Dear Sirs/Madams,

Portuguese Inheritance Tax

Historically, inheritance and gifts were subject to Inheritance and Gift Tax — “Imposto sobre Sucessões e Doações”. However, as a result of a tax reform, effective from 1st January 2004 onwards, the Inheritance and Gift Tax was revoked, and inheritance and gifts became subject to Stamp Tax (ST) — “Imposto do Selo”.

The ST code was adjusted to accommodate the rules previously applicable under the Inheritance and Gift Tax, as well as, to introduce several changes to the taxation of gratuitous transfers (including inheritance and gifts). Regarding incidence, the ST code expressly indicates which rights and goods are not subject to tax, eliminating taxation on personal or domestic goods.

Gratuitous transfers in favor of taxpayers subject to Corporate Income tax (CIT) also became excluded from ST, because they will be taxed at CIT level. In this sense, only individuals become subject to ST. With regards to territoriality, ST continues to be applied to transfers of goods and assets located in Portuguese territory.

ST on inheritance and gifts is levied at a fixed rate of 10%. An additional 0.8% applies to gifts of real estate (immovable property). However, several exemptions are available, namely the following ones:

• Exemption of ST on inheritance for spouses, civil partners, descendants and ascendants;
• Exemption of ST on gifts for spouses, civil partners, descendants and ascendants, except for gifts of real estate (immovable property) where a 0.8% rate applies.

In this sense, although several realities are exempt from the payment of ST, inheritance and gifts should be reported to the Portuguese Tax Authorities (PTA). This report should be made through Form “Modelo 1 – Imposto do Selo Participação de Transmissões Gratuitas”, available at Imposto do Selo (portaldasfinancas.gov.pt), at any Portuguese Tax Authority Service Desk by the end of the third month following the birth of the tax obligation, and it includes the list of assets transferred. Please note that, if applicable, the PTA assess the tax due on gratuitous transfers.

Some examples of gratuitous transfers (i.e., assets subject to taxation and that should be reported to the PTA) are:

• Ownership rights or partial rights on immovable property (rustic and urban);
• Movable property subject to registration, license or number plate (such as cars, motorcycles, boats and aircrafts);
• Corporate rights, securities and debt claims associated thereto, even if autonomously transferred; government bonds as well as monetary amounts, even when deposited in bank accounts;
• Commercial, industrial and agricultural establishments;
• Industrial property rights, copyrights and other rights connected thereto;
• Debt claims of shareholders on noncommercial pecuniary payments connected with their participation, regardless of the name, nature or form of the incorporation or modification deed, namely shareholder loans, loans, supplementary capital contributions, ancillary capital contributions, as well as any other advance payments granted to the company.

The following will not qualify as gratuitous transfers [i.e., not subject to taxation and exempt to report to the PTA] for ST purposes:  

• Family allowance in debt upon death of the beneficiary, credits arising from life insurance, and pensions and subsidies paid by social security systems, even if paid as a death allowance;
• Amounts invested in retirement-savings funds, education-savings funds, retirement-education-savings funds, stock savings funds, pension funds, or movable and immovable investment funds;
• Gifts granted under the provisions of the Patronage Law (Lei do Mecenato);
• Gifts of goods or values not listed above, according to the common use, up to EUR 500;
• Transfers on behalf of taxable persons subject to CIT, even when exempted from it;
• Goods of a personal or domestic use (such as clothes and watches).

In gratuitous transfers, ST taxpayers are those individuals to whom the goods are transferred, without prejudice of the following rules:

• In successions mortis causa, tax is due on the estate (Herança), this being represented by the head of the household and the legatees;
• In any other gratuitous transfer, including the acquisition by adverse possession, tax is due by the beneficial owners.

Finally, in gratuitous transfers, tax is due whenever goods are located in National/Portuguese territory [e.g., (i) the rights over movable and immovable property situated therein; (ii) movable property registered or subject to registration or number plate in national territory; (iii) industrial property rights, copyrights and other rights connected thereto registered or subject to registration in national territory].