Historically not a target country for wealthy individuals, Portugal has implemented in recent years structural reforms that have made the country one of the best all-round jurisdictions for high net worth individuals to relocate to.

Much of this success is down to the special programmes introduced to attract individual investors – the Golden Residence Permit Regime (allowing for free movement within the Schengen and the possibility to apply for Portuguese nationality) and the Special Tax Regime for Non-Habitual Residents – and the absence of wealth, gift and inheritance taxation or exit tax, free remittance of funds and international trends (e.g., increase of fiscal pressure in some specific countries, tightening of access to traditional target countries, new global standards on automatic exchange of information). In addition there is, of course, the reduced cost of living and low real estate prices.

According to a survey recently carried out by Castle Cover (an insurance company specialising in over-50s customers) and the Yahoo Finance website, Portugal has been listed in second place out of a total of 23 countries that are best for Britons to retire to overseas, based on a number of criteria including rainfall, hours of sunshine, temperature, property price, tax, petrol costs, murder rate, healthcare availability and costs. In this survey, Portugal is only headed by Malta, mainly because English is the first language of most people there.


i Personal income tax

An individual is liable to personal income tax (IRS) if he or she shall be deemed to be considered a resident in Portuguese territory or, if not, if he or she derives income from Portuguese sources. Generally, a person is deemed to be considered tax-resident subject to unlimited taxation if, in the year to which the income relates, he or she:

  • a stays there more than 183 days, whether these days are consecutive or not, in any 12-month period commencing or ending in the year concerned; or
  • b has at his or her own disposal a dwelling place in such conditions that it may be inferred that there is the intention to keep and occupy it as an habitual abode.

Portuguese tax residents are subject to IRS on their worldwide income, on an unlimited liability basis. Non-resident individuals are subject to tax on the income obtained within Portuguese territory.

For IRS purposes, income is divided into six categories: A (employment income); B (business and professional income); E (investment income); F (real estate income); G (capital gains); and H (pensions).

Employment income, business and professional income capital gains from the sale of property and pensions are subject to a progressive income tax rate of up to 48 per cent. A surcharge applies to the part of the income exceeding €80,000, as follows: 2.5 per cent on the part of income exceeding €80,000 up to €250,000; 5 per cent on the part of income exceeding €250,000.

Investment income (such as dividends, royalties and interests), real estate income and capital gains derived from the disposal of securities (such as shares, bonds, etc.) are subject to taxation at an autonomous final rate of 28 per cent.

Among others, the following tax benefits may apply if certain conditions are met:

  • a income distributed by venture capital funds to individual unit holders is subject to a reduced final 10 per cent withholding tax, if not derived within the scope of a commercial, industrial or agricultural activity; and
  • b income regarding insurance and life assurance policies and pension funds schemes may be partially excluded from taxation whenever the amount of premiums, sums or contributions paid in the first half of the term of the contracts represents at least 35 per cent of the total.
ii Special tax regime for non-habitual residents

With the aim of attracting high net worth professionals, entrepreneurs and pensioners, Portugal has implemented an attractive tax regime for foreign individuals who wish to establish permanent or temporary residence in Portugal: the Non-Habitual Residents Tax Regime (NHR).

The major advantage of the regime, and the one that makes it extremely attractive compared with similar regimes adopted in other European countries, consists of the introduction of a 10-year period during which Portuguese-source income received by individuals developing a high value-added activity is subject to a reduced flat tax rate, and foreign-source income, namely pensions, capital gains or business profits, may be fully exempt from tax, irrespective of remittance.

Specifically, with regard to foreign-source income, the regime provides for a tax exemption if certain requirements regarding the type of income and taxation in the source state are met. These conditions are as follows:

  • a Employment income – The exemption will apply to foreign-source income if this is taxed in the source state in accordance with a double tax treaty entered into between Portugal and that state, or, if no tax treaty has been entered into between both states, the income is taxed in the source state and is not considered to arise in Portuguese territory according to the domestic criteria.
  • b Profits, interest, income from immoveable property, capital gains, business and professional income arising from high value-added activities that are of a scientific, artistic or technical nature, and royalties – The exemption will apply if the income or gains can be subject to tax in the other state under a tax treaty entered into between Portugal and that state. Alternatively, if no tax treaty has been entered into between Portugal and the source state, the exemption applies if, pursuant to the rules of the OECD model tax convention, interpreted in accordance with Portugal’s observations and reservations, the income or gains can be taxed in the source state, and provided that the income is not deemed to be sourced either in a blacklisted jurisdiction or in Portugal.
  • c Pensions – The exemption will apply if the foreign-source pension income is subject to tax in the source state in accordance with a tax treaty entered into between Portugal and that state or, alternatively, if the income is not considered to arise in Portuguese territory. Under this provision, both public and private pensions (other than pensions for public service) may benefit from total exemption from tax. This means that such pensions will not be subject to tax either in Portugal or in their state of origin in relation to a number of jurisdictions, including, for example, Austria, Belgium, China, France, Finland, Germany, Russia, Sweden and the UK. In some other states, this provision may grant a total exemption for private pensions only.

An individual is eligible to register as a non-habitual resident (up until 31 March of the year subsequent to the one in which he or she became a tax resident) if:

  • a he or she qualifies as a Portuguese tax resident pursuant to the Portuguese personal income tax code;
  • b he or she has not been resident in Portuguese territory in the five previous years; and
  • c he or she is able to present a foreign certificate of residence establishing that he or she has been subject to effective taxation abroad prior to his or her arrival in Portugal.
iii Inheritance and gift tax

The tax rate levied on gifts and inheritance is 10 per cent. A surcharge of 0.8 per cent of the taxable property value may be imposed on gifts or inheritance as far as they consist of real estate located within Portuguese territory.

However, there is no taxation on gifts or inheritance on assets not physically or legally located in Portugal at the time of death or donation, or transfers in favour of spouse, descendants or ascendants.

iv Wealth tax

There is no wealth tax in Portugal. However, the identification number of bank accounts held abroad must be disclosed in the annual income tax return.

Ownership, use or surface rights of residential urban properties with an official taxable registration value equal to or greater than €1 million is subject to stamp duty, which is levied on such registration value at the rate of 1 per cent. The tax rate is of 7.5 per cent if the owner or the user is an entity that is domiciled in a blacklisted territory.

v Other taxes

The property transfer tax is levied on the onerous transfer of immoveable property. The tax is payable by the acquirer, either individual or company, resident or non-resident. The taxable amount corresponds to the higher of the contracted value or the tax patrimonial value.

The tax due is assessed as described above at the following tax rates:

  • a rural property – 5 per cent;
  • b urban property and other acquisitions – 6.5 per cent;
  • c urban property for residential purposes – progressive tax rates (ranging from zero per cent to 8 per cent); and
  • d rural or urban property when the acquirer is domiciled in a blacklisted jurisdiction – 10 per cent.

Local property tax is levied annually on immoveable property located within each municipality. The tax is payable on the taxable value by the owner of the property as of 31 December of each year, to be paid in two instalments in the following year.

The taxable value of urban property corresponds to the tax patrimonial value inscribed in the Tax Registry and is determined by reference to correcting coefficients.

The IMI rates are:

  • a rural property – 0.8 per cent;
  • b urban property – 0.3 per cent to 0.45 per cent; and
  • c rural or urban property when the owner is domiciled in a blacklisted jurisdiction – 7.5 per cent.
vi Taxation of trusts

Portuguese law does not recognise the concept of the trust as a legal entity, neither for civil nor for tax law. That said, there are a few exceptional situations where the law refers to trusts or fiduciary entities:

  • a to allow the incorporation of offshore trusts within the scope of Madeira International Business Centre and regulate the corresponding tax effects;
  • b in the text of the tax treaties entered into with the USA and Canada, acknowledging the trusts as possible resident entities in such states, strictly for the purposes of the application of the treaty dispositions, under certain circumstances;
  • c for anti-abuse purposes, to consider attributable to a Portuguese tax-resident individual the income obtained by entities domiciled in blacklisted territories irrespective of the distribution, in cases where the rights over the income are handled through a fiduciary entity; and
  • d to qualify the income arising from the liquidation, revocation or termination of the trust, to the settlor (capital gains, liable to personal income tax) or to the beneficiary (transfer for free, subject to stamp duty).

The qualification referred to in (d) is a result of the recent reform of the personal income tax Code, in force since 1 January 2015. Surprisingly (as it was not expressly mentioned in the mandate given to the expert committee in charge of the reform), the reform first addresses this important issue. Even if the qualification of the income arising from the termination of the trust has been an important step forward, by failing to define its position on what constitutes the income generated by the trusts and the income distributed by the trust, the legislator has, to some extent, made it more difficult for practitioners to interpret the law, as amended, than it was before the reform.

vii Controlled foreign companies (CFCs)

CFC rules were introduced in the 1990s, aiming to combat international tax evasion, notably by means of accumulation of profits in low-taxation territories. Basically, CBC rules provide for the inclusion in the taxable income of the resident companies and individuals that control foreign legal entities that are deemed domiciled in a blacklisted jurisdiction, the undistributed passive income received by such entities.

A relevant control shall be deemed to exist where the Portuguese-resident taxpayer holds, either directly or indirectly, a corporate interest equal to or exceeding 25 per cent of the shares, voting rights or equity rights of the foreign entity or its financial assets, albeit via an agent, nominee, trustee or other intermediary.

viii Double taxation treaties

In addition to Portuguese domestic arrangements that provide relief from international double taxation, Portugal has entered into double taxation treaties with 73 countries to prevent double taxation, 67 of which are already in force.

Under these treaties, withholding tax rates on outbound dividend, interest and royalty payments are reduced wherever the beneficial owner of the income derived from Portugal is a tax resident of the other contracting state.

ix US Foreign Account Tax Compliance Act (FATCA)

Law 82-B/2014 of 31 December 2014, which enacted the Portuguese budget law for 2015, approved a special financial information reporting regime, aimed at establishing the terms of the information exchange under the FATCA agreement between the Portuguese and US tax authorities, including identification of the reporting entities, definition of reportable accounts, due diligence process for reportable accounts, information to be reported, timetable for reporting and penalties for non-compliance with the required information.

On 6 August 2015, the Portuguese Republic and the United States of America concluded an agreement to improve international tax compliance and implement FATCA that is still awaiting the conclusion of the internal approval procedures of the Portuguese parliament.

In view of such circumstances, the Secretary of State for the Treasury issued an Order on 30 June 2016 (Order 150/2016.XXI) that extended the deadline for the reporting obligations under the special financial information reporting regime to the last day of September 2016.


i General features

The Portuguese succession laws remain fairly unchanged over the years, partly explained by cultural reasons, as succession is deemed a right of the family members of the deceased in respect of a continuum principle (where possession is retained by the family). No changes are envisaged in the upcoming years.

As in most civil law jurisdictions, the Portuguese succession legal framework is complex and characterised by strong limits to the right of free disposition mortis causa of one’s property. Effectively, Portuguese succession law stipulates a forced heirship regime to protect the spouse, descendants and ascendants, ensuring these heirs from one-third to two-thirds of the deceased’s total assets.

The portion of the inheritance (deceased’s estate) that is reserved for the legal heirs is generally safeguarded and cannot be affected by will or even (in most cases) by donations prior to death, as the assets could be reintegrated in the inheritance.

A distinctive feature about Portuguese succession is that the Portuguese regime only applies if Portuguese law is considered to be the personal law of the deceased at the time of death or will, independent of the location of the assets comprising the inheritance, both moveable and immoveable (universal succession).

For this purpose, Portuguese private international law stipulates that the deceased’s personal law is considered to be the law of his or her nationality at the time of death or at the time of the celebration of the will, being of utmost relevance for the determination of the law applicable to the succession and all its regulatory aspects of distribution and administration of the assets comprising the inheritance, and for the determination of the capacity for and the interpretation of the will.

As mentioned before, the Portuguese succession regime did not keep pace with regulation and social changes related to marital status, being largely irrelevant for succession purposes de facto unions or civil partnerships and matrimonial property schemes adopted or prenuptial agreements, as none of these situations can affect the reserved portion or change the hierarchy of heirship.

ii Wills

In Portugal, the most common forms of will are the public will (which is drawn up by a notary and archived in the notary’s books, although remaining strictly confidential) and the private will (which is handwritten by the testator and its conformity with form requirements is then verified by a notary that issues the validation instrument).

Any of the said wills are freely revoked, with special requirements applicable to the public will, which need to be done by a public (i.e., not confidential) deed.

Portuguese law states that any will would be valid in Portugal if the material requirements of Portuguese law are met, the disposition does not offend or limit the reserved portion of the legal heirs and if it is compliant with the laws of at least one of the following jurisdictions:

  • a the place where the will was concluded;
  • b the personal law of the testator at the moment of the declaration;
  • c the personal law of the testator at the moment of death; or
  • d the jurisdiction to which the local conflict-of-law rules refer to.

Although not as common as any of the said wills, it is also possible to conclude an international will, according to the Convention providing a Uniform Law on the Form of an International Will, concluded in Washington on 26 October 1973.

Finally, according to Portuguese law – and as far as it is the applicable law – it is important to note the disposition by will of the deceased’s assets as the limit stated regarding the rights and the reserved portion of the inheritance of the legal heirs.


As seen, the Portuguese succession regime is very strict and, therefore, there are not many legal possibilities for estate planning. In addition, as most transfers on death are exempt from inheritence tax, and taxes levied on wealth are nearly non-existent in Portugal, no advance tax planning is necessary in most cases.

That being said, there are still some situations that may justify the structure of some legal entities (as private limited corporations or public limited companies) or civil entities. In some cases, and for some specific and mostly altruistic purposes, it could also be justified to create a foundation, although in this case the creation and the activity of the foundation is subject to administrative approval and regulation.

Notwithstanding the above, some rumours about the end of the current exemption on transfers in favour of spouse, descendants or ascendants called for an increase of structuring operations over the past few months, notably by means of anticipated tax-exempt gift of bare ownership to the heirs with reservation of usufruct to the donor.

i Trusts

As a classic civil law jurisdiction, Portugal does not regulate trusts or recognise the existence of trusts regulated by foreign law.

One consequence of this legal vacuum is that a Portuguese settlor who sets up a trust must respect the Portuguese mandatory heirship rules. Any infringement of these rules can be challenged by the heirs of the settlor, and the assets transferred to the trust may be reduced accordingly.

Furthermore, the considerable uncertainty surrounding the tax treatment of the trusts, notably in how it relates to the NHR programme, has been source of much controversy and has moved some interested trust owners’ focus away.

As mentioned, by acknowledging that the income generated by trusts arising from the difference between the amounts transferred by the settlor, and the amounts returned to him or paid to the beneficiary as a result of the liquidation, should qualify as capital gains subject to tax, then and only then (seemingly contradicting the above-mentioned anti-abuse disposition) it seems incontrovertible that under the reformed personal income tax code any amounts flowing out from the trust to the settlor, before the liquidation of the trust, should qualify as a capital income of the settlor, even if the legislator had not expressly clarified such issue.

The problem lies in determining whether the capital income should be deemed paid by the trust (thus recognising its ‘tax existence’) or whether one should go through the trust and identify the source of the income. These two options lead us to very different conclusions and hazards.

Considering that the income is deemed paid by the trust, then we have to conclude that if, for example, the trust is domiciled in a blacklist territory, that income, when obtained by a Portuguese tax resident, will be subject to the higher tax rate of 35 per cent. The conclusion is the same if the settlor is a non-habitual resident, as the NHR expressly excludes from the exemption for foreign-source income the capital income proceeding from blacklisted territories.

Should the trust be domiciled in a non-blacklisted jurisdiction, another question should be addressed: under the NHR, foreign-sourced capital income is personal income tax-exempt when it can be subject to tax in the source state under a tax treaty entered into between Portugal and that state, or, alternatively, if no tax treaty has been entered into between Portugal and the source state, if, pursuant to the rules of the OECD model tax convention, interpreted in accordance with Portugal’s observations and reservations, the income can be taxed in the source state, and provided that the income is not deemed to be sourced in a blacklisted jurisdiction. However, only the tax treaties entered into with Portugal and the USA and Canada acknowledge the trusts as possible tax-resident entities for the purposes of the application of the treaty.

If, on the contrary, we consider that no tax effects should be attributed to the trust, then one should be able to pursue the source of income, and conclude for the exemption under the NHR whenever the income may be subject to tax in the source state under the referred rules. But this, of course, would be contradictory with the rule that qualifies as a capital gain the liquidation proceedings accrued in the trust.

However, while some of the benefits of a trust have been taken away by the tax reform, they may still have a role to play in estate planning, as the new law only applies to payments made to residents of Portugal. Payments to non-residents are not affected.

ii Life insurance policies

As Portugal has become a very popular retirement location for foreigners, life assurance is proving to be an attractive wealth-planning tool, thanks to the high flexibility granted to the policyholder (allowing for partly redeeming the policies, changing the beneficiaries and, in some cases, intervening in the management of the portfolio), high level of assets protection, and the very advantageous tax regime. From an income tax perspective, taxation of income generated in an individual’s life insurance is deferred and should only be taxed in the event of redemption, early payment, or maturity of the policy. Tax could only be levied on the net income generated by life insurance. The Portuguese personal income tax law establishes that provided that at least 35 per cent of the insurance premiums contractually due were paid during the first half of the contract’s lifetime:

  • a only four-fifths of the income received is subject to personal income tax (meaning an effective tax rate of 22.4 per cent) if the payments are made under contracts that have been in force for more than five years and less than eight years; and
  • b only two-fifths of the income received is subject to personal income tax (meaning an effective tax rate of 11.2 per cent) if the payments are made under contracts that have been in force for more than eight years.


The most recent available figures show that, despite the financial and economic difficulties that the country is still facing, and the instability of its finance system, Portugal seems to have reversed the trend of negative foreign direct investment.

As a result of the tax reforms and programmes undertaken within the past few years, the Portuguese tax system is now clearly more friendly and appealing, competing in this respect with other countries traditionally chosen for wealth-planning purposes. The NHR represented a major step forward, allowing for those who become tax-resident in Portugal and are accepted as non-habitual residents the opportunity to receive qualifying income tax-free both in Portugal and in the country of source under proper planning.

Although the recent developments in the political context have introduced some considerable uncertainty, it is not expected that there will be any relevant shift in the commitment of the main political forces to ongoing reforms of the tax and labour regimes, and to the strengthening of the current path of growth. However, the 2015 legislative elections and the need for a coalition with ‘second line’ leftist parties have led to some populist tendencies; one example being the consecutive rumours about the end of the exemption from inheritance and gift taxes on transfers in favour of a spouse, descendants or ascendants.


1 José Pedroso de Melo is a managing associate at SRS Advogados – Sociedade Rebelo de Sousa & Advogados Associados, RL.