portugal created a tax calculator with the most common foreign income types, leaving the classifying work with us.

Fresh Portugal's primary focus is optimising the benefits awarded by the NHR regime to expats coming to Portugal. 

However, the NHR benefits are subject to a harsh deadline imposed by the tax authorities in Portugal. 

The deadline

A tax resident must apply to obtain NHR status until the 31st of Marth, during the year following the year of becoming a tax resident. 

In other words, if someone becomes a tax resident during 2022, they should apply for NHR status until 31/03/2023. Or at least, so say the authorities.

One may remember that the tax residency date is normally based on self-declaration - the date that the person associated an address in Portugal with their NIF. 

However, the tax residency date can be backdated by the authorities if the relevant taxpayer met the legal definition of a tax resident prior to that date - i.e. if the tax resident stayed in the country for longer than 183 days in a prior year or had a primary residence. 

The primary residence rule can theoretically be applied to rental properties, but in practice the authorities normally treat a residence owned by the tax payer where taxes of a primary residence have been paid as an admission that the intention is to occupy the residence is a primary residence.

Deadlines missed due to Catch 22 

Joseph Heller's mythical novel Catch 22 is remembered for multiple paradoxes where you cannot do one thing without doing the other first and you cannot do the other before doing that one thing. 

Since tax residency can be backdated, so can the deadline for NHR, so a sensible strategy would be to apply for NHR as soon as possible rather than wait to the last minute to avoid any risks of backdating.

However, the authorities add a further paradox - they normally do not let people change their address to a Portuguese address before obtaining a residence permit. In other words, they say "you cannot register as a tax resident before you are legally registered as a resident". 

On a first glance, this appears like a reasonable statement, but in fact, this statement is entirely false. Tax residency has to do with the physical presence of a person in a country and that person's duty to pay taxes. Being in a country illegally does not in any way take away the person's duty to pay taxes and it is therefore no coincidence that there is nothing in the tax residency legal definition about legal residency. The two things are unrelated concepts. 

However, in practice, the authorities normally prevent registration from people who are not yet legal residents. Furthermore, the ever growing waiting time for SEF appointments leads to a paradox - it could take many month before legal residency can be registered, but the tax residency could be backdated once this happens.

If is therefore possible for someone to miss the NHR deadline at no fault of their own - simply due to the waiting times at SEF. 

Strategy 1 - set the record straight

One strategy to addressed the said missed deadline is to convince the authorities that the taxpayer's tax residency had in fact began in a later year. This is a common strategy when people arrive in Portugal and register at the end of a calendar year. 

This is better done by disputing the initial refusal of NHR. A further deadline of 15 days is set out for that. 

The golden evidence to shift tax residency is a legalised tax residency certificate from the other country. However, these could take a while so it is often wise to first obtain the certificate and then apply for NHR, so that the negative outcome could be disputed straight away. A further procedure of amending the records is also available. 

Strategy 2 - dispute the legality of the denial

It may come as a huge surprise to readers, but the NHR law does not in fact set any deadline to apply for NHR. The deadline has been set by authorities in separate ordinances which many experts (and us amongst them) argue, is illegal as the executive cannot take away a right given by the legislator. 

One would consider whether taking away a benefit publicly advertised to attract people to Portugal for a mere few days formal delay of submitting an online form presents a reasonable outcome. Even those opposing the NHR regime for ideological or political reasons would normally admit that in-so-far as the regime exists, it is unfair and unreasonable not to apply it consistently to the entire group that it covers, even if such people believe that the rights given to this groups are unfairly given.

And indeed, taxpayers have now disputed tax assessments denying NHR treatment to people who missed the deadline a number of times. Such disputes have been made in arbitration courts, so these were specific tax assessments and may not be respected by the authorities for future years, but the emerging trend is clear - the arbitration courts did not believe that it is acceptable for the authorities to deny NHR status due to the missed deadline.

This understanding of the arbitration center in Portugal can be attested in the decisions of the arbitral pronouncements "Processo nº 188/2020-T"; "Processo No. 777/2020-T"; "Processo No.: 815/2021-T"; "Processo nº 319/2022-T".

The position of the CAAD in these decisions has been consistent - regarding the matters of the tax regime applicable to non-habitual residents, the registration referred to in paragraph 10 of article 16 of the IRS Code assumes a merely declarative nature and does not constitute the right to be taxed under such regime.

This means that the registration does not condition the application of the regime, only the criteria established by Law serve this purpose.

It is unfortunate that the authorities continue to deny NHR treatment due to missed deadlines but taxpayers have a path to resist. Please free to consult us.

One of the most frustrating revelations for people moving to other countries is the fact that the employment relationship that they have can rarely continue as such.

Why employment doesn't work?

The main reason that employment relationship rarely works is the sense that the common arrangement in tax treaties between countries is that people are liable to pay taxes (both income tax and social security) in the country where they reside. As a result, in order to legally employ someone in a different country, the employer needs to register with the authorities in that country and deduct taxes for the other country.

In addition to this practical difficulty, having an employee in another country risks the creation of a Permanent Establishment or in other words, risks that the country of residence of that employee will seek to attribute some of the profits of the company to the employee and tax such profit. 

EOR - a solution?

To resolve this problem, there are companies that act as a de-facto employer and take on the administrative tasks related to employment, including payroll processing, benefits administration, and compliance with labour laws. These are called "Employer of record" companies (EOR) and they allow companies to legally employ in other countries. 

Employers of record are a practical and compliant solution for employers seeking to employ in other countries but are, in our opinion, the worst possible option for people moving to Portugal.

The costs of an EOR in Portugal

EOR don't come free and incur some setup costs. The costs can vary between hundreds or thousands of Euros per employee per month. 

However, it is not the EOR costs as much as the it is the employment taxes that are the main issue.

Income tax

Employees who work for international companies in Portugal are often paid salaries that are considerably higher than the average salary in Portugal. The sliding scale of taxation in Portugal is designed around the local population and it therefore rapidly reaches 45% in addition to a potential further 2.5-5% solidarity tax.

Many people working in a high value activity under the NHR scheme enjoy a reduction to a 20% flat tax rate.

So far so good.

Social security

This is where the real trap is. Social security is levied at a 23.75% over employers in Portugal (including EORs). In addition, the employee pays 11%. The total social security burden is therefore 34.75% (!) There is no social security ceiling so any amount suffers the 34.75%.

Overall tax burden 

Together, the tax burden of employing via an EOR is approximately 50% taking into account the 20% preferential tax rate

For people not in high value activity, the tax rate could be as much as 70%.

For many companies, this is a prohibitive rate.



A reasonable alternative to using an EOR is creating a contract relationship and having the employee register as self-employed in Portugal.

Portugal encourages freelancers and the tax benefits under the NHR scheme work better for freelancers. 

Income tax

The 20% special tax rate is further reduced by the application of the simplified regime, allowing for taxation of only 75% (in most cases) of the income (and achieving approximately 15% tax rate).

Social security

Self-employed individuals pay 21% social security but this is further reduced by the application of a the simplified regime by taxing only 70% of the income, leading to an overall rate of approximately 15%. In addition, there is a waiver on social security for the first year and a cap of approximately 1,200 Euros a month.

Overall taxation

The overall taxation of high value activities of freelancers therefore starts at around 15% and doesn't go over 30%. This is a reasonable tax rate. 

Indeed, using the self-employment mechanism leaves employers exposed to a hypothetical risk of the creation of a PE, but this risk could be mitigated considerably by avoiding a physical office and not awarding the freelancer a signing authority. We are not aware of a single case in Portugal, ever, where the risk had been more than theoretical. 

Working via a company

Another option is for the employee to set up an entity - either in Portugal or outside of Portugal and bill the employer via said entity. This option reduces the risk of a PE further and could lead to varying taxation depending on the exact structure chosen. 

One of the side effects of the large rise of Americans moving to Portugal is also the considerable use of unique US structures. 

We have already written about the treatment of US LLCs in Portugal and it is now time to say a few words about S Corporations (S Corp / S-Corp) or LLCs that elect to be taxed as S-Corps.

S-Corps are a unique vehicle that is only available to US citizens. It is a desirable structure when living in the US because it shields some of the income that people have from social security payments, leading, mostly, to a reduced overall tax rate. S-Corps are also an efficient vehicle for various deductions.

However, for people living in Portugal, S-Corps (or LLC/SCorps) are not a recommended vehicle in our view, even for people with NHR status, for reasons explained below.

Income from S-Corp - US perspective

S-Corp must pay their shareholder-employees a reasonable salary. A reasonable salary needs to be a sensible market compensation. Most S-Corp shareholder-employees pay themselves approximately 40% of the profits as a salary. The IRS is cracking down on people trying to reduce the salaries below "reasonable".

Over and beyond the salary, the S-Corp can retain or distribute its profits. Distributed profits are not considered earned income and are therefore not subject to social security payments. They are, however, pass-through income, i.e. they are allocated to the owners regardless of whether they have been distributed or not. 

It is important to remember that whilst distributions are exempt from social security payments in the US, there is another side to the coin - since they are not earned income, they will not be benefiting from the Foreign Earned Income Exclusions and will be fully taxed in the US.

Income from S-Corp - the Portugal position

The salary

As we have seen, S-Corp owner-employees much pay themselves a salary. 

The double taxation treaty between the US and Portugal gives both countries taxation rights over salary income.

The default clause on salary income in the double taxation treaty sets out that salary is taxed at the country of residency unless the work is done in the other country. In other words, the default position is that work done from Portugal is taxed in Portugal regardless of where the employer is or where the clients are.

However, the saving clause gives the US taxation rights over all income by US citizens regardless of what other clauses say.

The bottom line is that both countries can tax the salary.

Many people mistakenly believe that the fact that the combined effect of the US's right to tax the salary, the effective taxation in the US that is deducted at source and the NHR regime that exempts foreign sourced employment income that is taxed at the source country leads to no taxation in Portugal.

This position may be on many tax returns but it is legally wrong

Since work done from Portugal, even for a US employer and US client is sourced in Portugal both in accordance with the double taxation treaty and in accordance with Portuguese domestic legislation, the NHR exemption does not apply as it only applies to foreign-sourced income.

The outcome is reverting to the default position - Portugal has the first right of taxation. 

S-Corp employment income should therefore be reported to the tax authorities in Portugal as Portuguese-sourced income and tax should be paid in Portugal first, claiming a refund on the US tax return, leading to a cash-flow problem. 

However, the problems do not end there. Employment income in Portugal is also subject to social security contributions in Portugal. Social security contributions in Portugal are paid BOTH by the employee AND by the employer. 

Therefore, employees in Portugal should be income tax and social security and their S-Corp employers should technically register with the Portuguese authorities and pay employers' social security. 

The combined effect of doing things "by the book" would be a tax rate of the salary portion of approximately 54% under the NHR regime with no social security cap.


The distributions

Distributions from an S-Corp that is genuinely a US entity would likely follow the rationale set out in processo 2360/2016 (covered here in relation to LLCs) and will be considered foreign-sourced capital income that is exempt from tax in Portugal under the NHR regime. 

However, the risks of partnership LLCs apply to this income in an equivalent manner. Particularly, if the S-Corp is managed from Portugal, it could be considered a tax resident in Portugal and thus not benefiting from the exemption.

When would S-Corps be a good structure?

When an S-Corp is very profitable, e.g. can legitimately pay a relatively small salary and relatively high distributions, it can be a better structure than a standard LLC. 

In such a specific scenario, the combined benefits on the US and the fact that it is slightly less likely that its status as a company will be questioned in Portugal, can give the S-Corp the edge.

However, these are rare occasions.

Bottom line

We believe that S-Corps are a ticking time bomb. 

There are many people not following the correct treatment who are under enormous risk of future audits in Portugal going 4 years backwards.

for those who have any flexibility, we generally do not favour S-Corps and recommend to sacrifice the social security benefits in exchange for a much more straight forward structure.

The day has arrived and our much anticipated tax calculator for expats is finally up and running. Our tax calculator is the first product to estimate taxes for expats under the NHR scheme. There is nothing quite like it.

But estimating taxes is not enough. Eventually, a tax return need to be filed and at Fresh we designed the best-in-class tax return filing service, designed around our calculator.

Early on in our journey, we consulted our clients and the expat community and a large majority told us that they would not feel comfortable self-filing their taxes. Further conversations have made it clear that nearly everyone filing their taxes in Portugal would want to consult a tax lawyer before doing so. We therefore made it a standard part of our service. 

Our tax filing package (500 Euros)

Our most common tax return and is meant for people with income streams that include income from work, profits and investments. 

Once you book our service, we will ask you to provide us your income information and personal details and will book a consultation with a tax attorney to discuss it. 

This will be followed by filing and reporting the tax return.

Our standard packages do not include responding to queries from the tax authorities, arguing with them or taking them to court.  

Fresh Membership  (125 Euros a month)

For people who have complex income, or people who need regular access to tax services, including people who are self-employed in Portugal and need to file VAT and social security reports, we designed a membership package that includes the tax return but also ongoing consultancy. 

Next steps

The next step would be to book a package with us. If you are not sure about which package you need, do not worry, you can change it later. 

One of the most important tools in the toolbox of the tax advisor is identifying income from intellectual property. Tax planning that takes advantage of intellectual property is very common at big corporate level, but unfortunately, rarely utilised when it comes to individual taxpayers due to the niche expertise needed in both tax and intellectual property. 

The two most important principles of taxation is tax residency and the source of the income. The NHR in Portugal exempts most types of foreign sourced income. This leads to a great deal of planning that focuses on using non Portuguese companies and taking dividends out of these companies as an alternative to incorporating in Portugal.

Such structures have risks that need to be mitigated as part of planning. These risks have to do with both the residency of the company and the sourcing of the income.

Companies that are managed from Portugal could be considered residents in Portugal. 

Income generated from work in Portugal could be considered Portuguese-sourced. 

Whilst foreign companies remain one of the most important pillars of tax planning, foreign-based structures that are not based on a genuine trade outside of Portugal require a high level of risk mitigation.

Intellectual property, however, can give rise to royalty income. Royalty income falls under the NHR and will not be taxed in Portugal if it is sourced in the other country and can be taxed in the other country. The vast majority of the double taxation treaties that Portugal is a party to provides for possible (very low) taxation of royalties so foreign royalties are almost always exempt from taxation in Portugal. 

However, the truly great benefit of royalties is that the typical clause in the double taxation treaty sets out that the location of the payer has preference in determining where the income was source. This is in sharp contrast to income from work, which is sourced where the work is physically done.

The outcome is that if someone living overseas pays a person to use their intellectual property, the income is genuinely foreign sourced and issues of sourcing and residency should not arise.

It is very common in the course of trade that businesses own intellectual property - this could be brands, websites, copyrighted materials, software etc. However, small businesses tend to ignore the existence of such intellectual property rather than charge for using it. It is often the case that income that is classified as self-employment or employment income is actually wrongly classified and in fact, some of the income relates to intellectual property owned by the taxpayer. Identifying such intellectual property and assigning an appropriate value to it can be extremely powerful and open up exciting tax planning opportunities.

  • Rua Saraiva de Carvalho 148 R/C, Lisbon, Portugal

Please do not use this form to send us your questions about taxation in Portugal. If you want a consultation, please book here: