Exposure to Portuguese tax will be determined by the expatriate's residence and domicile status.
Tax residence in Portugal is determined by the expatriate's actual presence within a tax year. The expatriate will be treated as a Portuguese resident when the individual:
- spends 183 days or more in Portugal in any 12-month period, or
- stays less than that period in Portugal but on December 31, lives in Portugal and intends to continue to do so (eg owns a dwelling in Portugal).
In both cases, it is important to note that once an individual becomes a Portuguese tax resident, his/her family (ie the spouse and dependent children) will also become Portuguese tax residents.
If the spouse does not meet the conditions discussed above related to tax residency and is able to prove that there is no connection between the majority of his/her economic activity and the Portuguese territory then he/she can be treated as non-resident and is subject to taxation only for the income obtained in Portugal.
In this case the expatriate will file a tax return only with his/her Portuguese income and his/her part of the total family income.
Besides the above, the expatriate could opt to be considered as a non-habitual resident in Portugal, if the individual meets the following conditions:
- The individual must be a tax resident in Portugal, according to the criteria discussed above; and
- The individual must not have been taxed in Portugal as resident in the past five years.
The non-habitual residents may be able to have income earned from employment or self-employment exempted from tax (if the income is derived from work in scientific or technical professions of high value) so long as that income is subject to effective taxation by the State of source of that income, under the terms of the DTA between Portugal and the respective State of source.
In addition, passive income earned abroad will be exempt from taxation if the income is not considered to be obtained in Portugal, the source state is not on the black-list, and the income was subject to taxation at the source State.
The tax regime applicable to the non-habitual residents in Portugal may be utilised for a period of ten consecutive years.