What can low crime rates, a laid-back lifestyle, and beautiful scenery have in common? Portugal. Look at any “best places to retire” list online, and you’ll likely find Portuguese living near the top. But does the country’s tax system live up to expectations?
You may be surprised.
While historically, Portugal may have been one of the “best” places for retirement, that title may go away in future years. Portuguese officials are ending the retiree-friendly Non-Habitual Resident (NHR) program, which offered several tax benefits. Plus, sales taxes in Portugal are on the higher end compared to the rest of Europe.
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So, here are a few tax reasons why you may not want to retire in Portugal in 2025.
Portugal golden visa and D7 visa in 2025
Before we discuss the drawbacks, let’s first delve into current retiree visa options for U.S. expats seeking retirement in Portugal.
- The D7 Visa. Also called “the passive income visa.” D7 requirements include a steady income (like a pension or Social Security) and residency for at least one year. The visa allows you to access public healthcare and travel within the Schengen Area in Europe.
- The Golden Visa. This isn’t President Trump’s new “gold card.” Unlike the D7, the Golden Visa only requires you to stay in Portugal for at least seven days for the first year (the subsequent two require fourteen days). You must make a qualifying investment in Portuguese ventures to apply.
But Portugal visa requirements were recently curtailed.
You used to be able to invest in Portuguese real estate to meet the “qualifying investment” Golden Visa requirement. This allowed expats to get a head start on home buying. Now, qualifying retirees must invest in research and development activity, establish a business, or otherwise preserve the national heritage in Portugal to meet eligibility requirements.
This general shift in requirements favoring retiree-expats is also reflected in the loss of perhaps the most popular Portuguese tax incentive: the non-habitual resident (NHR) regime.
Tax Considerations for a Move to Portugal
1. Portugal: No more retiree tax benefits from ending NHR program
For those who haven’t heard, Portugal’s non-habitual resident (NHR) system was one of the most popular regimes for foreigners. Combined with an eligible visa, the program provided tax benefits for the first ten years lived in the country. That gave U.S. retirees a huge step up in saving on taxes.
For example, some of the benefits that Portugal’s NHR regime included were:
- 20% flat tax rate on most types of Portuguese-earned income (rental income, capital gains, etc.). The top tax rate for non-NHR tax residents is 48%.
- Tax exemption for foreign-sourced income (if subject to taxation in another country). Portuguese tax residents are taxed on worldwide income.
- 10% flat tax rate for “foreign” (U.S.) retirement pensions.
While the program technically ended last year, March 2025 is the last month that current applicants may apply. However, the rules are quite stringent. Future retirees who want to live in Portugal with an NHR status will be out of luck and may face higher taxes without this regime.
2. Higher retirement income and capital gains taxes in Portugal
Because the NHR program is going away, you may jump feet-first into the Portuguese taxes. (Though if you hold a Golden Visa, it’s possible that you are not a tax resident until you meet a residency requirement, like staying in the country for 183 days or more in a calendar year).
Consequently, you may pay more in taxes than if you were to stay in the United States. While Portugal has a Tax Treaty with the U.S., which may help you avoid double taxation, it doesn’t necessarily protect you from taxes in your country of residency.
For instance, as a Portuguese tax resident, you may be taxed at a higher rate on some income than if you were living in the United States:
- In general, Portugal’s individual capital gains tax rate is 28%, compared to the 20% highest federal U.S. capital gains tax rate.
- Pension income can be taxed as high as 48% in Portugal, compared to the highest federal tax rate of 37% in the U.S.
- The Portuguese AIMI tax (similar to a “mansion tax”) ranges from .7% on properties worth more than $629,607 to 1.5% on properties valued at more than $2,098,691 (married couples may have higher thresholds).* The U.S. does not have a federal luxury home tax.
*Note: Income level was converted from EUR to USD as of March 2025.
Of course, your tax burden depends on your financial situation, including your income streams and where you currently live. Consult a tax professional to determine how Portuguese taxes may impact you.
3. Portugal sales taxes: Higher VAT tax rates
Portuguese living comes at a relatively low cost compared to the United States. Essentials like groceries, public transport, utilities, clothing, and even fitness club memberships may be up to 35% lower in Portugal than in the U.S.
So it may come as a surprise that Portugal has some high VAT taxes.
VAT stands for “value-added tax,” which operates similarly to a sales tax. According to the Tax Foundation, Portugal is on the higher end of VAT tax rates in Europe.
To illustrate this comparison, let’s look at the three VAT tax rates across regions in Portugal:
- Mainland Portugal – 23%
- Madeira – 22%
- The Azores – 16%
While a lower “reduced VAT rate” may apply to some goods and services, consumers may still pay at least 13% on many goods and services. Compared to the United States, which has no federal sales tax, these rates can be significantly higher than where you live now. State sales taxes in the U.S. generally max out at 10.1%, even in the states with the highest sales taxes.
So if you like shopping in retirement, you may not pick Portugal to save on sales tax.
Bottom line: Is Portugal a good place to live and retire?
Although the NHR program is expiring, many U.S. retirees may imagine moving to Portugal for its inexpensive rents, cheaper healthcare, and low-priced food.
However, some items are more expensive across the pond. For example, Portuguese car and gas prices can cost more than in the U.S., depending on where you live.
Additionally, retirees should be aware of the current housing crisis in Portugal:
- According to Eurostat, an official website of the European Union, Portuguese housing prices are continually climbing faster than the EU average at a rate of 113%.
- Euronews reports that there is also an affordable housing shortage in the country, partly increased by a rise in foreign investment.
Consider what’s important to you when planning for retirement. While the cost of living is a factor, certain tax considerations may outweigh the benefits of retirement in Portugal.
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