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The IRS Income Categories in Portugal: Where Does Your Income Fit?
🗂️ The Six Categories at a Glance
- Category A — employment income
- Category B — business and professional income (self-employed)
- Category E — capital (investment) income
- Category F — property (rental) income
- Category G — capital gains and other increases in wealth
- Category H — pensions
Categories C and D used to exist (for commercial and agricultural income) but were merged into category B in 2001.
💼 Category A — Employment Income
Income from working for someone else under an employment contract (or similar), including:
- Salaries, wages, bonuses, holiday and Christmas allowances
- Fringe benefits (for example, private use of a company car or housing paid by the employer)
- Board members’ remuneration
- Meal and travel allowances above the legal limits
Taxed at progressive rates, with tax withheld monthly by the employer. Declared in Annex A.
🧑💻 Category B — Business and Professional Income
Income from working for yourself:
- Freelance and professional services (recibos verdes)
- Commercial, industrial and agricultural activities
- Local accommodation (alojamento local)
- Royalties received by the original author or creator
Taxed under the simplified regime (a coefficient is applied to income) or with organised accounting. Declared in Annex B (or C).
💶 Category E — Capital Income
Income from money or rights you hold:
- Interest on deposits, bonds and loans
- Dividends and other profit distributions
- Royalties received by someone other than the original author
- Income from investment funds, life insurance and capital redemption products
Generally taxed at a special rate of 28% (or 35% if paid from a tax haven), with the option to aggregate with other income.
🏠 Category F — Property Income
Rents from property in Portugal or abroad, and similar income (such as subleases or advertising space on buildings). Taxed at a special rate (with reductions for long and moderate-rent leases) or aggregated by option. Declared in Annex F (or J for foreign properties).
📈 Category G — Capital Gains
Gains on the sale of:
- Real estate
- Shares and other securities
- Crypto-assets held for less than 365 days
- Intellectual property, when not received by the original author
Also includes some compensation payments and unjustified increases in wealth. Declared in Annex G.
👵 Category H — Pensions
Retirement, survivors’ and disability pensions, public or private, Portuguese or foreign, as well as some annuities. Taxed at progressive rates. Declared in Annex A (Portuguese pensions) or Annex J (foreign pensions).
🔍 Why the Category Matters
- Rates: some categories are taxed at progressive rates (up to 48%, plus solidarity surcharge), others at special flat rates
- Deductions: each category has its own deductible expenses and specific deductions
- Withholding: some income is taxed at source, sometimes as the final tax
- Special regimes: regimes like IFICI or the old NHR exempt or reduce tax depending on the category and the source of the income
- Non-residents: the category determines the flat rate and withholding applied in Portugal
💡 Practical Tips
- Classify each income stream before filing — the same type of payment can fall into different categories depending on who receives it.
- Foreign income follows the same categories and is declared in Annex J.
- Unsure? Small classification mistakes can change the tax due significantly.
🚀 Final Considerations
The category is the starting point for everything in IRS. Once you know where each income fits, it’s much easier to understand your tax bill and plan ahead.
📢 Expert Advice: When you move to Portugal, list all your income sources and classify each one. It’s the best way to anticipate your first IRS return.
Not sure how your income is taxed in Portugal? Step Inside Portugal’s tax team can review your situation and prepare your IRS return — find out more about our tax services here. ✨
This article is for general information only and doesn’t constitute tax advice. It reflects the rules as of October 2026.
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