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When it comes to finding the perfect destination for sun, sea, and low taxation rates, the top contenders are undoubtedly Cyprus and Portugal. But which one should you choose?

Let’s dive into the details and compare the tax rates in Cyprus and Portugal, helping you make a well-informed decision.

Tax residency

To become a tax resident in Cyprus, individuals must spend more than 183 days in the country during a calendar year. However, there is also a 60-day option available for those looking for a more flexible tax residency status. As tax residents in Cyprus, individuals are subject to taxation on their worldwide income.

Similarly, Portugal has a similar tax residency rule, requiring individuals to spend at least 183 days within the country during a calendar year. However, it is worth noting that Portugal may no longer offer its Non-Habitual Residency (NHR) program after 2024 due to recent changes in legislation. This program allowed eligible individuals to benefit from significant tax advantages, such as a 10-year exemption on certain types of foreign income.

Personal income tax

Personal income tax in Cyprus is progressive, with rates ranging from 0% to 35%. This means that as your taxable income increases, so does the percentage of tax you pay. If your taxable income is below €19,500, you are exempt from income tax. However, any income above this threshold will be taxed at progressively higher rates.

Moving on to Portugal, the country also has a progressive personal income tax system. The rates range from 14.5% to 48%, depending on your taxable income. In addition, there is a solidarity surcharge of up to 5% for individuals with income above €80,000. The Non-Habitual Residency (NHR) programme provided tax advantages for certain types of foreign income. However, please note that this programme may no longer be available after 2024 due to recent changes in legislation!

Social security

In Cyprus, both employees and employers contribution rates are set at 8.3% of an employee’s gross salary. It’s important to note that both the employer and the employee are responsible for half of this contribution. This helps ensure that individuals are protected and supported in times of need, such as during unemployment or illness.

In Portugal, the social security contributions are generally higher than in Cyprus. The total contribution rate is 34.75% of an employee’s gross salary. This includes a 23.75% contribution from the employer and an 11% contribution from the employee. It’s worth mentioning that self-employed individuals in Portugal also contribute to social security at a rate of 21.4%.

Corporate tax

Companies in Cyprus benefit from a flat corporate tax rate of 12.5%. This low rate makes Cyprus an attractive destination for businesses looking to minimise their tax obligations. Additionally, Cyprus has an extensive network of double tax treaties, which can help reduce the tax burden on international transactions. These treaties provide relief from double taxation by allowing companies to avoid paying tax on the same income in multiple countries.

On the other hand, Portugal has a higher corporate tax rate of 21%, with an additional municipal surcharge of up to 1.5% for companies with taxable income above €150,000. However, it is worth noting that Portugal does offer a 5% corporate tax option. This option can be particularly beneficial for individuals earning above €250,000, as it provides a significant tax advantage.

Similarly to Cyprus, Portugal also has numerous double tax treaties in place. These treaties ensure companies are not subject to excessive taxation.

Capital gains tax

When it comes to capital gains tax, Cyprus and Portugal have different approaches. In Cyprus, capital gains tax is set at a rate of 20%. However, this tax only applies to the sale of immovable property or shares in companies owning such property. Gains from the sale of shares in other companies and securities are exempt from capital gains tax. This can be a significant advantage for investors!

But in Portugal, capital gains are taxed as personal income. This means that the tax rate for capital gains depends on your overall income and can go up to 48%. It’s worth noting that this rate is relatively high compared to Cyprus. Therefore, if you are considering selling property or shares in Portugal, it’s important to take into account the potential tax implications and plan accordingly.

What happens next?

It’s unfortunate that the NHR program may be no longer, as Portugal has been a big hit with expats over recent years! However, there are still other options to live in an amazing country with low taxable rates.

We offer free initial consultations with our tax teams, who have expertise in both Cyprus and Portugal; get in touch today & find out more.

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