Clarifying your residency status is the critical first step in determining your tax responsibilities
Moving to Portugal, known for its favourable climate and vibrant lifestyle, remains an attractive choice for many expatriates. However, understanding the current tax environment is essential for anyone planning to settle there. For new residents, navigating the taxation of foreign-sourced income, such as pensions, dividends, rental income, and capital gains, can still appear complex. This article offers a practical, up-to-date overview of how Portugal taxes these income streams for the 2025/26 tax year.
Portugal’s tax system continues to depend on residency status. If you are regarded as a tax resident, you are generally liable for Portuguese tax on your worldwide income. For 2025/26, tax residency usually applies if you live in Portugal for more than 183 days within any 12-month period, or if your primary home is maintained there at any point during the year. Clarifying your residency status is the essential first step in determining your tax obligations.
Pension and dividend income: What’s changed in 2025/26?
Foreign pension income remains a notable concern, especially for retirees. For the 2025/26 tax year, foreign pensions are taxed at progressive rates, ranging from 14.75% to 48% for most residents. The Non-Habitual Resident (NHR) regime, which offered a flat 10% rate for most foreign pensions, closed to new applicants in 2024, though those already under NHR rules continue to benefit for the remainder of their period. Double Taxation Agreements (DTAs) between Portugal and the country of your pension’s origin continue to be crucial, as they can determine where your pension is taxed first and provide relief from double taxation.
Dividends received from foreign sources are subject to similar scrutiny. In 2025/26, foreign-sourced dividends are included in your overall income and taxed at the same progressive scale. However, there are exceptions—a flat tax of 28% may be elected for certain categories of dividend income under specific conditions. Additionally, tax credits remain available for foreign tax already deducted at source, minimising the risk of double taxation for Portuguese residents.
Rental returns and capital gains
Portuguese residents must still declare rental income from overseas properties. For 2025/26, this income is also taxed at progressive rates ranging from 14.75% to 48%. Remember to keep detailed records of property investment costs, as allowable expenses, such as repairs, maintenance, and certain management costs, may be deductible, potentially lowering your Portuguese tax liability.
Capital gains on foreign assets, including property and shares, are taxable for residents. In 2025/26, gains from the sale of shares and other securities are again added to your annual income and taxed at the progressive rates, unless you opt for the flat 28% investment income rate where eligible. The rules for property gains remain unchanged: a 50% inclusion for individuals, taxed at progressive rates, with potential reliefs available. Here, too, the relevant Double Taxation Agreement can mitigate the risk of double taxation on the same gain.
Strategic tax planning
Portugal’s tax frameworks for 2025/26 still offer various options to optimise your financial arrangements. The closure of the NHR regime to new entrants has led many to reassess their financial strategies and seek professional advice. It is more important than ever to plan early, understand local regulations, and utilise treaty reliefs to protect your wealth.
Whether you’re starting a new life in Portugal or already enjoying your stay, carefully considered financial advice provides peace of mind and clarity. We can help you understand the current rules for the 2025/26 tax year, ensuring your affairs are compliant and aligned with your long-term goals.
To find out more or to discuss your individual circumstances in detail, contact RZ Financial Planning for personalised advice.
Email: hello@rzfinancialplanning.com
Telephone: +351 91 063 9162