Taxes in Portugal
What Expats should know about NIFs, NHR Status, and filing tax returns
A lot of people I know in the U.S. use tax preparation software or an online system to file their income tax returns. But for me and Paul, we have always used the services of a tax accountant. That’s not to say one way is better than another, it’s just what we have always preferred and feel more comfortable doing. So, when we were contemplating a move to Portugal, we had questions about getting a fiscal number (commonly known as a NIF), what the NHR (Non-Habitual Residence) Status was about and wondered what our tax obligations would be and if we had to file a tax return in Portugal.
I do a lot of online research, but when it comes to tricky things like taxes, I didn’t want to second-guess, assume, or take non-professional commentary as fact from Facebook groups, so I turned my research into finding a qualified tax accountant in Portugal who we could trust.
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Meet Bruno Afonso, Tax Accountant
We connected with Bruno Afonso after watching a webinar from ExpaCity. If you’re not familiar with ExpaCity, is it a paid membership-based platform for expats who are either contemplating a move to Portugal or are living in the country. Webinars are held live (also recorded if you can’t tune into the live event), and the guest speakers are vetted experts and professionals from a variety of backgrounds and subject matters pertaining to moving to and living in Portugal.
Paul and I hired Bruno while we were still in the U.S. to help us obtain NIFs. Now that we’re foreign residents in Portugal, we have used his services for the NHR Status and income tax preparation. Earlier this summer, we met Bruno for lunch while we were on a trip to Coimbra (where he lives) to meet him personally and to ask some questions about taxes in Portugal. I asked Bruno if he would be open to my interviewing him about what expats should know about NIFs, NHRs, and filing taxes in Portugal and he graciously agreed.
Bruno has worked in taxes and accountancy since 2010. He is an accountant but points out that he’s not a certified accountant (CPA) and only works with taxes related to individuals. In 2017, out of curiosity, Bruno joined the Americans & Friends in Portugal Facebook group and quite by accident began to connect with people who were thinking about moving to Portugal. He found that people were posting questions (many of whom were from the U.S.) in this group regarding NIFs, and taxes in Portugal, so he began to answer those questions based on his professional tax knowledge. From what he learned from those inquiries, Bruno further studied the NHR Status, and spent numerous hours researching the different types of incomes in the United States including retirement incomes such as social security income, IRAs, and Roth IRAs as well as LLCs.
Creating a Niche
By 2018, Bruno’s reputation had spread with numerous requests for his accounting help. So, he decided to create a niche accounting business focused on expats and specializing in incomes from abroad and international double taxation matters. And while his core client base is still American expats, Bruno also has clients from about 30 other countries including many in Europe, North and South America, Asia, Australia, New Zealand, South Africa, and Africa. His professional colleagues include a tax attorney with whom he collaborates on a regular basis.
His business has grown primarily by word-of-mouth with many expat clients referring him to others. And because of his specialization in expat tax accounting in Portugal, Bruno is regularly contacted by CPAs and tax attorneys requesting his opinion and expertise.
If you’re unfamiliar about how income is taxed, Portugal has tax treaties with many countries including the United States. This prevents double-taxation in many instances. Most of the countries follow the same tax treaty model based on the OECD Model Convention with minor differences that Bruno studies and continually monitors.
NIFs and Fiscal Representation
A NIF is the tax identification number in Portugal (fiscal number). It’s similar to a U.S. social security number in that it serves as identification for tax purposes, to register for the healthcare system, for financial purposes such as bank accounts and mortgages, to purchase a car, for employment purposes, etc. It is also necessary to apply for a visa for Portugal. Each person in a household must have an individual NIF.
The NIF can be obtained while someone is still living abroad with a fiscal representative in Portugal.
NIF numbers are permanent even though your NIF document may have an expiration date. Bruno explained that several years ago, the Portuguese Tax Authority issued NIF cards (like a social security card). People would receive a temporary paper document to use until the card came in the mail. The Tax Authority stopped issuing the NIF cards, but they never modified the part of the paper document with the expiration date.
The NIF number is permanent. It will always be the same, much like your social security number stays the same. The only thing that changes is your address. When you apply and receive your NIF number, the document will have your U.S. (or other home country) address. When you arrive as a temporary resident in Portugal, you will change the address on the NIF to your Portuguese address.
Until you become a tax resident in Portugal, fiscal representation is required. This is someone who has additional obligations other than merely signing the NIF on your behalf – they become the link between you and the Portuguese Tax Authority. This means that any information or any tax obligations depending on the situation that may need to be fulfilled, goes to the fiscal representative. It is the fiscal representative’s obligation to inform you, or in the case of any tax forms that need to be filed, to file the forms on your behalf.
Bruno cautioned that it’s important to have a fiscal representative that has a connection (i.e., experience) in Portuguese taxation. This is especially important if you’re being asked to pay for fiscal representation on a recurring basis before your arrival in Portugal.
NHR Status (Non-Habitual Residence) is a program created by the Portuguese government to attract foreigners to live in Portugal by providing more beneficial tax rates and exemptions from income from abroad for a period of ten years.
To qualify and apply for NHR, you must not have been a resident of Portugal for the previous five years. NHR applies to income and the sources of that income. This is not just for retired individuals – anyone can apply.
Types of income that may be reduced or exempt can include dividend and interest income, retirement income, employment, or self-employment income (depending on the profession).
It’s important to have a consultation with a tax professional before deciding if the NHR Status is right for your individual circumstances.
You become a tax resident of Portugal the moment you change your foreign address to your Portuguese address. If you decide to apply for NHR Status, you must apply on or before March 31st of the following year. Regardless of when you apply (immediately when you arrive in Portugal, or a few months after), you are a tax resident (and liable for taxes), and the ‘tax clock’ starts ticking on the effective date of your change of address to a Portuguese address. Be aware, however, that after that March 31st deadline, you lose your eligibility to apply for NHR Status.
By applying for NHR Status, you are not entirely exempt from paying taxes in Portugal – you just receive a lower tax rate for a period of ten years on taxable income. After the ten years, you pay the going tax rate.
There are different ways to apply for NHR Status. You can apply on your own if you have access to your NIF online account, you can hire a relocation service to assist you, or you can work with a tax accountant or attorney in Portugal.
NIFs (when and where you should use it) and NHR Status
If you’ve lived in Portugal for a day or for many years and you’re purchasing practically anything, you’ll find that you’re asked if you want to provide your NIF number for the sales receipt. This is because, under normal situations, you can receive a small percentage of the expense as a credit towards your Portuguese taxes. However, Bruno said that this generally does not apply to individuals who have the NHR Status. The Portuguese Tax Authority does not take those deductions into consideration because with NHR, you already have a favorable tax rate. But of course, it's a personal choice if you want to use it on any or all purchases – it never hurts to do so.
Some people I have met say that they use their NIFs on sales receipts because they want the Portuguese government to know that they’re supporting the Portuguese economy. I asked Bruno if that was necessary since this is not a regular practice for me. He said that if you pay rent or a mortgage, or own a property in Portugal, the government already knows that you’re supporting the economy.
What happens if you don’t file a tax return in Portugal?
I wondered if expats were aware that they must file a tax return in Portugal. This is because I wasn’t sure about that until I started to research taxation as an expat. So, I asked Bruno about it. He said that the reason some people don’t think they have to file a Portuguese tax return is because they don’t have income from Portugal. But filing a tax return in Portugal is an obligation. You must file a tax return in Portugal each year; otherwise, you can be fined. And after your five-year temporary residency expires and you want to become a permanent resident or citizen, this may become a bigger problem.
File here or there?
What if you owe money? The tax treaties indicate which types of income can be taxed in Portugal and which types of income can be taxed in your home country. In any situation, you are not double-taxed. So how do you know which tax return to file first?
Using the United States as an example, Bruno suggests you file your Portuguese tax return first, and if you owe money, you pay it to Portugal (you must pay any taxes on or before August 31st), then file your tax return in your home country including the taxes you owed in Portugal. You will only be taxed on the portion of income that is allowable for both countries. So, for example, if you paid 15 percent in tax on certain income on your Portuguese tax return, and you were taxed at 20 percent on that same income in the U.S., you would only be taxed for the 5 percent difference on that income in the U.S.
For retirement income, (unless it’s from a government pension) note that you can only be taxed on that income in your country of residence.
If you file a tax return first in your home country (which in this case, we did), and then file a tax return in Portugal, if you owe money, you can file an amended tax return in your home country.
Bruno’s services and contact information
Bruno’s company focuses on:
Obtaining NIFs while people are still abroad
Tax consultations regarding tax liabilities in Portugal
Determining if there is a benefit of taking advantage of the NHR status and if so, his company can file for the NHR status for clients (only charges a one-time fee for fiscal representation)
Provides tax advice and services to digital nomads
Files annual income tax returns for individuals for Portugal
Bruno’s company is Taxes in Portugal.
If you’d like to know more about his services, contact him here.
Expat Tax Tidbits from Personal Experience
Report of Foreign Bank and Financial Accounts (FBAR) – each year U.S. citizens are required to report certain foreign financial accounts such as bank accounts or brokerage accounts, to the Treasury Department if the amount exceeds $10,000 USD. The report should be filed annually and is due on April 15th following the calendar year reported. This is a form filed separately and not with your U.S. federal income tax return. You may be subject to penalties if you file an FBAR late or not at all.
Tax filing season in Portugal is April 1st to June 30th so if your home country’s tax filing season is earlier, you may have to file for an extension.
It’s advisable to use the services of an accounting firm that specializes in expat taxes for citizens living abroad. Because we were only tax residents of Portugal for 3 months in 2021, we used the tax accountant that we have used for many years in Arizona. However, for this coming year, we plan to utilize an expat tax accounting service (I’m still researching this – if you know anyone, leave me a comment).
Your Portuguese tax return will look very different than a U.S. tax return (and it’s obviously all in Portuguese).
When you receive your completed tax return, if you owe taxes in Portugal, you (and your accountant) do not know exactly what you owe and there’s no amount indicated on the return unlike what you might see on a U.S. tax return. Your accountant might provide you with an estimate, but you must wait until you receive a tax bill (in an official-looking envelope) in the mail from AT (Autoridade Tributaria e Aduaneira) (aka Tax Authority).
You can pay your tax bill online through most banks in Portugal. We have an account with Abanca and we paid our tax bills online by selecting “Payments to the State.” For Millennium Bank you can pay online by selecting “Public Services.”
One of my articles was recently published in Portugal Living Magazine. The magazine is in English and contains lots of great information about living in Portugal. You can view the latest issue online by subscribing for free, or if you prefer a paper copy, you can order one from Amazon.
Until next time…
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