Americans who move to Portugal for the D7 visa, a remote job, or retirement quickly discover that two governments now expect a tax return every year: the Autoridade Tributaria e Aduaneira, Portugal's tax authority, and the IRS back home. US expat taxes in Portugal are not optional, and filing one return does not excuse the other. Portugal taxes its residents on worldwide income, and the United States separately taxes its citizens and green card holders on worldwide income no matter where they live, so an American living in Portugal typically owes a filing obligation in both countries every year. Coordinating the two, through the Foreign Tax Credit, the Foreign Earned Income Exclusion, and the treaty and totalization agreement between the two countries, is what keeps the same income from being taxed twice.
Do US Citizens Living in Portugal Have to File Both Portuguese and US Tax Returns?
Yes, in almost every case. Portugal taxes individuals who qualify as tax residents, generally meaning they spend more than 183 days in the country within a 12-month period or maintain a habitual home there, on their worldwide income through the Autoridade Tributaria e Aduaneira (AT). The United States separately taxes its citizens and green card holders on worldwide income no matter where they live, a rule that has nothing to do with Portuguese residency and everything to do with US citizenship or immigration status.
That means the two filing obligations run independently of each other. Filing and paying tax in Portugal does not excuse you from filing a US Form 1040, and filing a US return does not excuse you from your Portuguese obligations. The mechanisms that keep the same dollar of income from being taxed twice, the Foreign Earned Income Exclusion, the Foreign Tax Credit, and the US-Portugal tax treaty, operate on the US side of that equation, not as a substitute for either filing.
How Does Portugal Tax Residents on Worldwide Income?
Portugal applies its personal income tax, the Imposto sobre o Rendimento das Pessoas Singulares, on a worldwide basis to anyone who qualifies as a tax resident under the 183-day or habitual-home test described above. Absent a special regime, standard Portuguese progressive rates on ordinary income generally run comparable to or higher than the equivalent US rates on the same income, which matters directly for the FEIE-versus-FTC decision covered next.
Portugal's well-known Non-Habitual Resident regime, which offered reduced Portuguese tax to new residents for a fixed number of years, closed to new applicants at the end of 2023, with only limited transitional rules reaching into 2024. It has since been replaced by a narrower incentive for specific qualifying professions rather than the general population of new arrivals. Americans who hear about the old regime from friends who moved years ago should not assume the same benefit is available today; any current incentive has to be confirmed for the current year with a Portuguese tax professional rather than assumed from older information.
Should You Claim the FEIE or the Foreign Tax Credit on Portuguese Income?
For most Americans paying standard Portuguese income tax, the Foreign Tax Credit on Form 1116 tends to be the stronger tool, because Portuguese tax on ordinary income generally runs comparable to or higher than the equivalent US tax. When that is true, the credit can eliminate US tax on your Portuguese-source income entirely and still leave unused credit on the table.
The Foreign Earned Income Exclusion on Form 2555 works differently: it excludes foreign earned income up to an annually indexed maximum, for example $130,000 for 2025, from US taxable income under IRC §911. That can be simpler for income under the cap, or for someone benefiting from a narrower current-year Portuguese incentive, but it comes with real costs. The FEIE does nothing for self-employment tax, claiming it can disqualify the refundable Additional Child Tax Credit for a family with kids, and once revoked you generally cannot re-elect it for five years without IRS consent. The Foreign Tax Credit, by contrast, is computed by category under IRC §§901 and 904, and any credit you cannot use carries back one year and forward ten years on Schedule B of Form 1116. Our FEIE versus Foreign Tax Credit comparison walks through the decision in more detail, and the two elections can also be combined across different income types in the same year.
What Does the US-Portugal Tax Treaty Do for Double Taxation?
The United States and Portugal have had a comprehensive income tax treaty in force since 1996, but for most Americans living in Portugal day to day, the treaty is not where the routine double-tax relief comes from. Like nearly every US treaty, it contains a standard saving clause that lets the United States tax its own citizens and green card holders largely as if the treaty did not exist, so the domestic Foreign Tax Credit and Foreign Earned Income Exclusion mechanisms described above do most of the actual work.
Where the treaty matters most is in the details: tie-breaker rules for residency when someone could be considered a resident of both countries in the same year, reduced withholding on certain investment income, and specific provisions touching pensions and social security that can differ from the general rule. Because treaty provisions have to be read in their specific text, any position relying on a specific treaty article should be reviewed against the actual treaty language before you file.
Does the US-Portugal Totalization Agreement Cover Social Security?
Yes. A totalization agreement between the United States and Portugal has been in force since August 1, 1989, and it exists specifically to stop a worker from paying into both countries' social security systems on the same earnings at the same time. Without it, an American working in Portugal could owe both Portuguese social security contributions and US self-employment tax on the identical income.
The agreement works by assigning coverage to a single system based on where the work is performed and how long the assignment is expected to last, documented with a certificate of coverage issued either by the Social Security Administration or by the Portuguese social security authority, depending on the direction of the assignment. Self-employed Americans in Portugal should not assume US self-employment tax automatically applies; our guide to totalization agreements and self-employment tax abroad covers how the certificate process works.
How Are Portuguese Pensions and Retirement Accounts Taxed by the US?
Not automatically. Portugal offers several retirement vehicles, including the state social security pension and private or employer-sponsored retirement savings products, such as PPR plans. Being tax-favored under Portuguese law does not, by itself, make any of these tax-deferred for US purposes.
The general US rule, under the operation of IRC §§401(a) and 402(b), is that income accruing inside a foreign retirement plan is taxed currently to a US person unless a specific treaty provision defers it. Whether the US-Portugal treaty provides that deferral, and for which type of Portuguese plan, is fact-specific and has to be analyzed against the actual treaty text rather than assumed. Our foreign pension US tax treatment guide walks through the four questions that determine the answer for any foreign plan: whether growth is taxed as it accrues, whether a treaty defers it, what has to be reported, and how distributions are taxed.
Are Portuguese Investment Funds Taxed as PFICs?
Usually, yes, and this is one of the more expensive surprises for Americans investing through a Portuguese brokerage. A Portuguese-domiciled mutual fund, ETF, or other pooled investment vehicle, along with most EU-domiciled funds commonly sold to Portuguese residents, typically meets the definition of a passive foreign investment company under IRC Section 1297, with Sections 1291 and 1298 governing the tax treatment. That classification is a matter of US tax law and does not turn on how the fund is taxed inside Portugal.
Once a fund is a PFIC, the default US tax treatment is punitive: absent a timely election, gains and certain distributions are spread over your holding period, taxed at the highest rate in effect for each of those years, and hit with an interest charge on top. Each PFIC generally requires its own Form 8621 filing, and the reporting obligation applies even in a year where no tax is due. This is one of the clearest reasons Americans in Portugal are usually steered toward US-domiciled brokerage accounts and US-based index funds rather than a local fund or EU-domiciled ETF through a Portuguese bank.
What Else Do You Have to Report to the IRS?
Beyond the income tax return itself, Portuguese financial accounts and investments carry their own separate reporting obligations that apply whether or not any US tax is owed, and the penalties for missing them are typically far larger than any tax that would have been due.
The Portugal Reporting Stack
Reference- FBAR (FinCEN Form 114). Required when the combined balance of your Portuguese bank, brokerage, and retirement-related accounts exceeds $10,000 at any point during the year. See our FBAR filing guide.
- Form 8938 (FATCA, IRC §6038D). A separate filing threshold, higher for Americans living abroad, that can require you to list the same Portuguese accounts directly on your federal tax return. See our Form 8938 guide.
- Form 8621 (PFIC). Generally required for each Portuguese or EU-domiciled fund that qualifies as a passive foreign investment company. See our PFIC and Form 8621 guide.
Whether you even count as a US tax resident in the first place, if your situation is more complicated than straightforward citizenship, such as a long stay in the US on a visa before a move to Portugal became permanent, is a separate question governed by the substantial presence test.
Bottom Line
Living in Portugal does not simplify your US tax picture, it adds a second filing system on top of it. The tools that prevent double taxation, primarily the Foreign Tax Credit given that standard Portuguese tax generally runs comparable to or higher than US tax, have to be applied deliberately rather than assumed. The Non-Habitual Resident regime many Americans still hear about closed to new applicants at the end of 2023, so any current incentive needs to be confirmed for the year in question. Pensions, Portuguese investment funds, and foreign accounts each carry their own reporting rules on top of the income tax analysis, and getting any one wrong tends to cost more in penalties than the underlying tax ever would have.
Have questions about US expat taxes in Portugal? Contact TS CPA for a free consultation. We respond within the same day.
Official IRS and Government Sources
- IRS, Foreign Earned Income Exclusion
- IRS, Foreign Tax Credit
- IRS, US Citizens and Resident Aliens Abroad
- IRS, United States Income Tax Treaties A to Z
- Social Security Administration, US-Portugal Totalization Agreement
- FinCEN, Report of Foreign Bank and Financial Accounts (FBAR)
- IRS, About Form 8621
- IRC Section 911, Citizens or Residents Living Abroad