Portugal vs Italy Tax Comparison

The headline rates tell only half the story. Let's compare what you actually pay. Portugal's IFICI Regime (20% Flat Rate) Portugal introduced IFICI (Imposto sobre o Rendimento de Pessoas Singulares com Atividade Independente) to replace the older NHR program. It offers a flat 20% tax on Portuguese-source income for 10 consecutive years.

Eligibility requirements:

• Not been a Portuguese tax resident in the previous 5 years
• Hold a university degree (EQF Level 6+) or PhD
• Work in science, technology, healthcare, green energy, or R&D sectors Coverage:
• Portuguese-source employment income: taxed at 20%
• Portuguese-source business income:

taxed at 20%

• Foreign-source investment income: exempt (dividends, interest, rental income, capital gains from non-blacklisted jurisdictions) Annual tax at different income levels:
• €100,000 Portuguese income: €20,000 tax (20%)
• €200,000 Portuguese income: €40,000 tax (20%)
• €500,000 Portuguese income: €100,000 tax (20%) Italy's Flat-Tax Regime (Current-Law Verification Required)

Italy's imposta sostitutiva underwent major increases.

The regime applies to high-net-worth individuals establishing Italian tax residency.

Evolution:

• August 2024: Increased from €100,000 to €200,000 annually
• Current law should be checked each year; the regime amount was increased from earlier levels and now uses a higher fixed annual value
• Family members: €50,000 per person annually (increased from €25,000) Eligibility requirements:

- Not been an Italian tax resident for at least 9 of the previous 10 tax years

• Transfer tax residence to Italy officially Coverage:
• Foreign-source income: completely exempt (pensions, investments, rental income, capital gains)
• Italian-source income generally follows ordinary Italian taxation unless a specific rule applies
• Duration:

up to 15 years Annual tax structure:

• Regime applies as a fixed annual substitute-tax mechanism under eligibility scope defined by current Italian rules
• No income threshold—you pay the same whether you earn €300K or €3 million
• Spouse and each dependent:

additional €50,000 each The Breakeven Analysis At what income level does each regime become advantageous?

Breakeven logic: compare fixed-regime costs versus progressive taxation using your source-of-income mix, treaty position, and current-law regime scope. Avoid static breakeven heuristics without a bespoke projection. Italy favors those with high foreign-source income (pensions, global investments). Portugal favors those earning primarily in Portugal through employment or business.

Italy's 7% Flat Tax for Southern Italy Retirees Italy created a special incentive for foreign pensioners relocating to economically disadvantaged areas.

Requirements:

• Receive a foreign pension (401K, IRA, annuity, or traditional pension)
• Transfer tax residence to a municipality in Southern Italy with population under 20,000
• Not have been an Italian tax resident in the previous 5 years
• Municipality may need to be in a designated southern region or earthquake-affected central zone

Benefits:

• 7% flat tax on all foreign-source income (pensions, investments, rental income)
• Duration: 10 consecutive years
• No restrictions on income level—you could earn €100K or €1M and pay 7% Tax comparison at €100,000 annual foreign pension:
• Regular Italian IRPEF rates: €23,000+ (varying by brackets and regions)

- 7% Southern Italy regime: €7,000 Savings: €16,000 annually over 10 years = €160,000 total This regime is generous for modest to upper-middle-class retirees.

However, population caps limit available municipalities, and relocation to very small towns (under 20,000 residents) is a practical constraint. Portugal's Progressive Pension Taxation Portugal does not offer a special pension regime. Foreign pensioners are taxed progressively on Portuguese-source and qualifying foreign income.

Tax bracket structure (check current-year law):

• Up to €7,479: 14.5%
• €7,480–€18,472: 21%
• €18,473–€39,790: 26%
• €39,791–€80,882: 37%
• Over €80,882: 45% Tax at €100,000 annual foreign pension:
• Approximately €32,000–€37,000 (depending on other income sources) Takeaway: Retirees with €50K–€150K annual foreign pensions save significantly under Italy's 7% regime

Those with smaller pensions or those unable to meet Italy's municipal restrictions may find Portugal's treatment acceptable, especially with non-resident status strategies.

How do stock sales, real estate gains, and investment returns compare?

Capital Gains Tax Rates Portugal:

• Flat rate: 28% on shares and securities
• Option: Residents may elect progressive taxation if more favorable
• Real estate gains: 50% taxable, added to total income at progressive rates
• Primary residence: generally exempt Italy:

- Flat rate applies under current-year Italian rules (verify current percentage at filing year)

• Capital-gains percentages and options should be verified against current-year Italian law before filing
• Real estate: progressive rates or 26% flat, with exemptions for primary residence if held 5+ years Comparison at €100,000 capital gain:
• Portugal:

€28,000 (28%) - Italy: model with the current-year capital-gains percentage and legal scope in force Relative favorability depends on income type, holding structure, and current-year election options in each jurisdiction.

Investment Income (Dividends, Interest, Rental) Portugal IFICI:

• Foreign-source dividends: exempt
• Foreign-source interest: exempt
• Portuguese-source dividends: 20% flat
• Portuguese rental income: 20% flat Italy flat tax regime:
• All foreign-source investment income: exempt
• All Italian-source income: covered by fixed €300K annual fee Scenario: €50,000 in foreign dividend income
• Portugal (IFICI): €0 tax
• Italy (flat tax): €0 tax (covered by annual fee) Both effectively exempt foreign investment income, but Italy's regime is more comprehensive if you earn Italian-source income simultaneously

IVAFE (Tax on Foreign Financial Assets) Italy only—0.2% annual tax on:

• Stocks, bonds, mutual funds held abroad
• Investment accounts with foreign brokers
• Cryptocurrencies held in foreign wallets Threshold: €0 (applies to all holdings; minimum tax if under €200) Rate: 0.2% (0.4% if held in tax-preferred jurisdictions) Example:

€1,000,000 in foreign stocks

• Annual IVAFE: €2,000–€4,000 IVIE (Tax on Foreign Real Estate) Italy only—0.76% to 1.06% annual tax on:
• Real estate properties owned abroad
• Vacation homes in other countries
• Rental properties overseas Portugal: No wealth tax

Zero tax on foreign real estate holdings. Reporting Requirements Italy: may need to report all foreign assets annually in Section RW of tax returns, even if below taxable thresholds. Portugal: IFICI residents generally exempt from wealth reporting on foreign-source assets. Impact: An individual with €5 million in foreign investments and property could face €50,000–€100,000 annually in Italian wealth taxes.

Portugal imposes zero.

Portugal: Zero Inheritance Tax for Direct Family Tax rate: 0% for:

• Spouses and civil partners
• Children and grandchildren
• Parents and grandparents Applies to: Portuguese-located assets (with some complexity for non-residents) Gift tax: 0% (with municipal stamp duties, typically under 1%) Practical effect: You can transfer your entire estate to immediate family members tax-free

Italy: 4–8% Inheritance Tax with Exemptions Tax rate:

• Spouse and children: 4% (with €1,000,000 exemption per person)
• Grandchildren: 6%
• Siblings: 6%
• Other heirs: 8% Exemptions:
• Spouse: €1,000,000
• Each child: €1,000,000
• Disabled beneficiaries: €1,500,000 Example: €2,000,000 estate to spouse and one child (Italy)

- Spouse receives €1,000,000: €0 tax (under exemption)

• Child receives €1,000,000: €0 tax (under exemption)
• Total tax: €0 Example: Same €2,000,000 estate (Portugal)
• Entire €2,000,000 to spouse and children: €0 tax Takeaway: Portugal wins for small to mid-size inheritances

Italy's exemptions protect larger estates reasonably well, but rates still apply above thresholds. Both countries are generous by European standards.

Portugal IFICI May Fit Better If

• Your profile matches qualifying activity rules.
• You want an employment/business-led framework with treaty coordination.
• You need a structure integrated with Portuguese operations.

Italy Flat-Tax Route May Fit Better If

• Your foreign-source profile is dominant and stable.
• You prioritize predictability through a flat-charge design.
• You can support substance and cross-border evidence requirements.

Selection should be modeled with residency, treaty, exit, and succession scenarios before commitment.