Expatriate tax ebook - Portugal

What taxes?

Capital gains tax
Inheritance, estate and gift taxes
Investment income
Local taxes
Real estate taxes
Social security taxes
Stock options
Wealth taxes

Capital gains tax
Capital gains are deemed to be the difference between the gains and the loss accomplished in the same year in respect of the same type of assets (real estate property, shareholding, etc.).

In case of real estate property, capital gains earned by Portuguese tax residents will be taxed only on 50% of its amount, being subject to the progressive rates (from 11,5% up to 46.5%) depending on the level of income of such taxpayer.

It must be stressed that capital gains obtained on selling immovable properties located outside Portugal are also subject to Portuguese personal income tax.

Nevertheless, Portuguese net of tax treaties allows capital gains to be taxed in the country where the good is located, therefore taking those capital gains outside Portuguese taxation.

Capital gains obtained by non residents on the selling of Portuguese properties are subject to a flat rate of 25%.

In both cases, the acquisition price is adjusted by a coefficient whenever 24 months are elapsed between the date of the sale and the date of the acquisition of the property.

Portuguese tax residents benefit from full exemption of taxation on capital gains arising from disposal of shares hold for more than 12 months. Such rule is also applied to bonds and debt titles with no time restriction.

Shares owned for less than one year are subject to a flat rate of 10%., applicable both to Portuguese tax residents and nonresidents.

It has been recently approved by the Parliament that the above regime will be replaced and the capital gains arising from disposal of shares (owned for less or more than 12 months) will be subject to a flat rate of 20%. Nevertheless, this has not yet been published and therefore is not yet in force.

Capital gains arising from disposal of shares are subject to a flat rate of 20%., applicable both to Portuguese tax residents and nonresidents.

Inheritance, estate & gift taxes
This tax has been abolished as from January 1st, 2004. In some cases (not involving transmission from parents to sons and vice versa), this tax was replaced by stamp duty at the rate of 10% applicable to the transmission of all types of assets.

Investment income
Dividends, interest and other financial incomes are subject to taxation once become due or assumed to be due or when they are at the holder’s disposal. Such incomes are in many cases subject to withholding tax, which is always a final tax for non residents.

It is important to note that dividends paid by Portuguese Companies to Portuguese tax resident individuals, if aggregated with all other incomes, are taxed only 50% of its amount. In this case, it is mandatory to aggregate all other financial income even subject to flat rate. Otherwise, dividends are subject to a flat rate of 21.5%.

Local taxes - IMI (Municipal Property Tax)
Same rules as for IMT (see "Real Estate Tax") are also applicable to IMI, which only considers immovable properties located in Portugal.

Tax rates are 0.8% for non-urban properties and between 0.2% and 0.7% for urban properties.

Urban properties owned for dwelling purposes can benefit from temporary exemption, depending on the tax assessment value.

Real estate tax - IMT (Real Estate Transfer Tax)
Any immovable property located in Portugal is subject to IMT, whether purchased by a resident or not. On the other hand, properties located abroad are not subject to IMT even if purchased by tax residents.

The purchase of urban property for dwelling purposes is not subject to IMT for values up to Euro 92,407. For higher values, rates can go up to 6%.

The purchase of non-urban properties is taxed on a 5% rate and other urban properties purchases are taxed on a 6.5% rate.

Social security taxes
Where duties are performed in Portugal, generally a charge to Portuguese Social Security (PSS) will arise. The expatriate will be treated as an employee and subject to PSS at 11%. The employer will also be required to contribute 23.75% of the relevant income and benefits to PSS.

A new Social Security Contributions Code entered into force on 1st January 2011, which expand the basis of the contributions and aligns the Social Security legislation more closely with the Personal Income Tax Law (IRS). Travelling expenses, representation expenses, personal use of the car, transport expenses, compensation due to contract termination are now subject to contributions. There are some specific provisions of the Personal Income Tax Law on which Social Security contributions are calculated.

Certain changes included in the Social Security Law were postponed to 2014 in relation to certain provisions, namely the provision regarding different employer’s contribution rates (which currently stand at 23.75%), according to the kind of the employment contract. This deferral includes an increase of the contribution rate by 3 percent (to 26.75%) for fixed term employment contracts and the reduction of the contribution rate by 1 percent (to 22.75%) for permanent employment contracts.

There are some new components of contributory base that will be effective in 2011, as provided for in the initial version of the Law, but some cases will be implemented progressively: 33% in 2011; 66% in 2012 and 100% in 2013.

PSS must be collected at source along with payroll taxes.
Where the expatriate is transferring from a EU jurisdiction and holds the relevant documentation an exemption to PSS will apply.

Where the expatriate is transferring from a jurisdiction outside the EU with which Portugal holds a Bi-Lateral Agreement and the expatriate holds the relevant documentation an exemption to PSS will apply.

Where the expatriate is transferring from a jurisdiction that does not fall into one of the above categories, the PSS rules will determine their liability.

Stock options
Stock options can be taxed in the following moments:

• moment of acquisition - if the price of acquisition benefits the employee vis a vis third parties; or,
• moment when the option is exercised or when the stocks are sold or the employee renounces to the right of such option in favour of the employer, if a gain is obtained (i.e. whenever there is a difference between the price of exercising or alienating such right and the price of the stock).
  

The Portuguese law considers that the worker's income includes the benefits or privileges conferred by the employer to any of the worker’s family members.

Wealth tax
There is no wealth tax in Portugal.

Information about Portugal:

• introduction
• facts and figures
• basis of taxation
• what taxes?
• tax planning opportunities