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- Tax, Live in Portugal
Category E Capital Income in Portugal: What It Covers and When It’s Considered Earned
💶 What Falls Under Category E?
The main types of capital income are:
- Interest on bank deposits, savings accounts, bonds, treasury bonds and other debt
- Interest on loans between individuals or to companies, including shareholder loans (suprimentos)
- Dividends and other profit distributions from companies
- Income from investment funds (distributions and gains on redemption of units)
- Income from life insurance and capital redemption products (including some unit-linked policies and PPR, in certain cases)
- Royalties and know-how received by someone who is not the original author
- Income from the rental of equipment and technical assistance in some cases
- Distributions from trusts
- Gains from derivatives such as swaps and forward contracts, in some cases
- Advances on profits and amounts made available to shareholders
📈 Category E vs Category G
The simplest way to distinguish them:
- Category E = income produced by an asset you hold (interest, dividends, royalties)
- Category G = gains from selling the asset itself (shares, bonds, property, crypto)
Examples:
- Dividends paid by a company → category E
- Gain on selling the shares → category G
- Interest on a bond → category E
- Gain on selling the bond before maturity → category G
- Gain on redeeming units in an investment fund → generally category E; selling them on the market → category G
📌 Legal Presumptions (Article 6)
The IRS Code includes presumptions designed to prevent tax avoidance:
- Loans are presumed to bear interest: a loan or credit line is presumed to earn interest at the legal rate (currently 4%), unless the contract shows otherwise or it’s proven to be interest-free
- Shareholders’ current accounts: amounts credited to a shareholder’s current account with the company, that don’t come from loans, capital or payments, are presumed to be profits or advances on profits
- Partnership and joint accounts: income is presumed to be shared equally among the holders unless proven otherwise
The presumptions can generally be rebutted with proof.
⏰ When Is Category E Income Considered Earned? (Article 7)
Category E income is generally taxed when it’s due, paid, made available or credited, whichever happens first. For example:
- Interest on deposits: when it’s due (for example, at maturity or on the scheduled interest date)
- Dividends: when they’re made available to the shareholder
- Life insurance and capital redemption products: when redeemed, paid out or at maturity
- Investment funds: on distribution or redemption
- Presumed interest on loans: on the dates set in the contract or, if none, on 31 December of each year
The timing decides in which year the income is declared — important when you become or stop being a Portuguese resident.
🧮 How Category E Is Taxed
- Special rate of 28% on most capital income
- 35% if paid by or through entities in tax havens
- Withholding at source: Portuguese banks and companies usually withhold the 28% — often as the final tax
- Option to aggregate: you can add it to other income and pay at progressive rates (useful for lower incomes). If you opt in, you must aggregate all category E income and 50% of dividends from EU/EEA companies is taxed
- Foreign capital income: declared in Annex J, with credit for foreign tax under the treaty
Life insurance and PPR: reduced taxation applies depending on how long the policy was held (for example, partial exclusion after 5 and 8 years).
✨ IFICI and NHR
Foreign-source interest, dividends and other capital income can be exempt under IFICI and NHR (except when coming from tax havens). Check the source rules in Article 18 first.
💡 Practical Tips
- Check where income is withheld — Portuguese withholding is often final; foreign income must be declared.
- Lending money to family or your company? Document the loan and whether it bears interest.
- Shareholder current accounts: keep track of what’s a loan and what’s a distribution.
- Changing residence? Plan the timing of dividends and redemptions.
🚀 Final Considerations
Category E is about what your money earns, not what you gain by selling. Knowing what’s included, the presumptions and when income counts as earned helps you declare it correctly and plan around key dates.
📢 Expert Advice: Before becoming a Portuguese resident, review when dividends, interest and policy redemptions will be paid. The date can decide whether Portugal taxes them.
Investing from Portugal? Step Inside Portugal’s tax team can review your investment income and 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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