Portugal Taxation 2020
Portugal recognises dual citizenship and offers an attractive taxation structure. Discover why more SA investors are choosing to invest in Portuguese Golden Visas, or contact us for free consultation.
Portugal is a visually spectacular country offering geo-political stability, high living standards, excellent all year round weather and an increasing real estate asset performance in key investment areas. While Golden Visa related demand has seen pricing surging, property prices still remain low compared to many other jurisdictions in the EU, and therefore represent superb value and potential return on investment.
2019 is indeed an ideal time to invest in property in Portugal, which is of course one of the main options available in order to obtain a Portuguese Golden Visa Residence Permit. It is one of the most popular such programmes in the world given its flexibility, ease of acquiring citizenship and other benefits such as visa-free access to the Schengen Area. In addition to the €350,000 property investment option, investors also have the option to invest in a property focussed Portuguese property fund as of 2018.
Portugal also has a considerably favourable tax system, not least being the abolition of inheritance tax since 2004, and we hope this document will serve as a short but useful summary.
PORTUGUESE TAX SYSTEM OVERVIEW 2020
Corporation Tax Portuguese Corporation Tax is levied:
- On the taxable profit of resident companies, i.e. with head-office or place of effective management inside Portugal;
- On the taxable profit allocated to a permanent establishment inside Portugal of a non-resident company. Non-
resident companies are liable to withholding tax on income received from a Portuguese source but due to the extensive tax treaty network following the OECD Model Convention most types of income are exempt or liable to a lower tax rate.
Resident companies and permanent establishments of nonresident companies are generally taxed at a 21% rate (small and medium-sized enterprises are entitled to a lower rate of 17% on taxable income up to € 15,000).
Resident entities that do not carry out a commercial, industrial or agricultural activity as their main business are taxed at a 21.5% rate. A Municipal Surcharge, up to a maximum rate of 1.5%, may be levied on the taxable profit before the deduction of tax losses.
A State Surcharge may be payable by resident companies and permanent establishments which carry out commercial, industrial or agricultural activities as their main business. This State surcharge is levied at the following rates:
- 3% rate for taxable income from € 1,500,000 to € 7,500,000;
- 5% rate for taxable income from € 7,500,000 up to € 35,000,000;
- 7% rate for taxable income in excess of € 35,000,000.
Earnings arising from payments made by resident entities to board members, payments of commissions, services, leases and rents, dividends, interest, capital income, royalties and rental income are in general subject to withholding tax. Portugal has a comprehensive participation exemption regime that allows the payment of dividends and capital gains arising from transactions relating to qualified shareholdings (10% of share capital or voting rights held for more than 12 months) to be tax exempt. This regime is applicable to inbound and outbound transactions.
Individual Income Tax (IIT)
Individual Income Tax is due on the worldwide income received by individuals residing in Portugal as well as on the income received or deemed to have been received in Portugal by non-resident individuals.In 2009, however, the Portuguese government amended the existing legal framework for tax residency bringing about a third concept beyond tax residents and non-residents – the so-called “non-habitual tax residents”. It is aimed at attracting wealthy and educated foreigners wishing to relocate to Portugal by granting them a more beneficial tax regime than those falling within the scope of the existing concept of tax residency.
The new regime is proving very successful in attracting high net worth individuals, pensioners and certain skilled professionals to Portugal, while not being subject to any minimum or maximum stay requirements.The goal is to set up residency in a white-listed jurisdiction while legally avoiding or minimising income tax liability on certain categories of income and capital gains for a minimum period of 10 years. One of the main features of this regime lies in its interaction with the extensive double taxation conventions signed by Portugal. Most treaties are based on the OECD Model Tax Convention. In fact, under this scheme, foreign-sourced income will not be subject to taxation in Portugal provided that:
- Tax is withheld at source (employment income) or could have been withheld at source (dividends, royalties, interest, self-employment income) under the applicable double taxation treaty; and
- Income was deemed as paid by a country with which Portugal has entered into a double taxation treaty; or
- The source country of the aforementioned income has implemented the OECD rules on the levying of taxes on income and capital gains.
For example, if a double taxation treaty allocates the power to levy tax on the payment of dividends to the source country and the said country for whatever circumstances does not in practice carry out any taxation, such income may still be tax exempt in Portugal.
Further more, occupational pensions are tax exempt in Portugal as long as they may not be deemed sourced from Portugal, regardless of whether or not withholding tax is paid at source.
In order to qualify for such regime individuals must satisfy the following requirements:
- Become non-habitual tax resident in Portugal;
- Not be deemed resident in Portugal for tax purposes in any of the five previous years; and
- Request non-habitual residency status either upon registration as a resident in Portugal for tax purposes or by the 31st of March in the following year.
Non-habitual tax residents are required to file a statement attesting that during the previous five years they have not been deemed as residents in Portugal for tax purposes. Only in cases of reasonable doubt will taxpayers be asked to present documentary evidence to substantiate their tax status (for example, a certificate of tax residency in another country).
Please note that if an applicant is not a citizen of a European Union Member State, the applicant must comply with immigration requirements in order to claim tax residency in Portugal.
Applicants must therefore be entitled to live in Portugal, either because they hold a qualifying citizenship (EU/EEA/Swiss citizenship) or a special residence permit such as the Golden Visa.
The level of taxation of Portuguese-source income depends on whether or not it is derived from eligible occupations. The general tax rate is 20% and is levied on salaried income obtained by the following types of employees, independent contractors and activities:
- Theatre, dance, cinema, broadcasting and television artists
- Tax advisers
- Medical analysts
- On-board ships’ medics
- General practitioners
- Medical dentists
- Other specialists
- Biologists and experts in life sciences
- Computer programmers and advisors, computer programming and advisory activities, as well as other activities relating to information technology and informatics
- Management and operation of computers
- Information services
- Data processing, hosting and related activities
- Web design
- News agencies
- Scientific research and development activities
- Research and development of physics and natural sciences
- Research and development of biotechnology
- Investors, directors and managers of companies promoting productive investment under projects qualifying for and covered by a tax benefits contract executed under the Investment Tax Code (Decree-Law no. 246/2009 of 23 September)
- Business executives.
Where the income of non-habitual residents is paid by a company or individual subject to the organised
accounting rules, tax is withheld at a similar rate of 20%. Finally, individuals are considered as non-habitual tax residents under this scheme for a period of 10 consecutive years. Thereafter they will be taxed in accordance with the general rules set out in the personal income tax (IRS) code.
Value Added Tax
VAT is a tax levied on the acquisition of goods and the rendering of services, and is chargeable on every instance of a supply chain. It is a tax on consumer expenditure and therefore companies (where they are VAT registered and fully taxable) do not bear the final costs of this tax. Companies are able to charge VAT on the goods or services they supply (output VAT) and recover VAT on purchases (input VAT).In Portugal, VAT is levied at the following rates:
Most transactions are taxable at a 23% rate. Please note that some transactions are VAT exempt.
In complete exemptions that do not grant a right to deduct the input VAT encompass the following transactions (this exemption may be waived):
- Hospital and medical care;
- Leasing or letting of immovable property;
- Certain financial services, insurance and reinsurance transactions.
The supply of services and goods provided by bodies governed by public law or by other recognised organisations are generally VAT exempt.
Complete exemptions encompass the following transactions:
- Intra-Community supplies of goods;
- Exportations, deemed exportations and international transportation services;
- Supplies of goods intended to be placed under customs warehousing arrangements
Capital gains are subject to a 28% tax rate. Appropriate tax planning may allow for a lower tax burden.Capital gains tax is not levied on the resale of the seller’s residence provided that:
- the seller reinvests the amount received in the acquisition of a new residence inside the EU or the European Economic Area within 36 months from the date of the sale; or
- the seller uses the amount received to pay for a new residence purchased during the previous 24 months.
Gifts, Wealth and Inheritance Tax
As a rule the Portuguese tax regime does not levy taxes on the transfer of assets (gifts, estate and wealth) between close relatives.