If you're considering a move to Southern Europe — or simply comparing how Portugal vs Italy income tax systems work — understanding the full picture is essential. Both countries offer Mediterranean lifestyles, rich cultures, and growing appeal for expatriates and digital nomads. But when it comes to your paycheck, the differences in their income tax structures can mean thousands of euros saved or spent each year.
In this comprehensive tax comparison between Portugal and Italy for the 2025/2026 tax year, we break down progressive tax brackets, special regimes for new residents, deductions, social security contributions, and more. Whether you're a salaried employee, a freelancer, or a retiree planning your next chapter, this guide will help you make an informed decision.
Overview of Income Tax Systems: Portugal and Italy
Both Portugal and Italy use progressive income tax systems, meaning that higher portions of your income are taxed at higher rates. However, the number of brackets, the rate ranges, and the thresholds differ significantly.
Portugal's IRS (Imposto sobre o Rendimento das Pessoas Singulares)
Portugal's personal income tax — known as IRS — applies to worldwide income for tax residents. The tax year aligns with the calendar year (January 1 to December 31), and tax returns are generally due between April 1 and June 30 of the following year.
Key characteristics:
- Progressive rates ranging from 13% to 48%
- An additional solidarity surcharge on very high incomes
- Specific rules for different income categories (employment, self-employment, capital gains, rental income, etc.)
- A special tax regime for new residents (the former NHR program, now reformed)
Italy's IRPEF (Imposta sul Reddito delle Persone Fisiche)
Italy's personal income tax — IRPEF — also taxes residents on worldwide income. The tax year is the calendar year, with returns typically due by November 30 (Modello Redditi) or via the simplified 730 form by September 30.
Key characteristics:
- Progressive rates ranging from 23% to 43%
- Regional and municipal surcharges that add to the effective rate
- Various deductions and tax credits
- A flat-tax regime for new residents and returning Italians
Portugal Income Tax Brackets and Rates for 2025/2026
Portugal's 2025/2026 income tax schedule features nine progressive brackets. Here are the current rates for mainland Portugal (residents in the Azores and Madeira benefit from reduced rates):
| Taxable Income (EUR) | Marginal Rate |
|---|---|
| Up to €7,703 | 13% |
| €7,703 – €11,623 | 16.5% |
| €11,623 – €16,472 | 22% |
| €16,472 – €21,321 | 25% |
| €21,321 – €27,146 | 32% |
| €27,146 – €39,791 | 35.5% |
| €39,791 – €51,997 | 43.5% |
| €51,997 – €81,199 | 45% |
| Above €81,199 | 48% |
Solidarity Surcharge
In addition to the standard rates, Portugal levies a solidarity surcharge (taxa adicional de solidariedade) on higher incomes:
- 2.5% on taxable income between €80,000 and €250,000
- 5% on taxable income above €250,000
This means the effective top marginal rate in Portugal can reach 53% for the highest earners.
Key Deductions in Portugal
- General family deduction: €250 per taxpayer (fixed)
- Health expenses: 15% of expenses, up to €1,000
- Education expenses: 30% of expenses, up to €800
- Housing expenses (rent): 15% of rent paid, up to €502
- Specific deduction for employment income: €4,104 (or actual social security contributions if higher)
Use our Portugal Income Tax Calculator to see exactly how these brackets and deductions apply to your specific income level.
Italy Income Tax Brackets and Rates for 2025/2026
Italy simplified its IRPEF structure in recent years, and for 2025/2026 the system uses three main brackets:
| Taxable Income (EUR) | Marginal Rate |
|---|---|
| Up to €28,000 | 23% |
| €28,001 – €50,000 | 35% |
| Above €50,000 | 43% |
Regional and Municipal Surcharges
Unlike Portugal, Italy adds regional (addizionale regionale) and municipal (addizionale comunale) surcharges on top of IRPEF:
- Regional surcharge: typically 1.23% to 3.33%, depending on the region (e.g., Lazio charges up to 3.33%, while some regions like Lombardy start at 1.23%)
- Municipal surcharge: 0% to 0.8%, depending on the municipality
These surcharges can add 2% to 4% to your effective tax rate, pushing the top marginal rate to approximately 47% in high-tax regions.
Key Deductions and Credits in Italy
- Employment income deduction: up to €1,955 for lower incomes, decreasing as income rises
- Dependent family members: tax credits for dependent spouses and children (though many child benefits have been replaced by the Assegno Unico)
- Medical expenses: 19% deduction on expenses exceeding €129.11
- Mortgage interest: 19% on interest paid, up to €4,000
- Renovation and energy efficiency bonuses: various credits ranging from 50% to 65% of qualifying expenditures
Estimate your Italian tax liability with our Italy Income Tax Calculator.
Side-by-Side Tax Comparison: Practical Examples
Let's compare the income tax burden in Portugal vs Italy for several common income levels. These examples assume a single taxpayer with no dependents, earning only employment income, and claiming standard deductions. Regional/municipal surcharges for Italy are estimated at a combined 2.5%.
Example 1: €30,000 Gross Income
Portugal:
- After the specific deduction of €4,104, taxable income is approximately €25,896
- Estimated IRS: approximately €4,900
- Effective rate: ~16.3%
Italy:
- After employment deductions, taxable income is approximately €29,200
- Estimated IRPEF: approximately €6,320 (including surcharges)
- Effective rate: ~21.1%
Winner: Portugal — saves roughly €1,400 per year at this income level.
Example 2: €50,000 Gross Income
Portugal:
- Taxable income: approximately €45,896
- Estimated IRS: approximately €12,200
- Effective rate: ~24.4%
Italy:
- Taxable income: approximately €49,200
- Estimated IRPEF: approximately €12,800 (including surcharges)
- Effective rate: ~25.6%
Winner: Portugal — but the gap narrows to around €600.
Example 3: €80,000 Gross Income
Portugal:
- Taxable income: approximately €75,896
- Estimated IRS: approximately €25,600
- Effective rate: ~32.0%
Italy:
- Taxable income: approximately €79,200
- Estimated IRPEF: approximately €24,700 (including surcharges)
- Effective rate: ~30.9%
Winner: Italy — at higher incomes, Portugal's steeper upper brackets and solidarity surcharge make it more expensive.
Example 4: €120,000 Gross Income
Portugal:
- Taxable income: approximately €115,896
- Estimated IRS (including solidarity surcharge): approximately €43,500
- Effective rate: ~36.3%
Italy:
- Taxable income: approximately €119,200
- Estimated IRPEF (including surcharges): approximately €39,800
- Effective rate: ~33.2%
Winner: Italy — the gap widens further at €120,000, with Italy saving you roughly €3,700.
These are simplified estimates. Use the Portugal Income Tax Calculator and the Italy Income Tax Calculator for precise figures tailored to your circumstances.
Special Tax Regimes for Expats and New Residents
Both countries have introduced attractive tax incentives to lure skilled workers, entrepreneurs, retirees, and high-net-worth individuals. These regimes can dramatically alter the income tax comparison between Portugal and Italy.
Portugal: Tax Incentive for Scientific Research and Innovation (IFICI+)
Portugal's famous Non-Habitual Resident (NHR) regime closed to new applicants in 2024. It has been replaced by the IFICI+ regime (Incentivo Fiscal à Investigação Científica e Inovação), effective from 2024 onward for new qualifying applicants.
Key features:
- 20% flat rate on qualifying Portuguese-source employment and self-employment income for up to 10 years
- Applies to specific professions in scientific research, technology, innovation, and certain senior management roles
- Foreign-source income may benefit from exemptions under certain conditions
- Applicants must not have been Portuguese tax residents in the previous five years
This regime is more restrictive than the old NHR program, as it targets specific professional categories rather than being broadly available.
Italy: Regime Impatriati (Inbound Workers Regime)
Italy's Regime Impatriati offers generous tax reductions for individuals who transfer their tax residence to Italy:
For those qualifying under the current rules (2025/2026):
- 50% of employment or self-employment income is exempt from taxation for the first five years
- Effectively, you pay IRPEF on only 50% of your income
- At a €100,000 salary, this could mean paying tax on just €50,000 — resulting in an effective IRPEF rate of roughly 15–17% instead of 33%+
- Extended benefits may apply for those with minor children or who purchase residential property in Italy
Eligibility requirements:
- Must not have been an Italian tax resident for at least three years (previously two) before the transfer
- Must commit to remaining tax resident in Italy for at least four years
- Must perform work predominantly in Italian territory
For expats, Italy's inbound workers regime is generally more generous and more broadly accessible than Portugal's new IFICI+ program, making Italy a potentially better choice for expatriates seeking tax optimization.
Retirees: A Special Mention
Portugal previously offered a 10% flat rate on foreign pension income under NHR, which was hugely popular with European retirees. This benefit is no longer available for new applicants under IFICI+.
Italy offers a 7% flat tax on all foreign-source income for retirees who move to municipalities in Southern Italy (populations under 20,000) for up to 10 years. This remains an attractive option for pension income from abroad.
Social Security Contributions: The Hidden Tax Burden
Any meaningful tax comparison between Portugal and Italy must account for social security contributions, which significantly impact take-home pay.
Portugal
- Employees: 11% of gross salary (employer pays 23.75%)
- Self-employed: typically 21.4% on 70% of gross income (effective rate of approximately 14.98%)
- Contributions are not capped — they apply to the full salary
Italy
- Employees: approximately 9.19% of gross salary (employer pays approximately 30%)
- The employee contribution is capped at a ceiling (approximately €119,650 in 2025 for certain categories)
- Self-employed / freelancers (Gestione Separata): approximately 26.07% on income
For most employees, Italy has lower employee-side social security contributions than Portugal (9.19% vs 11%), which further increases the net pay advantage for Italian workers, especially at higher income levels.
Double Taxation Treaty Between Portugal and Italy
Portugal and Italy have a bilateral double taxation agreement (DTA) in force, which is critical for individuals with income sources in both countries. The treaty follows the OECD model and covers:
- Employment income: generally taxed in the country where the work is performed
- Pensions: private pensions are typically taxed in the country of residence; government pensions may be taxed in the source country
- Dividends, interest, and royalties: reduced withholding rates apply (typically 15% for dividends, 15% for interest)
- Capital gains: generally taxed in the country of residence, with exceptions for real estate
If you earn income in both countries, the DTA ensures you can claim tax credits in your country of residence for taxes paid in the other country, preventing double taxation. Consult a cross-border tax advisor to ensure correct application.
Common Mistakes and Misconceptions
When comparing Portugal vs Italy income tax, people frequently make these errors:
Ignoring regional surcharges in Italy: Italy's headline IRPEF rates look lower than Portugal's IRS rates, but regional and municipal surcharges add 2–4 percentage points. Always factor these in.
Assuming the old NHR regime still applies: Portugal's NHR program is closed to new applicants. The replacement IFICI+ is far more limited. Don't base your relocation decision on outdated NHR information.
Forgetting social security: A lower income tax rate means little if social security contributions eat into your pay. Compare total tax wedge, not just income tax.
Overlooking municipal variations in Italy: Two people earning the same salary can pay different taxes depending on whether they live in Milan vs. Naples due to varying municipal and regional rates.
Not considering the cost of living: Lower taxes in one country can be offset by higher housing, healthcare, or everyday costs. While not strictly a tax issue, it affects your real financial outcome.
Misunderstanding tax residency rules: Both countries use a 183-day rule as a primary test, but other factors (center of vital interests, habitual abode, family ties) also determine residency. You can inadvertently become a tax resident if you're not careful.
Frequently Asked Questions
Which country has lower income tax: Portugal or Italy?
For low to middle incomes (up to approximately €50,000), Portugal generally has a lower effective tax rate. For higher incomes (above €60,000–€70,000), Italy tends to be more favorable due to Portugal's steep upper brackets and solidarity surcharge.
Can I benefit from both countries' special tax regimes?
No. Special regimes like Portugal's IFICI+ and Italy's Regime Impatriati require you to be a tax resident in the respective country. You can only be a tax resident in one country at a time (under the DTA tie-breaker rules).
How do I become a tax resident in Portugal or Italy?
In both countries, you are generally considered a tax resident if you:
- Spend 183 days or more in the country during a calendar year, or
- Have your habitual abode or center of vital interests (family, economic ties) in the country
Are there flat tax options for digital nomads?
Italy offers a €100,000 flat tax on foreign income for high-net-worth individuals who become tax residents (regime forfettario for the ultra-wealthy, formally known as the imposta sostitutiva). Portugal does not currently offer a comparable broad flat tax for new residents, though the IFICI+ provides a 20% flat rate for qualifying professions.
What about capital gains tax?
Portugal taxes capital gains at a flat 28% for most financial assets (with options for aggregation with other income). Italy taxes capital gains on financial assets at a flat 26% (12.5% for government bonds). Italy is slightly more favorable for investment income.
Conclusion: Portugal vs Italy — Which Is Better for Income Tax?
The income tax comparison between Portugal and Italy doesn't yield a single winner — it depends heavily on your income level, profession, and personal circumstances:
- Low to middle earners (under €50,000) will generally find Portugal more tax-friendly, thanks to lower effective rates at these income levels.
- Higher earners (above €70,000) will typically pay less income tax in Italy, where the top rate of 43% (plus surcharges) is still lower than Portugal's 48% plus solidarity surcharges.
- Expats and new residents should strongly consider Italy's Regime Impatriati, which offers a 50% income exemption and is more broadly accessible than Portugal's new IFICI+ regime.
- Retirees may find Italy's 7% flat tax for Southern Italian residents more appealing now that Portugal's NHR pension benefit is no longer available.
Before making any decision, run the numbers for your specific situation using our Portugal Income Tax Calculator and Italy Income Tax Calculator. And always consult with a qualified cross-border tax advisor who understands both systems.
This article is for informational purposes only and does not constitute tax advice. Tax laws change frequently; consult a qualified tax professional for advice specific to your situation.