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DSG – in the pipeline

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DSG – in the pipeline

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Fiscal Residency  

20 Monday Sep 2021

Posted by Ursula in Posts

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fiscal, portugal, residency, resident

The vast majority of Foreign Residents share a common trait: most, if not all, of their livelihood comes from outside of Portugal. Great confusion and disinformation abound regarding such income from abroad. Before analysing the different requirements surrounding Individual Income Tax (IRS) in Portugal, it is useful to dispel some of the myths and establish a few of the basics regarding Portuguese taxation and the obligations of the Foreign Resident.  So the first question to consider is: Who is required to become resident for tax purposes in Portugal?


Fiscal Residency
It is important to distinguish between a Residency Permit (Residência) and Fiscal Residency.  The former requires a lengthy bureaucratic process at the Estrangeiros Office.  The latter is circumstantial in nature.
An individual is deemed to be tax resident if :
       • physically present in Portugal for more than 183 days in a calendar year;  or
       • physically present in Portugal for less than 183 days but has established a permanent place of residence at 31 December; or
       • if an individual at the end of a tax year owns a dwelling in Portugal that the tax authorities might reasonably assume to be his or her usual residence, the individual generally is considered resident for that tax year;  or
       • if the head of a family is resident in Portugal for tax purposes, other family members may also considered to be resident, even if living abroad.  
However, if the foreign country has a double tax treaty with Portugal, the treaty contains rules to decide in which of the two countries an individual is legally considered resident. Needless to say, if you do have a Residency Permit (Residência), you are deemed to be resident regardless of number of days you are actually present in Portugal.
The Portuguese Tax Authorities
While the tax authorities used to turn a blind eye to foreign residents, the pendulum is now moving in the other direction.  Rather than being invisible, expats have become prime targets.  Many (legally) tax residents of Portugal have never submitted a tax return, thus likely to be eligible to pay tax owed and back interest as well as hefty penalties. The government has made cracking down on tax fraud one of the cornerstones of economic policies and foreign residents are no exception.  If you come forth voluntarily, you are dealt with accordingly.  However, once on the “Black List” of tax-cheaters, it is difficult to shake that status.  By being compliant, you can take an important step towards peace of mind.
Where you pay your taxes
Unfortunately, you don’t get to choose where you pay your taxes.  The Law does.  Just because you may pay (incorrectly) back home doesn’t mean that you will win any favour with Finanças.  Double Taxation Treaties clearly define taxpayer obligations.  And Portugal now has tax treaties with all of the EU countries and many others around the world.  An additional 10 countries are currently completing the ratification process, another 10 are under negotiation and another 30 waiting to start the process. In other words, Portugal is rapidly internationalising its fiscal perspective.
It may come as a surprise that filing a correct tax return in Portugal can actually save you money.  Submitting a tax return is not synonymous with paying tax. The Portuguese tax code has generous allowances and unexpected exclusions on certain forms of income, broad deductions for numerous types of expenses and liberal tax credits for many common expenditures. Many people find their tax burden in Portugal to be significantly lower than in their country of origin.
Year One
In your first year as a Fiscal Resident in Portugal, you will need to make the transition between one tax system to the other.  This does not happen of its own accord.  You need to take overt, concrete steps to make this happen.  Otherwise, you will continue to pay tax in your home jurisdiction yet accumulate fiscal obligations and, eventually, serious penalties in your new country of Residence, Portugal.  We, as citizens, are compelled to be compliant with the Law. We, as taxpayers, are only required to pay the legal minimum.


Capital Gains Tax

20 Monday Sep 2021

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Tags

CGT, portugal, property, sale, tax

Options when selling Property in an Offshore Company

Many owners of Offshore Companies, both black and white listed, reach a point where, for any number of reasons, they wish to sell up. Yet most are uncertain of the Capital Gains Tax consequences of such a sale, particularly since there are a number of different ways to structure the transaction. While individual proceedings sometimes present unique circumstances, the following example should prove illustrative of most sales. Respective costs and savings ought to be proportional in most cases.

The Situation:   Non-Resident Owners selling a property held in an Offshore Company

1)   An Offshore Company purchases a property in Portugal for €200,000 (inflation-adjusted price).

      At this point, both the Property and the Company are worth €200,000.

2)   A Non-Resident couple buys the shares of the Company for €300,000.

While the Company has a share value of €300,000, the book value of the Property remains €200,000.

3)   The Company moves its headquarters and effective management (redomiciliation) from Gibraltar to Delaware. No change in respective values is registered.

4)   The Owners wish to sell the Property/Company for €550,000.  This can be done in one of three ways:

a)   the Company sells the Property directly to the Buyers; or

b)   the Owners of the Delaware Company sell their shares to the Buyers; or

c)   the Delaware Company is first moved to Portugal, then Owners of the Portuguese Nominee Company sell their shares to the Buyers.

The Tax Consequences for Buyer and Seller:

a) The Company sells its Property:

The Capital Gain on the sale of the Property is the net difference between purchase price (€200,000) and the sales price (€550,000) minus capital improvements in the previous 12 years minus deductible buying and selling costs. The net gain is then taxed at the rate of 25%.

Example – the final result might look something like this:

€550,000 (sale) – €200,000 (purchase) – €15,000 (improvements) – €5,000 (expenses) =

€230,000 (net gain) X 25% (non-resident tax rate on sale of property) = €57,500 (CGT)

The buyer will also pay the following acquisition taxes:

€33,000 (IMT) + €4,400 (Stamp Duty) = €37,400 (acquisition taxes)

Option nº 1

Seller is taxed €57,500 – Buyer is taxed €37,400

Since it is a Delaware Company that is selling the Property, then the taxable Gain will be to the Company. However, it is more than likely that the distribution of these profits to the shareholders will also incur an assessment to Owners in the home jurisdiction on these “dividends”. 

b)   Sale of the Shares of the Delaware Company

The shares of the Delaware Company are sold to the Buyer.  In accordance with the USA-Portugal Tax Treaty (Article 14), this transaction is treated as a Sale of Property Rights since the US Company, as a resident entity under the Treaty, consisting of more then 50% of immovable property located in Portugal. Therefore, the Gain may be taxed in Portugal in an identical fashion as above

Optionº 2

Seller is taxed €57,500 – Buyer pays no tax

with a net CGT due of €57,500. Since the Sellers are non-residents in Portugal, they will also be taxable on the worldwide income in their home jurisdiction. In this instance, the transaction will no longer be seen as a property rights transfer but merely as a sale of shares (movable assets). After application of any Capital Gains allowances, a second CGT assessment will be due on this gain. Given the deemed natures of the perceived transaction, together with the triangulation of the jurisdictions involved, there is no way to eliminate double taxation.

Option nº 3:   Sale of Portuguese Nominee Company

When the Portuguese Company is sold, the Gain is calculated as follows:

First, the Delaware Company must move to Portugal.  As part of this Redomiciliation, an appraisal is performed of the Property, determining that the Company’s sole asset is valued at €530,000. 

Therefore, at the time of the move to Portugal, the Company is worth €530,000 and the now Portuguese Company’s shares reflect this value.

The Shares are then sold as follows:

€550,000 (sales price of shares) – €530,000 (value of shares upon Redomiciliation to Portugal)  =

€20,000 X 10% (tax rates on sale of shares)  =  €2,000 (CGT)

           The buyers will also pay €25 (Stamp Duty on Share Transfer Deed)                                             

Optionº 3:

Seller is taxed  €2,000 – Buyer is taxed  €25

As the Sellers are Non-Resident, they may also be liable for CGT in their home jurisdiction. In this case, the tax paid in Portugal will normally serve as an international tax credit, reducing or eliminating any eventual CGT assessment. Needless to say, while the rate may be different, the basis should be the same.

Conclusion:

As you can see, there is considerable difference both for Buyers and Sellers when redomiciling to Portugal. By selling the Portuguese Nominee Company, rather than the Company selling the Property or the shares of the Delaware Company, both sellers and buyers save appreciably.  In comparison, the costs of Redomiciliation and the subsequent share transfer should prove only a minor inconvenience.

In addition, due to Portuguese fiscal transparency rules, owners of Nominee Companies are free from any possible double taxation in Portugal since liability for potentially chargeable events is transposed out of the Company directly to the Shareholders and is never be assessed to both.

Foreign Residents – Voting in Portugal

14 Monday Jun 2021

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Frequently Asked Questions

Expats may vote in local municipal and European elections as long as they are registered in the Portuguese national electoral census. In addition to all Portuguese citizens, Brazilian nationals with a citizen card or other viable ID card and those from the following countries may also vote in Portuguese elections: 

‑     Citizens of member states of the European Union;

–    United Kingdom when resident prior to Brexit;

‑   Brazil and Cape Verde;

‑ Argentina, Chile, Colombia, Iceland, Norway, New Zealand, Peru, Uruguay and Venezuela.

1.   I am a foreign resident in Portugal. Am I allowed to vote?

Yes, as long as you first enrol in the Portuguese Voter Registration and are a citizen of one of the above mentioned countries.

2.   Is voter registration mandatory?

Voter registration is optional.

3.   In which elections may foreign nationals exercise their right to vote?

Registered foreign residents over 18 years of age have the right to exercise their right to vote in Municipal (every 4 years) and European (every 5 years) elections.

4.   How do I register to vote in Portugal?

You must go to the local parish (“Junta de Freguesia”) that corresponds to the address indicated in your Residency Permit (“Residência”).

5.   I moved recently. What should I do to transfer my voter registration?

You must update your address on your Residency Permit. Your voter registration will be transferred automatically. Note that if you register during a period when voter registration is suspended, you should vote in the parish corresponding to your previous address.

6.   I have moved address but have not yet updated my “Residência”. Where should I vote?

You should vote in the town where you are still registered that corresponds to the previous address. Only with the update of the “Residência” does the transfer of voter registration happen automatically.

7.   When is voter registration suspended?

During the 60 days prior to election day. No new registrations or transfers may be made during this period. Only changes are permitted resulting from a complaint or an appeal can be made between the 34th and 39th day before the election. If you update your residency at a time when the registration is suspended, you should vote in the parish where you were registered prior to moving.

8.   How can I find out where I am registered?

You can get this information at any time, even on election day, as follows:

‑   On the Internet at http://www.recenseamento.mai.gov.pt;

‑   Via SMS (free) to 3838, with the message “RE (space) CC / Residency number (space) date of birth = yyyymmdd. Ex: “RE 7424071 19820803”;

‑   At the parish council office of your place of residency.

The Multibanco Machine swallowed my card! What to do? 

14 Monday Jun 2021

Posted by Ursula in Posts

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Tags

atm, card, multibanco, problem solving

The Multibanco system has been around for 35 years and continues to be a widely used resource by those who resort to the most varied banking movements in Portugal. Despite the increasingly frequent use of homebanking, which, due to its efficiency and security, gains more and more followers, the use of the Multibanco network continues to grow. Multibanco offers about 60 features. Many of them are aimed at operations that far exceed account management, such as paying for purchases or acquiring travel tickets. 

In the past two years, the network has even broken usage records. According to data from the Multibanco website, in the first half of 2020, more than 717 million transactions were carried out at ATM’s (Automatic Teller Machine) and TPA (Automatic Payment Terminal), involving around €36 billion. At the moment, the Multibanco network has approximately 12 thousand ATMs, more than 337 thousand TPA and more than 23.7 million cards in circulation. 

Reliable and with a wide service network, Multibanco is not completely immune to incidents, or apparent malfunctions.  

How to Solve Problems at the ATM 

The Multibanco Machine retained the card after an operation 

You should immediately contact the bank that issued the card which may have expired. The machine may also have malfunctioned. But there may also be a risk of fraud, especially if, at the same time, a message appears to remove the card. Without losing sight of the card, seek support from the bank agency. 

Despite being debited from the account, the withdrawal amount was not waived 

If the cash is not dispensed, there will be an automatic correction of that amount. If not, you must file a complaint with the bank issuing the card with proof of receipt. 

The withdrawal did not return the full amount requested, despite being debited from the account. 

You must make a claim with your bank, accompanied by the transaction receipt and identify the place, date and time when the transaction occurred. 

You made a withdrawal, but Multibanco did not provide a receipt. 

If you need proof of withdrawal, you can obtain a duplicate copy of the receipt, using the card with which you made the transaction and selecting one of these paths: 

Consultations> Consultations Operations Card in MB> 2nd copy of receipt> Enter the desired date and Select one of the operations presented. 

Consultations> Consultations Operations Card in MB> Consultations prior to a date> Enter the desired date 

Bank Notes were not collected in time 

The bank security protocol requires a limited time for the collection of banknotes by the customer. If the time is exceeded, the machine collects them. The withdrawal amount is regularised in the account but you must register what happened with your bank. 

Dennis Swing Greene
info at madeira-weekly.com

Sweden to rescind its tax treaty with Portugal evoking “fiscal injustice”

08 Thursday Apr 2021

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Sweden wants to tear up an agreement with Portugal and start taxing its pensioners who have chosen to live in Portugal in recent years as fiscal residents. According to the newspaper Public, Sweden plans to revoke the tax treaty signed with Portugal in 2002 and start taxing pensioners who have been exempt from assessment in both countries.

In 2019, the two governments signed an agreement with amendments to the rules that would allow Sweden to tax the pensions of its nationals living in Portuguese territory. Stockholm has already ratified the agreement, but Lisbon still has not.

“The combination of the Portuguese tax regime for Non‑Habitual Residents (RNH) with the tax convention originally signed with Sweden makes Portugal a fiscal paradise for Swedish pensioners.”, declared Swedish Minister of Finance, Magdalena Andersson. “We are submitting this proposal to Parliament. I can withdraw it if the Portuguese Government implements the treaty quickly.”

Asked how much Sweden has lost in tax revenues since 2009, the minister responded that the loss of tax revenues is not the primary reason for tearing up the double tax convention. “The possibility given to wealthier citizens to pay 0 or 10%, while ordinary citizens pay much more, is a fiscal injustice that undermines the credibility of the fiscal system. Some Swedish citizens have an income of millions of euros yet do not pay any tax. The 10% rate is too low and is much less than what a regular pensioner in Portugal pays,” affirmed the Swedish Finance Minister.

Foreign Retirees pay 10% tax on foreign pension income

08 Thursday Apr 2021

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Since last year, the exemption in Portugal for foreign earned pensions ended. Pensioners who have non‑habitual resident status pay a tax of 10% on retirement benefits paid by their country of origin. The rule does not apply to those who already benefit from NHR or who have already signed up for the status. New taxpayers in Portugal lose their double tax exemption and will be taxed at a rate of 10% on their pensions. The option must be chosen when submitting the declaration during 2021.

Benefits of investing via the Golden Visa investment program in Portugal

08 Thursday Apr 2021

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– Visa exemption for traveling within the Schengen Area;

– Family reunification even for children studying abroad;

– Applying for permanent residence after 5 years of residency;

– Applying for Portuguese citizenship after 5 years.

– Possibility of applying to Non-Habitual Residency regime.

Aggregate vs Autonomous Reporting Options

19 Tuesday Jan 2021

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Tags

Agggregate, autonomous, irs, portugal, reporting

When assessing Company profits, taxation occurs in a two-stage process: first, the Company pays Corporate Income Tax on its profits, then Shareholders pay Individual Income Tax on these distributed profits (now called dividends). This assessment procedure is called “economic” double taxation. Almost all countries in the EU have adopted one of several methods to eliminate “economic” double taxation-some via the Company, some via the Individual. Regardless of the method, the end result should be the same: dividends reported by the Individual should be after the elimination of any “economic” double taxation.

Continue reading →

EU Directive Impacts Redomiciliation

15 Friday May 2020

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When a company redomiciles to Portugal, there is no asset transfer, 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. Legislation based on a 2016 EU Directive, updates the Portuguese Corporate Tax code (“CIRC”).

Upon Redomiciliation, the company’s balance sheet must be based on net book value, rather than historical value as was previously the case. When correctly implemented, there will be many cases with little or no difference between the net book value and market value upon the transfer of the company’s asset, reducing or eliminating Capital Gain liability.

According to this recent legislation transposing the relevant EU directive, new evaluation norms apply according to the following rule:

Entities transferring their head office or effective management to Portuguese territory must consider for tax purposes the net book value of their assets held, provided that the determined amount does not exceed the market price at the time of transfer.

This process opens two opportunities: First, the shares of the Company can be sold according to the Net Book Value with little or no Capital Gains Tax due. Alternatively, the Company owned property can be transferred out of Company ownership with acquisition established at Net Book Value. Either solution should minimize the Capital Gains Tax liability when the Company’s property or its shares are sold.

If potential buyers wish to continue with the property being held by a redomiciled Portuguese Company, this solution continues to be viable and tax-efficient. Likewise, if the buyers want to own the property in their own names, this redomiciliation solution is now equally workable with similar beneficial tax treatment. The buyers and sellers should keep in mind that the second option will trigger two IMT’s as opposed to a single instance of Property Transfer Tax as in the first method.

State Budget 2020 – Taxes and Contributions

11 Monday May 2020

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Changes in the obligations of companies and workers

During the months of March, April and May, employers will only deduct Social Security contributions based on one third of the earnings paid to employees. Whatever is missing can then be paid in instalments (three or six months) in the second semester. This is a measure aimed at improving liquidity, which may have greater impact because some workers who are at home accompanying children (due to the closing of schools) will receive a smaller paycheck (based on two thirds of their salaries) with the companies delivering only one third of social contributions in these cases. The government has not yet explained whether the announced reduction will also override these cases or exclude them.

In addition, companies with work suspended based on the lay-off regime will be exempt from contributions for the workers covered in a period that will be at least two months (the suspension from work and the following), and may go up to seven months if it continues to be renewed.

Several details remain unclear, namely, whether the reduction of contributions by two thirds is dependent on the fulfillment of criteria or is generalized. The same is applicable to the new tax measures.

On Wednesday, the Minister of Finance had indicated that the temporary reduction in social contributions, to one third, applied to companies with up to 50 jobs. “Companies with up to 250 jobs can access this mechanism to reduce and split the payment of social contributions in the second quarter if they have seen a drop in turnover of 20%,” he explained.

Taxes

A new order is expected to be published by the Secretary of State for Tax Affairs to clarify the conditions for access to the measures.

According to the communiqué of the Council of Ministers, in the months of April, May and June, the delivery of VAT and withholding income tax can be paid in three or six instalments.

The tax enforcement proceedings in progress or that may be instituted by the Tax Authority and Social Security are also suspended until June 30.

But it is also not entirely clear who can benefit from these postponements. On Wednesday, the Minister of Finance had announced that the flexibility in terms of VAT, IRC and IRS – with the possibility of paying in instalments (three or six months, with late payment interest in the last three instalments for the second case) without need a Guarantee – applied to companies “with a turnover of up to €10 million in 2018, or starting from 01 January 2019”. Or, in larger businesses, in view of “a decrease in turnover of at least 20% in the average of the three months prior to the month in which this obligation exists compared to the same period of the previous year”.

Previously, the government had postponed until July 31 the submission of the declaration of Modelo 22 of the IRC, the special payment on account to June 30 and the first payment on account and the first additional payment on account to 31 August.

At the same time, the Tax Authority determined that “sufficient conditions for the application of the figure of the just impediment in the fulfillment of the tax declaratory obligations in relation to certified taxpayers or accountants must be considered the situations of infection or prophylactic isolation declared or determined by health authority “.

However, in other announced measures, the delivery of the single report of the companies, whose delivery deadline started last Monday, may also be postponed. “Following the state of alert we are in due to the Covid-19 epidemic, the report’s final delivery date is being considered and will be readjusted in due course,” warned the Ministry of Labor.

Changes to green receipts and sole proprietors

Social Contributions

The flexibility announced for companies also applies to self-employed workers, according to the indications given by the Ministry of Finance. In the months of March, April and May, freelancers will be able to deduct on only one third of income. The remainder can then be paid in instalments (three or six months) during the second half of the year. Once again, it is unclear under what access conditions are foreseen, which, at the outset, assumed a 20% reduction in turnover, and is also applied to companies with up to 50 workers.

In addition to this situation, Social Security support for workers when there is a proven stop in the activity of their own or their sector (up to €438.81 monthly, in a renewable measure for up to six months) will also see social contributions postponed to 100% while they are enjoying support.

Taxes

There is also provision for the option of instalment plans for the delivery of VAT and of withholding taxes of three or six months (at the beginning, with interest on arrears in the last three months if the option is the second), during the months of April, greater and June.

The criteria announced on Wednesday provided, without detailing different conditions for these workers, access to those with a turnover of less than €10 million or a 20% drop in turnover from that amount.

Changes for employees

For now, there are no significant changes in the payment of taxes or social contributions with an impact on the obligations, and on disposable income, of employees.

From the outset, the deadlines for submitting the IRS declaration are maintained as of April 1, and if there is payment in instalments of the withholding tax on salaries, these will be changed only with an impact on the companies’ treasuries (without change in the net salary, on departure).

There is also no provision for reducing or postponing the payment of social contributions due by workers (11%). Although the matter was not clarified, the government announced on Friday that the changes are aimed at “improving the liquidity of companies” and not that of families.

However, in some cases, there may be an impact on net wages for workers who see reduced gross wages (due to lay-offs or having stayed at home accompanying minors with schools closed, seeing their wages drop to two-thirds). With half of the national workers earning below €855 (February figures), many may end up with IRS exempt earnings during this period. According to the 2020 withholding tax tables, in the case of a couple with two children, income up to €686 is exempt. Singles without children are exempt up to €659 of gross monthly remuneration.

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