Investor's Guide - Fiscal System - Main Taxes in Portugal

AICEP
Agência para o Investimento e Comércio Externo de Portugal

CABEÇALHO

Contact Us


Homepage » Invest in Portugal » Fiscal System

Invest in Portugal

  

Fiscal System

 

2. Personal Income Tax

 

2.1 Summary Table

 

Personal Income Tax

Imposto sobre o Rendimento

de Pessoas Singulares (IRS)

Entry into Force

1 January 1989 (1 January 2015 last extended PIT reform)

Tax Rates

·  Progressive tax rate depending up to 48% 

·  Solidarity tax may be applicable at 2,5% or 5%, depending on the taxable income 

·  Additional surcharge may apply at the rate of 3,5% According to the budget law for 2016 this extraordinary surcharge will be eliminated in 2017.

Exemptions and reduced rates

Limited exemptions and reduced rates may be available under special regimes (eg, payments from insurance companies under certain conditions and non-habitual residents)

PIT Returns

Annual PIT return, to be submitted until April 15 or May 16 of the following year (depending on the type of income derived). Deadline may be extended to 31 December in case foreign-income is earned.

 

2.2 Taxable persons

  

Residents

Non-Residents

Residents in Portugal are taxed on their worldwide income at progressive rates varying from 0% to 48%, for 2016.

Non-Residents are liable to income tax only on Portuguese-source income, which includes not only that portion of remuneration that can be allocated to the activity carried out in Portugal but also remuneration that is borne by a Portuguese company or permanent establishment.

Nonresidents are taxed at a flat rate of 25% on their taxable remuneration, in 2016.

 

 

Personal Income Tax (IRS)A person is deemed to be resident in Portugal whenever spends more than 183 days, consecutive or not, in Portugal in any 12-month period starting or ending the fiscal year concerned. A person is also deemed to be resident in Portugal if a dwelling is maintained at any time of a certain 12-month period, indicating the existence of habitual residence in Portugal.

 

The reform introduced a partial residence concept, so that there is a direct connection between the period of physical presence in Portuguese territory and the status of tax resident. Thus, as a rule, the taxpayer will become resident in Portugal as from the first day of stay in the Portuguese territory and non-tax resident as from the last day of stay in Portugal, with a few exceptions.

 

Please see 2.9 below for special non-habitual residents regime.

 

2.3 Taxable income

  
2.3.1 Employment income, pensions and director’s fees

 

PIT applies on the earned income of employed individuals, pensions and directors’ fees.

 

Employment income

Employment income includes all payments in connection with work carried out, such as salary, bonuses, commissions, tax reimbursements, redundancy payments, pensions, allowances (e.g., cost-of-living and housing allowances), and benefits in kind (e.g., company cars), regardless of where the payment originates.

 

Domestic and foreign travel allowances, as well as mileage and lunch allowances in excess of those permitted to employees of State departments are also taxable as employment income.

 

Pension funds

The first €4,104 of pension income is exempt from tax.

 

Should the annual amount of the pension income be higher than € 22,500, per individual, special rules should apply potentially resulting in the same tax treatment as for employment income.

 

Directors’ fees 

Fees paid to directors have the same tax treatment as employment income.

  
2.3.2 Entrepreneurial income

   

PIT taxable income includes all earned income of a professional individual, such as commissions and entrepreneurial income (including rental income upon option). Such income may be taxed either in accordance with a simplified regime or based on the taxpayer’s accounts.

 

The simplified regime will apply only to taxpayers who, not having opted for statutory accounting, have a turnover or a gross business and professional income lower than €200,000 in the previous year. Business and professional income is taxed at the progressive PIT rates.

  
2.3.3 Investment income

 

Dividends and interest (bank interest, shareholder loans, from public company bonds, bills or other paper, as well as interest on public debt) are liable to taxation at a flat rate of 28% (either by means of a withholding tax or autonomous rate).

 

However, the taxpayer may elect to include such items in taxable income in the tax return, being taxed at marginal tax rates that vary between 14.50% and 48%, in 2016. In this case, a credit against the Portuguese tax liability is available for the lower of the tax paid in the foreign country on those dividends and interest or the amount of tax payable in Portugal on that income. For dividends and interest paid by countries with which Portugal has signed a double taxation treaty, the tax credit should not exceed the percentage established in the treaty.

 

If the taxpayer opts to disclose the dividends on his tax return, only 50% will be liable to taxation at marginal rates in force, if the paying company is tax resident in an EU country,  but all the investment income (as well as capital gains shall be added to the taxable income).

 

Investment income paid by non-resident entities without a permanent establishment in Portugal, but which are domiciled in a blacklisted jurisdiction, are liable to a tax rate of 35%, either by withholding tax or by the autonomous rate.

  
2.3.4 Rental income

 

Rental income is subject to withholding tax at the rate of 25%, provided the payer is an entity subject to keep statutory accounting.

 

Maintenance, repair expenses, municipal property tax and stamp tax may be deducted from gross rental income, if actually incurred and provided it is properly documented.

 

Rental income is subject to a 28% flat tax rate, but the taxpayer may opt to add the rents obtained to the respective taxable income in the tax return. If the taxpayer makes such election, the income shall be taxed at the progressive tax rates, with a credit given for the tax withheld. Rental income obtained by non-residents is taxed at a flat rate of 28%.

  
2.3.5 Capital Gains income

 

General rule

As a general rule, capital gains will be subject to tax at a flat rate of 28%. Only 50% of capital gains arising on the sale of shares held on micro and small companies not listed in the stock exchange will be subject to taxation.

 

Capital gains earned by nonresidents that are not borne by a permanent establishment in Portugal are fully taxable at a flat rate of 28% (with an exception for capital gains on the disposal of shares, which are exempt in certain cases).

 

No withholding tax applies on capital gains and capital losses may offset capital gains only.

 

Sale of real estate

Fifty percent of capital gains arising from the sale of real estate by tax residents in Portugal is taxed at progressive rates varying from 14.50% to 48%, in 2016. In calculating the capital gain derived from the sale of real estate, the purchase price is indexed by an official government coefficient to account for inflation.

 

The gain may be wholly or partially exempt if the property being sold is the taxpayer's primary residence and the sale proceeds, reduced by the value of any outstanding loans relating to the purchase of the property being sold, are reinvested in the acquisition, improvement or construction of another primary residence in Portugal or within the European Union within 36 months from the sale or in the period of 24 months previous to the sale.

 

PIT Reform introduced a revamp of the items of income falling under investment income and capital gains. The main changes include inter alia (i) enlarging the items of income considered to fall under the capital gains category, such as assignment of credits, repayment of debt securities and redemption of units in funds; (ii) Recognition as capital gain/loss over the value assigned as a result of the liquidation, termination or cancellation of fiduciary structures; and (iii) the recognition of indexation relief coefficients (applicable to real estate transfers as above) to the purchase price of shares/securities when it exceeds 2 years between acquisition date and disposal date, as well as the necessary expenses connected to the acquisition and disposal of shares/securities will be recognized for purposes of calculating the capital gains.

 

2.4 Allowances and Deductions

 

Employees

Employees may deduct to the tax base the compulsory social security contributions without limitation. Union contributions and indemnities paid to the employer may also be deducted, subject to applicable limits.

 

Entrepreneurs

As above mentioned, under the simplified regime, taxable income is calculated by applying predefined coefficients, which vary depending on the activity’s sector, to gross income. These coefficients have not yet been defined; currently, taxable income is determined by applying a certain percentage, depending on the type of income. Under this simplified regime, the income is taxed on 15% of sales of products and services in the hospitality sector, 75% or 35% depending on the business and professional services that generated the income, 95% of income arising from sale or utilization of IP rights, royalties, rental income and investment income, 30% for public grants not destined to exploration of business, 10% for public grants destined to exploration of business activities, and 100% for services provided by the shareholder to the company subject to tax transparency regime.

 

No activity-related expenses are deductible from the resulting amount.

 

The organized bookkeeping regime provides for the deduction of activity-related expenses. Taxable income is calculated using the corporate tax rules, with some limitations imposed on the deduction of some expenses, such as travel expenses. 

 

2.5 Tax Rates (Table)

 

Taxable income

Rate (%)

Deductible amount (€)

From €

Up to €

0

7.035

14,5

-

7.000

20.100

28,50

980

20.000

40.200

37

2.680

40.200

80.000

45

5.880

80.000

-

48

16.530

 

Rates include the additional solidarity tax for income ranging between € 80.000 and € 250.000. In addition, for 2016, taxable income exceeding € 7,070 is subject to an extraordinary surcharge of 3.5%. According to the budget law for 2016 this extraordinary surcharge will be eliminated in 2017.

 

 

2.6 Family quoficient

 

For the purposes of determining the rate applicable to taxpayers married or living in a marital union the taxable income should be divided by two. For each dependent was introduced a fixed deduction of € 600.

 

 

2.7 Tax Credits and Incentives 

 

The following tax credits are available against the amount of tax due by an individual:

 

Type of expense

Credit

Personal tax credits

Deduction of a fixed amount of € 325 and € 300, respectively, per dependent and ascendant living in the same household and who does not receive income higher than the minimum pension payable under the general regime. These amounts are increased by € 125 and € 110, respectively, for each dependent under 3 years of age by 31 December or if there is only one ascendant. Regarding the dependents who are included in more than one annual tax return, the amount of tax deduction corresponds to 50% of that amount.

General household expenses

Deduction of general household expenses, corresponding to 35% of the amount of expenses incurred by any member of the household, limited to € 250 per taxpayer, whose taxpayer number is included in invoices for services or goods acquired in any sector of activity, provided these expenses are communicated to the Portuguese tax authorities, except for the sectors referred below. Therefore, in case of joint tax returns, the limit above referred is € 500. In the case of single parent household, the deduction is increased to 45% of the amount of expenses incurred by any member of the household, with the global limit of € 335.

Health expenses

A tax credit of 15% of non-reimbursed health expenses up to a limit of € 1.000 (exempt from VAT, or subject to VAT at a rate of 6%).

Education expenses

30% of all education expenses up to a limit of € 800.

Housing interest or rent

15% of debt interest, for contracts concluded until 31 December 2011, on loans made for acquisition of principal private residences in Portugal of a permanent house in the EU or the EEA, limited to €296. For the rental of a permanent house in the EU or the EEA the limit is €502.

Alimony payments

Deduction of 20% of the amount of alimony paid, without limit (which will be subject to taxation at the same tax rate).

Contributions to individual retirement saving plans (PPR)

20% of such contributions with the following limits:

·  For taxpayers younger than 35 years old limited to €400; 

·  For taxpayers between 35 and 50 years old limited to €350; 

·  For taxpayers older than 50 years old limited to €300;

Fees and expenses paid to retirement homes

25% with a limit of €403.75

International double taxation

Tax credits are available for foreign taxes paid on foreign-source income.

Individuals with disabilities

Individuals with proven disabilities are entitled to deduct against the income tax an amount of €1,900

Public capitalization regime

20% of contributions made to individual accounts managed under a public capitalization regime, with a limit of € 350 per taxpayer.

  

Some limitations to deductions and tax benefits apply, as follows:

 

Limit to tax deductions (*)

Taxable income included on the 1st bracket

Unlimited

Taxable income included on the 2nd, 3rd and 4th  brackets

€1,000+[(2500-1000)*[(80000-taxable income)/(80000-7000)]]

Taxable income included on the 5th bracket

€1.000

(*) Health expenses, education and training expenses, nursing home fees, costs with immovable property and alimony expenses are included. 

These limits are increased by 10% for each dependent or civil godson, which is not a taxpayer. 

 

2.8 Payments to Non-Residents (Table)

 

Type of taxable income

WHT applicable to non-residents

Employment income

25%

Directors’ fees and similar fees

Business and professional services income

Royalties and copyright income

Commissions

Bank deposit interest

28%

Income from life insurance policies

Interest from state bonds

Dividends

Gains arising on “swaps,” other credit operations and other financial instruments

Income from the use or concession of equipment

25%

Rentals

Pension

Other investment income (including other interest)

28%

Certain indemnities

25%

Investment income if beneficial owner is not disclosed

35%

Investment income obtained by residents in blacklisted jurisdictions

 

 

2.9 Non-habitual residents

 

The taxpayer that has become tax resident in Portugal for a certain year and that has not been taxed as resident in Portugal for any of the previous five years may apply for the special tax regime for non-habitual tax residents.

 

In general terms, non-habitual residents will be taxed at a flat rate of 20% in respect of employment income (Category A) and self-employment income (Category B) arising from high-value activities of a scientific, artistic or technical nature.

 

The following classes of activities are defined as activities of high value added:

 

Architects, engineers and similar technicians

Professors

Fine artists, actors and musicians

Psychologists

Auditors

Liberal professions, technicians and similar

Doctors and dentists

Investors, directors and managers (subject to limitations)

 

The non-habitual resident has the right to be taxed as such during a ten-year period.

 

In addition, in general, non-Portuguese source income may be exempt under some specific conditions (eg, pensions, dividends and interest that may be taxable on the source State).

 

The application to the non-habitual residents tax regime has to be submitted until 31 March, inclusive, of the year following the year in which the taxpayer became tax resident in Portugal.

 

2.10 Inheritance and gift taxes

 

Inheritance and gift taxes were eliminated, effective from 1 January 2004. Stamp tax includes some of the facts that were covered in such taxes. 

 

 

 

Content supplied by 

Content supplied by Garrigues

 

 

 

 

 

Partilhar