01/27/2026
A great article on Portugal - Canada tax issues by our Manager and resident tax specialist, Olena Draga!
Income in Portugal (PT) and Canada (CA): Where should I file my tax return and in which country should I pay taxes?
In this article, I want to provide a simple clarification for those who are unsure how to proceed with their tax obligations in terms of residency.
From Canadian tax perspective, to answer the two questions above, the first and most important step is to determine the taxpayer’s residency.
There are two ways to determine residency: deemed residency and factual residency. According to the Canada Revenue Agency (CRA), a deemed full-time resident is an individual who sojourns (travels in and out of Canada) for a total of at least 183 days in the year. Individuals in this group must file their tax returns in Canada and pay tax on their worldwide income, from any source or country. The good news is that a taxpayer can claim a foreign tax credit for taxes paid in other countries, which significantly reduces the Canadian tax payable.
A factual full-time resident, on the other hand, is an individual who maintains significant residential ties with Canada. The primary ties CRA considers are:
• Dwelling place in Canada available for use (house or apartment that is not rented, or if rented, tenants are related persons such as family members);
• Spouse (including common-law partner) and/or dependants in Canada.
Other secondary ties CRA may consider include:
• Personal-use property (car, furniture, motorcycle, etc.);
• Social ties such as memberships or seasonal dwellings;
• Economic ties (Canadian bank accounts, employment by a Canadian employer, RRSP, TFSA, RPP, etc.).
Factual residents, even if they remain in Canada for less than 183 days, are taxed on their worldwide income and must file a Canadian tax return. Like deemed residents, they can claim foreign tax credits to reduce their Canadian tax burden.
Part-year residents are taxed on their worldwide income only for the period they are resident in Canada. Their tax return must be filed and prorated for that period.
Non-resident individuals receiving Canadian-source income pay a 25% tax withheld at source (which may be reduced under a tax treaty with an election), and no Canadian tax return filing is generally required.
Summary:
Residency Type Taxation
Deemed resident (183 days sojourning in CA) Taxed on worldwide income, must file tax return in CA
Factual resident (significant ties with CA) Taxed on worldwide income, must file tax return in CA
Part-year resident Taxed on worldwide income for the period of residency in CA, must file tax return in CA
Non-resident Taxed on Canadian-source income; 25% withheld at source, generally do no need to file tax return in CA
Now integrating two tax jurisdictions—Portuguese and Canadian.
Individuals who are non-residents in Portugal are usually taxed at source and are not required to file a Portuguese tax return. However, this is not always the case, as certain types of income trigger different compliance obligations.
If the income earned consists of interest on term deposits, employment income, pension income, or dividends (generally subject to 25% withholding tax), the tax is typically withheld automatically at source by the entities that make the income available to the beneficiary. Common examples of such entities include banks and private or public corporations.
Nevertheless, individuals must inform these institutions of their tax residency status. Failure to do so may result in no tax being withheld, which could create an obligation to file a Portuguese tax return and lead to potential double taxation if the situation is not corrected in a timely manner.
When it comes to rental income or capital gains, filing a Portuguese tax return is mandatory. Rental income is generally taxed at 25% or 28%, while capital gains are taxed at the individual’s marginal tax rate, considering the total income earned in Portugal and abroad. As a result, the applicable tax rate may easily reach the highest bracket. The positive aspect is that, similar to Canada, only 50% of capital gains are subject to taxation.
If an individual is considered a Portuguese tax resident, they are generally required to file an annual tax return, unless their employment or pension income does not exceed the legal thresholds established in the Código do IRS, or the tax has been fully withheld at source. Nevertheless, each situation should be analyzed individually, as exceptions may apply.
For individuals moving permanently from Canada to Portugal, Portugal has historically offered special tax incentive programs to support Portuguese nationals returning to their home country. The most well-known programs were “Residente Não Habitual (NHR)” and “Programa Regressar”, both of which provided significant tax benefits. A new incentive program, “Voltar a Portugal”, has already been formally announced and is intended to be an evolution and replacement of Programa Regressar; however, it has not yet been approved in the State Budget. It is important to note that specific eligibility criteria must be met before applying for any of these incentives.
For individuals who relocate to Portugal and become tax residents while receiving pension income from Canada, periodic pension payments are generally taxed at source in Canada. Under the Canada–Portugal tax treaty, the withholding tax on the portion exceeding CAD 12,000 cannot exceed 15%. This rate may be reduced or even eliminated by filing Form NR5 with the Canada Revenue Agency (CRA).
From a Portuguese tax compliance perspective, similarly to Canada, Portuguese tax residents must declare their worldwide income, including income received from foreign sources, and report the tax paid abroad in order to reduce their Portuguese tax liability.
This article is based on the following sources:
- Income Tax Folio S5-F1-C1, Determining an Individual’s Residence Status
- Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))
- Convention Between the Government of Canada and the Government of the Portuguese Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, E103231 - CTS 2001 No. 27
- Código do Imposto Sobre o Rendimento das Pessoas Singulares (CIRS) (hiper link)
- IRS - Tributação das mais-valias imobiliárias auferidas por não residentes | Ordem dos Contabilistas Certificados (hiper link)
- Programa XXV Governo Constitucional - XXV Governo Constitucional (hiper link)
- Diário da República n.º 127/2019, Série I de 2019-07-05
Olena Draga CA (PRT), CPA (Candidate)
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