According to the 2017 State Budget, the Individual Income Tax (“IRS”) will undergo the following changes:
- Automatic IRS Declaration
The creation of the new automatic income tax return for taxpayers receiving exclusively Portuguese-based income will come into full effect on 01 January 2018. This computer-based reporting will be grounded on the relevant information that “AT” has on record to be made available to individual taxpayers on the Finance Portal:
– a declaration of provisional income for each separate and joint return;
– the corresponding provisional tax assessment; and
– the recorded logs that serve as a basis for tax deductions.
If the taxpayer agrees with the figures and calculations, he/she gives approval and the declaration is deemed to be delivered. This return of provisional income becomes definitive on 31 May, the end of the submission period. A substitution within 30 days after settlement can be made without penalty. The Government will further define by regulation which taxpayers are covered by this automatic declaration.
Those not covered must submit a declaration of income within the legal deadline. The automatic declaration of income does not exempt taxpayers from the obligation to prove the information contained in the declarations.
The Budget establishes transitional rules for the IRS declaration for fiscal year 2016. This automatic settlement, with respect to 2016 income, only applies to taxpayers who meet cumulatively the following conditions:
– have only received income from salaries or pensions; and
– obtain income only in Portuguese territory; and
– do not receive tips or gratuities; and
– are considered residents for the entire tax year; and
– do not have the status of non-habitual resident; and
– have not paid alimony or child support pensions; and
– have no deductions for ascendant dependents.
- Updated IRS tax brackets
The taxable income thresholds, which determine the annual IRS due, are updated by 0.8%, in line with inflation expectations for 2016. The five income brackets will continue as before, with the tax rates unchanged. Only the yield values of each bracket will be brought up to date.
The IRS schedule for mainland Portugal in 2017 will be as follows:
Taxable Income Taxable Income Rates
2016 2017 normal average
up to 7,035 up to 7,091 14.5% 14.5%
> 7,035 to 20,100 > 7,091 to 20,261 28.5% 23.6%
> 20,100 to 40,200 > 20,261 to 40,522 37% 30.3%
> 40,200 to 80,000 > 40,522 to 80,640 45% 37.613%
> 80,000 > 80,640 48%
According to the 2017 State Budget, the Individual Income Tax (“IRS”) will undergo the following additional changes:
- Single declaration period
Starting in 2017, there will be a single deadline for filing the IRS declaration for fiscal year 2016, regardless of the type of income or the form of reporting (either online or paper).
All taxpayers will have to submit their IRS declarations between 01 April and 31 May.
- Extended joint or separate taxation option
Currently, the choice between joint or separate taxation is forfeited to married and cohabiting couples who submit their IRS after the deadline. After that point, couples can only file separately. In 2017, it will be possible to report jointly, even if the couple declares after the legal deadline.
- Tax Reductions for the disabled
Disabled taxpayers who receive income in categories A (salaries) and B (self-employment) will feel some relief. 85% of their IRS income will be assessed, instead of 90%, as is currently the case. Income in category H (pensions) will continue to be taxed based on 90%. The upper limit of €2,500 remains in place for exclusions from taxation from all sources of income.
- Deduction with pets
In 2017, it will be possible to deduct veterinary expenses, as part of the VAT category, with an upper limit of €250. Other eligible expenses in this category include restaurants, hotels, mechanics, hairdressers and beauticians.
- Investment deduction with startups
It will be possible to deduct 25% of investments made annually, up to 40% of overall “IRS tax due, in startups under the Seed Program.
- Increase in local lodging assessment.
If you operate a Local Lodging establishment, you will have more tax to pay. The current assessment base of 15% of gross invoiced income rises to 35%.
- IRS Surcharge to be phased out
The “IRS” Surcharge will gradually disappear in 2017. For income earned in 2017, the applicable surcharge is shown as follow:
Taxable Income Tax Rate Earned Income
2016 2017 before:
> 0 to 20,261 0% 01.01.2017
> 20,261 to 40,522 0.88% 30.06.2017
> 40,522 to 80,640 2.25% 30.11.2017
> 80,640 3.21% 30.11.2017
- “AIMI” – an Additional Property Tax
The “AIMI” (Adicional ao IMI) assesses residential housing and building plots based on the rateable value (“VPT”) of the property. For individuals, the first €600,000 constitutes a nil rate band. The “AIMI” rate is 0.7% beyond the nil rate band. For taxable amounts in excess of € 1 million (or double where couples opt for joint assessment), the rate increases to 1%.
For companies, the “AIMI” rate is 0.4%. However, in the case of personal use of buildings by their owner/directors, a rate of 0.7% applies, raising to 1% for properties above € 1 million. For buildings owned by black-listed entities, the applicable “AIMI” rate is 7,5%.