Once an investor makes a decision of applying to the Portuguese investment residency (aka Golden Visa), several aspects should be taken into consideration. One of those aspects is the implications of a tax residency (additionally to the civil residency in Portugal). As part of IAS’s policy of always keeping our investors informed as much as possible, we would like to describe the Personal Income Tax system in Portugal.

Individual Taxation – Personal Income Tax

Who is liable?

All citizens considered to be residents of Portugal are subject to tax on their worldwide income, that is, on their entire income, wherever it is earned and irrespective of where the taxpayer is resident. Subject to applicable income tax treaty provisions, non-residents individual are subject to Personal Income Tax (PIT) on income arising in Portugal”.

Definition of residence/domicile

Residents in Portuguese territory are persons who, in the year to which the income relates:

a) Have stayed there for more than 183 days, consecutive or interpolated, in any 12-month period beginning or ending in the year in question;

b) Having stayed for a shorter time, they have on any day of the period referred to in the previous paragraph, housing in conditions that suggest a current intention to keep and occupy it as their habitual residence;

c) On December 31, they are crew members of ships or aircraft, provided that they are at the service of entities with residence, headquarters or effective management in Portuguese territory;

d) Perform public functions or commissions abroad, at the service of the Portuguese State (including if he/she is a member of the European Parliament).

As a rule, individuals that meet the above conditions [namely a) and b)] become tax residents in Portugal from the first day of permanence in Portugal and become non-residents from the last day of permanence in Portugal. As a result of the above two conditions, it is possible to split the year for tax purposes.

Resulting from the elimination of the spouse “tag along” rule, tax residency is now determined with respect to each taxpayer separately. However, taxpayers can still opt for joint taxation.

If an individual is considered non-resident, for tax purposes, in Portugal and does not receive any type of income in Portugal, in principle, he/she does not have to submit any PIT (Portuguese Income Tax) return in Portugal.

Bearing in mind the above, the concept of resident in Portuguese territory, should be analyzed on a case-by-case basis, because depends on the specific situation of each individual [e.g., it is not mandatory that purchasing a house in Portugal will trigger tax residency].    

Please note that IAS is not a tax consultancy firm. In this sense, if you need help on your tax matters, we can recommend a global tax consultancy firm that usually collaborates with IAS.

Taxable income

There are six categories of income that are subject to PIT in Portugal:

• Category A: employment income;
• Category B: business and professional income;
• Category E: investment income;
• Category F: real estate income;
• Category G: capital gains; and
• Category H: pensions.

Dividends: Dividends paid to a non-resident individual are subject to a 28% withholding tax (35% if paid to a resident of a listed tax haven) unless the rate is reduced under a tax treaty. Dividends paid to resident individuals by resident entities generally are subject to withholding tax at a 28% rate.

Interest: Interest paid to a non-resident individual is subject to a 28% withholding tax (35% if paid to a resident of a listed tax haven) unless the rate is reduced under a tax treaty. Portuguese-source interest paid to a resident individual generally is subject to withholding tax at a 28% rate.

Royalties: Royalty payments made to a non-resident individual are subject to a 25% withholding tax unless the rate is reduced under a tax treaty. Royalty payments made to a resident individual are subject to a 16,5% or 28% withholding tax, depending if the individual is or not the original author of the royalty income.

Rentals: Rental income made to residents and non-resident individuals are subject to a 25% withholding tax rate.

Fees for technical services: Technical service fees paid to a non-resident individual are subject to a 25% withholding tax unless the rate is reduced or eliminated under a tax treaty. Technical service fees paid to a resident individual generally are subject to a 25% withholding tax.

Please find below Portugal’s list of tax havens – Portugal's list of tax havens - Wikipedia

Tax filling and payment procedures

The tax year in Portugal is the calendar year. However, it is possible to split the year for tax purposes. Residents, as well as non-residents who have filing obligations, must file their personal income tax returns between 1st April and 30th June of the following year. Final payment of tax is due by 31st August following the year to which the income relates.

An extension to the filing of PIT returns with foreign tax credit is granted until 31st December of the year following the tax year. For that purpose, individuals must report the nature of the income and the country of source by the standard deadline for the PIT return filing (through Form 49) and, subsequently, file the return when the foreign tax assessment is available. The foreign tax credit may be carried forward for five years.

Non-residents who receive rental income from Portugal or who realize a capital gain in Portugal that is not excluded from taxation must file tax returns between 1st April and 30th June of the year following the year of receipt.

Double tax relief and tax treaties

Residents who receive foreign-source income are generally entitled to a tax credit equal to the lower of the foreign tax paid or the Portuguese tax payable on such income. The credit applies to income derived from treaty and non-treaty countries. However, for treaty countries, the credit is limited to the amount of tax payable in the country of source in accordance with the treaty.

Please find in the following link the summary list of Double Tax Treaties (DTT) concluded by Portugal which are currently in force – Relações Internacionais (portaldasfinancas.gov.pt)

If you want to know more about the DTT’s signed by Portugal, see the following link - Tax System in Portugal (portaldasfinancas.gov.pt)

Examples of typical type of income obtained by non-resident individuals in Portugal:

• Rental income

Rental income is subject to a 28% autonomous tax rate.

Rent paid to a non-resident taxpayer by a tenant or subtenant using a standard accounting system (i.e., a corporate taxpayer or an individual entrepreneur or professional) is subject to withholding tax that is creditable against the taxpayer’s final PIT. Therefore, payments under Category F (real estate income) by a tenant/lessee with organized accounts are subject to an advance withholding of PIT at a rate of 25%. In these terms, the non-resident taxpayer in Portugal must submit a PIT return, in order to declare such property income in Portugal.

In summary, in the PIT return, the non-resident taxpayer will declare the entirety of the rents and will be subject to PIT at the rate of 28%. However, there has already been withholding tax, due to the final tax due at the rate of 25%, which leads to the non-resident taxpayer paying the 3% differential in the PIT return.

It should be noted that, depending on the geography where the non-resident is considered tax resident and if was signed a DTT with Portugal, he/she may (eventually) recover the tax paid in Portugal in his/her country of tax residence. However, and as mentioned above, everything will depend on the specific situation of each individual [that is unique].

Finally, we would like to highlight that according to the Portuguese PIT Code [article 115], Category F income holders are required to issue a receipt, in an official format, for all amounts received from their tenants.

• Investment income [namely, dividends and interest]

Dividends and interest payments to non-residents are subject to a final withholding tax of 28% unless the rate is reduced or eliminated under a DTT signed with Portugal [please see above the link with the summary list of DTT concluded by Portugal].

• Real estate capital gains

Capital gains realized by non-resident individuals directly (i.e., not through a permanent establishment in Portugal) from the sale of immovable property and rights thereon are subject to PIT at a tax rate of 28%. The non-resident individual must submit a PIT return in order to declare such income in Portugal.

Disclaimer

Our comments are based upon the law existing administrative and judicial interpretations thereof as of the date of this information, all of which are subjected to change.

If there is a change in the law and interpretations thereof (including a change having retroactive effect), the information expressed herein would necessary have to be re-evaluated in light of any such changes. We have no responsibility to update this information for any such changes occurring after the date of this information.

The information expressed herein is not binding on the tax authorities or courts and there can be no assurance the tax authorities or the courts will not take a position contrary to the information expressed herein.

We are under no obligation to assist you with any challenge of the information expressed herein.