26 Wednesday May 2021
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Taxation of US citizens
The US government imposes income tax on US persons based on their worldwide income, not residency. The following are considered to be US persons for tax purposes:
22 Monday Feb 2021
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Whether for profit or pleasure, the truth is that there are many people who choose to be sole traders as a way to make a living. More than one out of five Portuguese workers are self-employed, a percentage that places Portugal within the highest level of entrepreneurs in the EU. For a person to operate as a sole trader, there are some preliminary requirements that must be met with Tax Authority and Social Security Administration before starting up a business operation.
Opening a business activity
If you want to do business as a sole trader, the first step is to communicate your intentions to the Tax Authorities (“A.T.”), even before you launch your business. This is done by registering the Opening of Business Activity Declaration (“Declaração de Início de Actividade”). This step can be done in person at a Finanças office or in a Citizens’ Centre (“Loja de Cidadão”). In these cases, a civil servant guides you through the process to complete the necessary forms and enroll you directly into the system.
Taxpayers should also choose between being assessed in the Simplified Regime or under Standard Accounting procedures. Portuguese tax residents can also open their business activity on the Internet through the Finanças website. To submit a declaration, you must first have a Portuguese Tax Identification Number (“NIF”)as well as your Finanças password (“senha”). Proceed as follows:
Home ➾ Services ➾ Submit ➾ Activity Declarations ➾ Opening of Business Activity
An important note: Once you have completed these steps, you can start your business or professional activity after receiving confirmation by post in the form of a “dependability code” that will be sent to your registered address.
Another important point: If you intend to perform a one-off “Isolated Act” rather than exercise an on-going business activity, you are excused from the requirement of submitting an Opening of Business Activity Declaration.
Social Security
Registration for Social Security happens automatically and does not require you to complete any additional forms. If this is your initial registration, you are eligible for a first year exemption from Social Security contributions. Likewise, until your taxable sole trader income surpasses €2,515.32, you will also be exempt. In situations where you accumulate an independent business activity with salaried work or are in receipt a Social Security Old Age pension, you are also excused from Social Security contributions. Standard contributions for Sole traders are at the rate of 29.6%.
Closing your business activity
It is not at all uncommon for sole traders to cease their business activity yet fail to notify the Tax Authority of the fact. It should not come as a surprise that as far as Finanças is concerned, the activity remains open until reported closed. To wind up your self employment, you should go to an “AT” office, a Citizens’ Centre or to the Finanças website. To close your activity online, proceed to the “AT” website and go though the following steps:
Home ➾ Services ➾ Submit ➾ Activity Declarations ➾ Closing a Business Activity
On your next IRS tax return, you must refer to the cessation of activity in Annex B. As happens with the opening of a sole trader activity, the cessation will be reported automatically to Social Security by Finanças and no further declaration is necessary on your part. Failure to close your business with result in ongoing assessment based on previous activity.
22 Monday Feb 2021
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Those who are contemplating taking on Portuguese citizenship often wish to retain their nationality of origin. Fortunately, Portugal recognises and permits dual nationality. There can be a variety of reasons for taking on Portuguese citizenship:
Any foreign citizen aged 18 or over may apply for naturalisation once having formally resided for six or more years in the country. As EU nationals, this requires having held temporary residency in Portugal for a period of 5 years, then taking permanent residency through the local SEF office (Serviço de Estrangeiros e Fronteiras).
Central to the naturalisation process is a notarised and translated copy of the Birth Certificate issued in the country of origin.
A criminal record certificate, translated and apostilled, is also required from Portugal, from the country of origin and from any other country of residence. In Portugal, the certificate is issued at the local Tribunal. For UK nationals, application can be made online:
https://www.acro.police.uk/police_certificates.aspx
Then choose the ‘Police Certificates’ tab.
Citizenship application is handled by the IRN (Instituto dos Registos e do Notariado) through the local Conservatória. Depending on the nature of one’s situation, there are appropriate forms available in Portuguese only on the IRN website:
http://www.irn.mj.pt/sections/irn/a_registral/servicos-externos-docs/impressos/nacion alidade/impressos-nacionalidade
Applicants must pass a Portuguese language proficiencytest, known as CIPLE – A2, except for those who have been married to a Portuguese national for more than 3 years.
Application for the test should be made online at least one month in advance. To help prepare, there is a book of model tests available from the following link:
http://www.lidel.pt/pt/catalogo/portugues-europeu-lingua-estrangeira/avaliac ao-certificacao/
CIPLE measures the basic ability to interact in a limited number of predictable daily communication situations. The exam consists of three parts:
If married to a Portuguese national, citizenship may be obtained after 3 years of residency. In this case, the language test is usually waived.
If you are in a cohabiting relationship with a Portuguese citizen but not married (commonly referred to as “união de facto”), it is still possible to obtain Portuguese citizenship once the union has been officially recognised. While there is no formal process for registration for cohabiting couples, the status must still be proven. The couple should request a declaration from the local parish council, stating that they have lived together for at least two years. Two local witnesses are necessary. Translated copies of the birth certificate will also be necessary. In this case, no minimum required period of residency exists prior to applying for citizenship. However, authorities may require a Portuguese language proficiencytest as well as documented links which demonstrate integration into Portuguese society.
All foreign language documents should be translated into Portuguese and certified. Once all of the paperwork has been assembled and checked, application should be hand delivered or sent by post via registered mail to:
Conservatória dos Registos Centrais
Rua Rodrigo da Fonseca, 200 1099-003 Lisboa
or visit the local “Conservatórias do Registo Civil”. The process usually takes around 3-6 months.
19 Tuesday Jan 2021
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23 Monday Nov 2020
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The proposed 2021 state budget, fashioned with strong socialist leanings, has been delivered to the National Assembly for debate and approval before the end of 2020. After three months of negotiations between political parties on the Left, the document focuses on strengthening support for the unemployed, single-parent families, the self-employed and informal domestic workers. In other words, the upcoming budget will focus on the groups hardest hit by the Covit-19 pandemic.
Debt forgiveness
Among several measures meeting the left wing coalition demands, the Government has decided to writeoff old debts to Social Security and recover furloughed railway workers. In addition, the government promises to hire 3,000 non-teaching assistants for schools. Here is an initial preview of some of the key points in the State Budget for 2021.
Social support: facing the pandemic
New extraordinary social support measures are expected to confront the drop in household income. It will be a benefit that will cover employees and domestic workers for one year and sole traders for six months.
Social Security: Farewell to 20-year-old debts
The oldest and smallest debts to Social Security may be forgiven starting next year. If passed, the Government is authorized to forgive amounts when there is a debt for contributions and benefits that are 20 years old or more or that are less than €50 and more than 10 years old.
Unemployment: Benefit to €505
The reference value of installments is €501.16 and the minimum amount is €50. The lower limit for unemployment benefits will increase from the current €438.81 to €505. It is also foreseen that public daycare centres will be free of charge for students in the 2nd income bracket.
Health: Repeated hiring
The Government announced the plan to recruit 4,200 professionals for the National Health Service (SNS). By the end of the first quarter of 2021, the needs for medical professionals will be assessed to determine who may benefit from a risk subsidy of €219.40 payable every other month. Also there will be an investment of €90 million for the sector to improve facilities and equipment in health centres and family health units.
School support staffing
The Government pledges to hire 3,000 professionals, promising a revision of the criteria for calculating non-teaching staffing in schools.
Security forces: €10 million allocated to housing for police
The Government intends to guarantee basic living conditions for police and other security forces who are displaced by their job placement. The plan is to launch an investments of €10 million in housing for police in 2021.
Tourism: Credits for those who spend in hotels
According to the proposal, visitors will accumulate credits during one quarter, amounting to the total VAT incurred in consumption in the sectors of hospitality, culture and restaurants. Subsequently, holiday makers can use this value during the following quarter in consumption in those same sectors.
23 Monday Nov 2020
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If you are the owner of a Delaware Limited Liability Company (LLC), it is essential that you know what you have and what your responsibilities are. Requirements are in constant flux and need up-to-date procedures. If you have held your company for several years, current compliance obligations may be a far cry from what you started with. Failure to comply can be both time-consuming and expensive.
US Federal taxes
A legal Limited Liability Company (LLC) in Delaware with more than one member (shareholder) has a default status of a tax partnership. The LLC is not in itself a tax paying entity but passes any taxation on income and expenses to its shareholders as tax partners. These non-US resident tax members are responsible for assessment on any net profits at 30% of their US-sourced income.
As a non-resident owner of a Delaware LLC, foreign-sourced income is not assessable in the US. However, there are still strict reporting requirements. Members must file 1040 NR individual income tax returns even though there may be, in fact, no taxable US income. These annual reporting requirements were introduced in 2017. As part of the process, shareholders need Individual Tax Identification Numbers (“ITIN”) which can be obtained at the time of filing the tax declaration. Application for the ITINs involves submitting “apostilled” documentation including reporting on identity. Non-compliance carries a fine of $10,000.
Delaware State Taxes
Unlike most states in the US, Delaware does not require an LLC to file an annual report. However, companies must pay an annual “franchise” tax. By default, since LLCs are “pass-thru” tax entities, the responsibility for paying federal and state income taxes “passes thru” the LLC itself and falls on the individual LLC members (shareholders). Currently, the State of Delaware imposes a flat annual tax of $300 on LLCs. The levy is due on or before 01 June with a $200 penalty for late payments.
Under certain circumstances, owners of an LLC may choose to have their business treated as a taxable corporation. The State of Delaware, like almost every other state, taxes corporate income. Corporation income tax in Delaware is a flat 8.7% of federal taxable income.
“FBAR” compliance
If a Delaware Company has a financial interest in or signature authority over an overseas financial account, the US requires annual reporting to the Internal Revenue Service called “FBAR”. This obligation can undermine any element of confidentiality in addition to adding another on-going compliance commitment and cost. “FBAR” non-compliance is subject to a $10,000 penalty.
The Alternative
The litany of problems goes on and on. Redomiciliation can be an attractive alternative to the ever-growing list of headaches associated with Delaware LLCs. When a company moves its base of operations to Portugal, there is no asset transfer and no assessment takes place. Only the headquarters and effective management change. Assets remain securely within the Company. In addition, there is often an opportunity to uplift the share value of the LLC which can be doubly beneficial due to the fact that many Delaware companies understated share capital at the time of formation. Annual running procedures are stable, and costs are modest, often a fraction of charges for Offshore Companies.
12 Monday Oct 2020
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Sole Trader Start-up
Many foreign residents plan to open a small business when they move to Portugal. Regardless of your interest or motivation, it is essential to understand the basic requirements in Portugal before launching and conducting your new business activity. The following FAQ’s will help you get off to a good start while better serving your clients throughout the EU and beyond.
What is the difference between Standard Accounting and the Simplified Regime?
“Standard Accounting” refers to the traditional system of accounting that calculates taxable profits from the net difference between income and expenses. This method requires professional accounting services (“TOC”). Under the “Simplified Regime”, taxable income is calculated as a percentage of invoiced income (from the total of “electronic green receipts”) and is usually self-administered.
Do most self-employed go automatically into the Simplified Regime?
Yes, but not all. The Simplified Regime is designed for smaller businesses. To qualify, your gross invoiced income must not exceed €200 000.
What happens if my income exceeds this limit?
On a one-time basis, you may surpass this threshold by 25%. If repeated, the “AT” will switch you automatically to Standard Accounting (“Contabilidade organizada”). Subsequently, a Chartered Accountant must do regular reporting.
Initially, I opted for Standard Accounting but now realise that the Simplified Regime should be more advantageous. Can I switch?
Yes, taxpayers may switch in the following fiscal year if they so wish.
I only had €1,500 of income from a sideline business. How should I report?
When freelance income constitutes less than one half of an individual’s declarable income, it may be treated as an “Isolated Act” and follow standard accounting rules. No “TOC” is required.
How do I calculate my taxable income?
The calculation for determining taxable income is as follows:
Category B Expanded Simplified Regime Base
Sales of goods and services; Activities related to tourism 15%
Liberal Profession business activities (profissões liberais) 75%
Other income from services 35%
Royalties, know-how, other income in connection with
activity; Rental income not declared in Category F 95%
Non-business-related subsidies 30%
Business related subsidies; Other income not listed 10%
This income is added to other sources (aggregation) to determine your final rate of taxation.
Is it true that there is a minimum tax?
No. While one used to exist, the minimum tax was abolished in 2010.
When do I have to charge “IVA” to my clients?
“IVA” (Valued Added Tax) requirements are the same under both methods. Once income exceeds €12,500, regular IVA collection and reporting is mandatory, either on a quarterly or monthly basis, depending on turnover.
Do I have to make contributions to Social Security?
Beginning in the first year of business activity, you are entitled to a 50% discount. In year two, the adjustment reduces to 25% and disappears altogether in the 3rd year and beyond, based on monthly payments to Social Security at the rate of 21% of your taxable income.
If your business activity is Local Lodging (“Alojamento Local”), you are exempt from Social Security contributions on this income.
If you already contribute to Social Security in another country or receive Social Security benefits, you can request exemption from paying again in Portugal. Alternatively, you may be eligible for reduced contributions.
“Início de Actividade” (Business Registration)
Formal registration of your business activity with Finanças is the first step to detail all required information about yourself and your planned endeavour.
“Recibos Verdes Electrónicos” (Electronic Green Receipts)
Freelancers may no longer buy books of Green Receipts and must file invoices electronically via Internet. Be careful to use the correct procedures within the duly designated time periods as there are fines if deadlines are not met.
Social Security
Freelancers must register with Social Security (National Insurance) and make monthly payments in the beginning of the second year of business activity. Services as well as Sales and Production currently contribute 21%. If you receive Social Security benefits or are already contributing to Social Security in another country, you may be eligible for exemption from contributions in Portugal.
National Health Coverage
As a freelancer, you will be eligible to apply for your “Cartão de Utente” (National Health Card). You, your spouse, and dependent children will be covered. With this registration, you will gain access to local Health Centres and Regional Hospitals. The card also entitles you to reductions on medication and prescriptions at local pharmacies.
“IVA” (VAT)
Unless your income or activity exempts you from collecting “IVA” (freelance income under €12,500 pa), quarterly submissions need to be filed. Unfortunately, only Portuguese-language applications are available. If you invoice primarily outside of Portugal to other countries in the EU and beyond, this reporting could entitle you to a refund for “IVA” paid on business expenses Portugal.
23 Wednesday Sep 2020
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The request for a Residence Visa to exercise an independent professional activity or to become an immigrant investor (visa D2) is normally issued to the applicant in his country of residence through the Portuguese Embassy or Consulate. Once application has been made, the deadline for the decision is usually 60 days, starting from the day of submission of the application with all substantiating documentation. This period may vary depending on the country of origin. Continue reading
14 Monday Oct 2019
The Affordable Rental Programme has been launched to enhance the supply of long-term residential housing at controlled prices. The initiative targets accommodations for individuals and middle-income families who now have difficulty in finding affordable flats, taking into account the inflated prices currently being practised in the marketplace. The premise is to create a win-win situation for all parties. Tenants should be able to find suitable housing at lower prices. Landlords can advantage of the new tax breaks that have been created for the new rental income they receive. Continue reading
23 Monday Sep 2019
Dennis was interviewed on Friday by “Dinheiro Vivo” about the NHR regime, the article is here:
DSG - in the pipeline 