Beginning in January of 2020, a modified catalogue of business activities comes into force, benefiting a favourable tax regime aimed at attracting professionals with diverse skills to Portugal. These occupational profiles are now extended in light of the difficulties experienced by employers in various sectors in hiring workers since the inception of the Non-Habitual Residency Regime 10 years ago. Continue reading
When a company redomiciles to Portugal, no assets are transferred: no crystallisation of Capital Gains, no “IMT”(Property Transfer Tax), no Stamp Duty on Real Property. With no chargeable events taking place, only the headquarters and effective management move to Portugal. The assets remain safely within the Company. Thus the alternative term for Redomiciliation: Continuance. Continuance opens attractive opportunities for legitimate tax mitigation.
Updated Basis for Capital Gains Tax
Following Company registration in Portugal, a Balance of Accounts needs to be presented to mark the starting point as a Portuguese resident corporate entity. In accord with most recent legislation (May 2019), this Balance Sheet must be based on net book value, rather than the historical value according to the relevant 2016 EU Directive. Any shareholders’ loans to the Company as well as outstanding bank mortgage show as “Liabilities”. “Capital” is the paid-up share capital as well as Reserves. There is a fresh start. Many historical problems, such as under-declared deed values or lack of bonafide invoices for capital improvements can be mitigated.
Reduced CGT following Redomiciliation
With the move to a Portuguese domiciled entity, Capital Gains Tax on the eventual sale of Company shares reduces to 14%, as compared to 28% that otherwise would be the norm. Further Capital Gains Tax mitigation can take one of two forms. With the uplift in the nominal price of the stock upon registration of the now Portuguese entity, the shares can be sold at full value with little or no gain. Alternatively, the company can be liquidated and the assets distributed to the shareholders. As in the previous instance, with similar values, there should be little or no tax to pay.
Potential Transfer Tax Exemption
If the Company assets include Portuguese immoveable property, the sale of the shares may be exempt from “IMT”, depending on the circumstances of the eventual buyer of the Company. When a shareholder does not exceed a concentration of more than 75% of shares to a shareholder, no Property Transfer Tax (“IMT”) is due on the underlying asset conveyance. If eligible, the buyers may potentially save thousands of Euros, thus making the acquisition more appealing than a purchase in one’s own name.
In contrast, when a property changes hands, many organs of government get into the act. Finanças records the change of ownership and updates the Ratable Value (“VPT”) in a somewhat lengthy and labourious process. The local Council checks to see that current architectural records match the building(s) on site. The Land Registry verifies that boundaries and areas are correctly recorded. In short, a sea of bureaucracy that can be both slow and expensive. The transfer of ownership of Portuguese shares is normally a simple notarial process. While there is some paperwork involved in amending records to reflect the changes of Company domicile, the process is straightforward and does not trigger reevaluations of the underlying assets nor latent licensing problems inherent with many older properties.
While Redomiciliation may not always be a “magic bullet”, this solution can offer significant advantages to many owners who find themselves unwittingly trapped offshore.
There may be a variety reasons for you to discontinue an “AL” business: a) you need your place for yourself; b) the property may be up for sale; c) the bureaucracy may be too cumbersome for you; d) competition may have driven down prices and the activity is no longer profitable, e) other. Whatever the motive that you no longer wish to continue to let short-term furnished accommodations to holidaymakers, there are several steps that you will need to take to make the change: Continue reading
The tax-holiday regime for Non-Habitual Residents (NHR), launched in 2009 to entice wealthy foreigners to participate to Portugal’s economic development in exchange for low or no taxation, reveals a very asymmetrical distribution between the two NHR target groups: “value-added” professionals and pensioners. Amongst the 27,367 beneficiaries of the NHR statute allowing for a partial or complete 10-year tax holiday in Portugal, there are only 2,140 “value-added” professionals (8%). Of these, almost half are senior executives of multinational companies. Continue reading
The “VPT” of your property is not directly related to construction costs or its market value (except for the soon-to-be-overhauled Location Coefficient). The Property Evaluation System (“Valor Patrimonial Tributário or VPT”) is a mathematical formula comprised of six factors, working as follows:
Once again, Social Security has become the object of significant change. The following are the highlights of the legislative updates to Social Security that freelancers will need to take into consideration in 2019 and beyond.
The principal innovation of the 2019 Social Security Reform for Independent Workers is the rolling quarterly calculation of contributions. In the past, payments were determined based on prior earnings from two years before. While the trimester method of calculation requires more bureaucracy, it should prove to be more in line with the economic ups and downs that are the day-to-day realities of most sole traders.
SS rate eases – Starting in 2019, the Social Security contribution rate borne by self-employed workers is fixed at 21.4%, as compared to the prior levy of 29.6%. Individual Entrepreneurs now pay at a rate of 25.4%. *
Basis of incidence changes – From 2019 onwards, the contribution rate base generally considers 70% of the relevant income from the previous quarter (or 20% in the case of production and sales) as opposed to the previous year as before. The self-employed person may request a 25% reduction on the quarterly amounts.
Accumulating dependent work with self-employment has a SS exemption limit
In the past, salaried workers (Category A) who also earned sole trader income (Category B) were wholly exempt from additional contributions to Social Security. Under the new rules, those who receive more than €2,450.86 euros per month must pay additional SS contributions. If they are not exempt, the 21.4% SS rate will be applied to the amount that exceeds four times the value of the IAS (€1,743.04 euros in 2019). Benefits such as unemployment or parenting allowances, for which only salaried income is covered, are excluded.
Mandatory quarterly SS declaration – Based on the quarterly statement, Social Security determines the relevant income and the basis of contributions for the following three months. In this declaration, the worker can request to pay a 25% lower or higher contribution. This declaration should be submitted by the last day of April, July, October and January. Social Security contributions are monthly and now run between the 10th and the 20th of the following month.
Minimum contributions – The new rules also establish a minimum monthly contribution of €20. This amount should be paid when there is no income in the reporting period in question. This measure is designed to ensure social protection in slow periods where independent workers are without income for a limited period.
“Cuidado! O Português pode ser uma língua traiçoeira!” (Beware, the Portuguese language can be treacherous) For Individual Income Tax (“IRS”) purposes, the expression “rendimentos professionais” (professional income) refers to earnings from a specialised career listed in Article 151º of the CIRS. For the most part, these professions require a higher education degree, such as doctors, lawyers, architects, etc. Under the Simplified Regime, the taxable coefficient for these “Individual Entrepreneurs” is 75%. Other freelancers fall under the category of “Rendimentos empresariais” (vocational income) and are assessed based on 35% of their gross sole trader income.
In the lexicon used by Social Security, “Individual Entrepreneur”refers to a Sole Trader who, through a permanent establishment, has or is likely to have employees, such as hairdressers, mechanics, restaurants and others. While these “Empresários em nome individual” may pay the same “IRS” rate as other vocational trades, they are levied a higher Social Security rate (25.2%) on quarterly contributions when compared to other “trabalhadores Independentes” (21,4%).
As a relatively new tax, it is not surprising that many have been caught unaware of their liability to pay AIMI and, more importantly, how they can avoid the disturbing consequences. The additional assessment to IMI (Adicional Imposto Municipal Imobiliário) is sending shock waves to individuals and company owners who unwittingly find themselves under the weight of this added fiscal obligation. Continue reading
Why move a Delaware company to Portugal?
Delaware will be classified as opaque jurisdiction:
A series of factors contribute to the recent surge in prices in the real estate market in Lisbon in particular and throughout Portugal in general.
- An exodus of residents over the past half century from the historical centres;
Until the recent boom, central Lisbon has been experiencing degradation and urban flight over the past 50 years. Continue reading