Moving to… Portugal

No European country has had more interest from would-be American expats over the past few years than Portugal. Its reputation for sun, culture and communal life comes with obvious appeal. But there has been some confusion about its visa and tax options for expats in the wake of changes to some of the country’s laws. Below we give you an overview of where things stand right now.

How to get there

Visa options for Americans moving to Portugal have not actually changed much. Aside from the usual EU citizenship, family connections and expat employment options, Portugal offers a visa for most situations. Here are the most popular ways for an American to move to Portugal:

The D7 visa : the retiree or passive income visa

The D7 is Portugal’s visa for retirees from abroad. But it also works for anyone who has a passive source of income (i.e. royalties, real esate, or investments). If you have no plans to work, this one is likely for you.

The D7 income requirements are not particularly onerous. You must show that you receive at least the Portuguese minimum wage (currently about 11,400 EUR per year). You should add to that another 50% for a spouse who will be accompanying you and another 30% for each child under age 18.

Your initial residency card is good for two years, after which you can renew for a three-year residency card. During your residency, you can take part in the public health care system and other social programs. At five years, you can apply for Portuguese citizenship.

The D8 visa : the Digital Nomad visa

Portugal’s “Digital Nomad” visa actually comes in two flavors. For those of you who just need a sunny sabatical, the D8 short stay visa lasts for up to one year. If you think you might want a longer stay, apply for the residency visa instead. The residency visa will give you two years of residency and the ability to apply for a three-year renewal at the end of that.

If you want to make your stay in Portugal indefinite, you can apply for Portuguese citizenship after five years of living in the country.

The D8 visas both come with a financial savings requirement (about 10,000 € in the bank) and an income requirement of at least four times Portugal’s minimum wage. In 2024, that is roughly €3,280 per month. This income should not be coming from within Portugal. So, as part of your application you will need to show that it is the result of your freelancing, your non-Portuguese business, or your remote work for a foreign employer.

Your D8 visa will let you participate in Portugal’s social programs (i.e. healthcare and public transportation). And you can bring a spouse and kids with you on the D8, though as with the D7, this will increase the minimum financial requirements

The D3 visa :the  Highly qualified worker (HQA) visa

Portugal’s D3 visa is part of a European Union program to attract highly-skilled workers to the zone. Portugal’s version requires that you already have in hand a contract to work in the country – either through employment or in the form of an agreement to provide services as an independent contractor for a period of at least one year.

You will also need to show that you have an advanced degree and/or sufficient work experience in your field. Finally, you will need to show that you will be earning a minimum annual amount (the specific amount depends on your field of work).

The D3 program gives you an initial two years of residency with the abilty to apply for another 3 and to apply for citizenship after five. Because the D3 falls under the EU blue card program, a D3 holder is eligible to apply to another participating EU country for a work visa in the same category after 18 months in Portugal.

As with the D7 and D8, you can bring a spouse and/or children with you and access social programs as a D3 resident of Portugal.

The Golden visa program

The Golden visa program remains an option for individuals or families that have money to invest. Following changes to the program, there are new rules around what sort of an investment will qualify and how much.

As of 2024, those applying for a Golden visa need to be willing to invest between 250,000 EUR and 500,000 EUR in qualifying private funds, business ventures and/or cultural organizations.

The visa comes with minimal residency requirements: you need only show you are present in the country seven days during the first year and fourteen days every two years afterward. In return, you can bring over a spouse and children and work or study in the country for five years, after which you are eligible to apply for citizenship.

Because of the minimal presence requirement, you can be a Golden visa holder without becoming a Portuguese tax resident. In that case, you only pay Portuguese taxes on income that comes from within the country.

Taxes and social charges for Americans in Portugal

Despite the increase in housing prices in cities like Lisbon, the cost of living in Portugual is generally less than that of similar ares in the US. But it is important for Americans, in particular, to understand the system of social charges and taxes that might apply to them.

If you are applying for a long-stay visa, you are probably intending to make the country your primary home, at least temporarily (though see the Golden Visa minimum stay option above).

Once you have established a primary home, you are a tax resident and are generally taxed on all sources of income, regardless of their source. In addition, you will be participating in social services, from health care to public transportation and other social benefits. So, you are going to pay social charges if you are working.

Your US citizenship puts you in a slightly odd position. Unlike the citizens of just about every other country in the world (excluding Eritrea), you must report and theoretically pay taxes in the US on all income you receive, regardless of what country it comes from and regardless of whether you are even living in the US. You also might be paying into the US social services programs (minimal though they are) in the form of local taxes and payroll taxes.

Fortunately, there are mechanisms to protect you from having to pay taxes twice on the same source of income.

The tax treaty between Portugal and the US sets out, for each type of income you receive, whether you should be paying the tax in the US or in Portugal. The US’s standard “savings clause” in its treaties actually allow it to tax its citizens on ALL income, but you can then use the FTC or the FEIE to get a credit for the taxes you paid in Portugal or to eliminate from your taxable income salary or wages earned abroad.

If you are working, and therefore subject to social charges on payroll, you can file a form notifying the US government that you will be contributing in Portugal and not in the US system. If you end up with credit in both the US social security system and the Portuguese pension system, the totalization agreement signed by the two countries assures that you get all of the benefits you are entitled to in either or both nations.

Non-habitual tax residency (NHR) – now the Tax Incentive Scheme for Scientific Research and Innovation (IFICI)

Portugal’s generous tax break for expats has been changed as of 2024. The new program applies for the first 10 years of your Portuguese residency, and it only applies to certain expats. Specifically, you can take advantage of the new regime only if you are both living and working in Portugal and you work in an “innovative” field, including some start-ups or research and development.

Under the provisions of this new program, rental income and investment income from the United States (i.e. dividends, interest and capital gains) are exempt from Portuguese tax for the first 10 years of your residency.

In addition, you will only pay a flat 20% tax on income you earn within Portugal.

Regular income tax rates

If you don’t qualify for these new tax breaks, you will pay the same taxes and social charges as other Portuguese citizens and residents. As in the US, you are taxed on a progressive scale, paying a fixed percentage of your base income, a different percentage on the next bracket and so on.

This includes your US social security benefits, US private pensions and/or Portuguese pension benefits. But unlike in the US, you apply the brackets below twice if you are filing jointly. So the amounts of income allowed in each bracket are essentially doubled for a joint household.

The Portuguese system also has a standard deduction amount for each bracket, which lowers your actual taxes owed. There are other deductions available, as well, including deductions for dependents, retirement contributions, a standard deduction for pension benefits, deductions for un-reimbursed health care costs, educational programs, real estate loans, household help, and more. But an additional 2.5% to 5% tax may be levied on the income of individuals earning over 80,000 EUR or 250,000 EUR per year respectively. As this “solidarity tax” indicates, 80,000 EUR per year is a very generous sum for life in Portugal.

In Portugal, the tax brackets (in euros) for 2024 are:

Up to 7,703 €                    13.25%

7,704 – 11,623                 18%

11,624 – 16,472              23%

16,473 – 21,321              26%

21,322- 27,146                32.75%

27,147 – 39,791              37%

39,792 – 51,997              43.5%

51,998 – 81,199              45%

Above 81,200                   48%

These tax rates will apply to pension benefits. But US retirement accounts may receive slightly different treatment (i.e. as investment income) depending on the nature of the plan.

If you have substantial investment income, you can opt to pay a flat tax rate of 28% on dividend and interest income, rather than having those added to your regular income brackets.

Other taxes

As an employed worker in Portugal, you will pay 11% in social charges in addition to income taxes. If you are self-employed, you can choose between a 21.4% rate or a simplified regime in which a portion of your income is exempt (30% of service income and 80% of sales income) and you are taxed 33.3% on the remaining income. In both cases, the charges cover a range of state insurance, pension and benefit programs to which you will be entitled.

Rental income in Portugal is taxed at 25% or 28% depending on whether it is residential or commercial.

Capital gains is usually taxed at a flate rate of 28%.

Interestingly, Portugal does not have significant taxes on gifts or estates aside from a 10% stamp tax on property received from a non-relative.

Portugual also has local real estate taxes and TVA. It does not have a wealth or net worth tax.

Some conclusions

Unless you qualify for the new IFICI tax program, residency in Portugal will likely increase your annual tax bill over and above what you pay in the US. The actual amount, however, will vary significantly depending on how much you earn, what type of income and other factors having to do with your household and deductions.

Any analysis you do should also take into account health care costs, education costs, transportation costs and other financial benefits that are included in the Portuguese system but not the US system.

You can link to the Portugal-US tax treaty on the IRS’s website. And if you are interested in financial plannign in anticipation of a move, contact us.