5 Critical Mistakes Expats Make with PT Taxes on Your Non-PT Wages if You Have NHR 1.x

Introduction

Look, dealing with bureaucracy is tough—especially when you’re trying to figure out taxes across borders. When I first moved to Portugal under the old NHR 1.x regime, I thought I had everything figured out. I was working remotely for my UK employer, paying UK taxes on my income, and assumed that would be the end of it. But the more I researched and talked to other expats, the more I realized how many people get this wrong—and how costly those mistakes can be.

The question of whether Portugal taxes your non-Portugal wages when you have NHR 1.x is one of the most confusing topics for expats. I’ve seen forum threads with wildly different answers, and even tax professionals sometimes give conflicting advice. After going through the process myself and speaking with others who’ve filed their taxes in Portugal, I want to share what I’ve learned to help you avoid the same pitfalls.

Step-by-Step: Understanding PT Taxes on Non-PT Wages with NHR 1.x

Step 1: Determine Your Tax Residency Status

The first and most critical step is understanding where you’re actually tax resident. This isn’t just about where you live—it’s about where you spend most of your time and where your center of economic interests lies.

Under Portuguese tax law, if you spend more than 183 days in Portugal (consecutive or not) in any 12-month period starting or ending in the calendar year, you’re considered a tax resident. Even if you spend less time, you might still be considered a resident if you have a dwelling in Portugal that appears to be your habitual residence.

I made the mistake of assuming that because I was still waiting for my Golden Visa approval and spending most of my time in the UK, I wasn’t a Portuguese tax resident. But I had unknowingly set myself as tax resident in Portugal when I first arrived, which created complications later.

Step 2: Understand What NHR 1.x Actually Covers

The old NHR 1.x regime (which was replaced by NHR 2.0 for applications after March 2020) offers significant tax benefits, but it’s important to understand exactly what it covers.

For non-Portugal sourced income that’s already taxed at source in another country, NHR 1.x generally exempts this from Portuguese taxation. This includes salaries from employment performed outside Portugal.

However, there’s an important distinction: the ‘high-value occupation’ criteria applies to your Portugal-based income, not your non-Portugal income. If you’re performing work in Portugal, even remotely for a foreign employer, that income might be subject to different rules.

Step 3: Identify Where the Work is Actually Performed

This is where many expats get tripped up. Portugal doesn’t care where your employer is located or where you’re paid—they care where the work is physically performed.

If you’re working from an office in London for a UK company, that’s UK-sourced income, regardless of your nationality or where your paycheck comes from. But if you start working from your apartment in Lisbon, even for the same UK employer, that portion of your income becomes Portugal-sourced.

I know expats who thought they could just work remotely from Portugal for their foreign employer without any tax implications. That’s not the case. The source of employment income is determined by where the work is performed, not where the employer is based.

Step 4: Check the Double Taxation Agreement (DTA)

Portugal has DTAs with many countries, including the UK, which are designed to prevent double taxation. These agreements typically give the country where the work is performed the primary right to tax the income.

However, having a DTA doesn’t automatically mean you won’t pay taxes in both countries. It means you’ll get foreign tax credits in one country for taxes paid in the other, which should prevent actual double taxation but might not prevent you from having to file tax returns in both countries.

Step 5: File Your Portuguese Tax Return Correctly

Even if your non-Portugal wages are exempt from Portuguese taxation under NHR, you still need to declare them on your Portuguese tax return. This is a common mistake—people think if it’s exempt, they don’t need to declare it.

You’ll need to show your worldwide income, including your non-Portugal wages, but only your Portugal-sourced income (like rental income from Portuguese property) will actually be taxed. This can be confusing when you’re filling out the forms, but it’s important to be thorough and accurate.

Costs and Fees to Consider

Tax Preparation Costs

Getting professional help with Portuguese taxes can cost anywhere from €300-€1000+, depending on the complexity of your situation. Given how confusing the rules can be, especially with NHR, this is often money well spent.

I initially tried to do my own taxes using online resources and forums, but I quickly realized I was out of my depth. The forms are in Portuguese, the rules are complex, and the consequences of getting it wrong can be severe.

Potential Fines for Non-Compliance

The fines for tax non-compliance in Portugal can be substantial. Late filing penalties start at €75 and can go up to 10% of the tax due. More seriously, if you fail to declare income or provide incorrect information, you could face penalties of 50-150% of the tax due, plus interest.

I’ve heard horror stories of expats who didn’t properly declare their worldwide income and ended up with massive tax bills and penalties years later when the Portuguese tax authorities caught up with them.

Accounting and Legal Fees

Beyond tax preparation, you might need accounting or legal help to navigate your overall tax situation, especially if you have complex investments, multiple income streams, or are dealing with cross-border tax issues.

Expect to pay €100-€200 per hour for a good Portuguese accountant or tax lawyer. Some firms offer packages for expats that include ongoing advice throughout the year, not just tax return preparation.

Requirements and Documentation

Tax Residency Certificate

You’ll need a tax residency certificate from Portugal (and potentially from your other country of tax residence) to prove where you’re tax resident. This is crucial for claiming benefits under DTAs and for your NHR status.

The process for getting a Portuguese tax residency certificate involves registering with the tax authorities (getting your NIF) and filing a tax return declaring yourself as a tax resident.

Proof of Income and Tax Paid

You’ll need to provide documentation of all your income sources and taxes paid. For employment income, this typically means your P60 or equivalent from your employer, plus your tax return from the country where the income was earned.

I had to provide my UK tax return and P60 to show that my UK employment income had already been taxed at source. This was important for proving that I shouldn’t be taxed again in Portugal on this income.

Proof of Days Spent in Each Country

Keep careful records of your travel and days spent in each country. This can be crucial evidence if there’s any question about your tax residency status.

I use a simple spreadsheet to track my entry and exit dates from Portugal and the UK, and I keep copies of all my boarding passes and entry/exit stamps in my passport.

5 Critical Mistakes to Avoid

Mistake 1: Assuming NHR Automatically Makes You Tax Resident in Portugal

This was my biggest mistake initially. Having NHR status doesn’t automatically make you a Portuguese tax resident. You can have NHR and still be tax resident in another country, depending on where you spend your time and where your economic interests lie.

I know expats who rushed to apply for NHR without understanding the tax residency implications, only to find themselves in complicated situations later.

Mistake 2: Not Declaring Worldwide Income on Your Portuguese Tax Return

Even if your non-Portugal income is exempt from Portuguese taxation under NHR, you still need to declare it on your Portuguese tax return. Failing to do so is considered tax evasion and can result in severe penalties.

I was confused about this at first—why declare income that isn’t taxed? But the Portuguese tax authorities want a complete picture of your worldwide income to properly assess your tax situation.

Mistake 3: Confusing Where Work is Performed with Where the Employer is Based

Many expats think that if they work remotely for a foreign company, their income is automatically foreign-sourced. This isn’t true. The source of employment income is where the work is physically performed, not where the employer is headquartered.

I know someone who moved to Portugal and continued working remotely for their US employer, thinking their income would still be considered US-sourced. When they started working from their Lisbon apartment, that income became Portugal-sourced and was subject to Portuguese taxation.

Mistake 4: Not Understanding the Implications of Brexit

For UK expats, Brexit has complicated the tax situation significantly. The UK is no longer part of the EU, which affects various tax treatments and social security agreements.

I’ve seen expats who moved to Portugal pre-Brexit struggle with the new rules post-Brexit, especially regarding their rights and tax treatments.

Mistake 5: Relying on Forum Advice Without Professional Verification

While forums like this one are incredibly valuable for sharing experiences and getting general guidance, they shouldn’t be your only source of tax advice. Tax law is complex and fact-specific, and what applies to one person’s situation might not apply to yours.

I made the mistake of relying too heavily on forum advice early on, which led to some confusion and anxiety. Getting professional advice, even if it costs money, is worth it for peace of mind and compliance.

Recent Developments: Spanish Tax Authorities Monitoring Portuguese NHR Migrants

A concerning development that’s relevant to many expats is the increased scrutiny from Spanish tax authorities on people who’ve moved to Portugal under the NHR regime.

According to recent reports, the Spanish tax authority (Hacienda) is now monitoring taxpayers from Spain who moved to Portugal starting in 2021. This is because tax debts expire after four years, so they’re now able to pursue cases from people who moved that year.

The Spanish authorities are particularly focused on digital nomads and pensioners who moved to Portugal to benefit from the NHR regime. They’re rejecting the concept of