Over the past four decades, global warming has taken hold in Portugal according to statistics gathered by the Instituto Português do Mar e da Atmosfera ‑ IPMA. Maximum temperatures have increased by 1.6ºc over the past 40 years and summer has stretched by 6 more weeks in the north and centre of the country, as defined by the number of days with temperatures above 25ºc. This trend has been less pronounced in the south. There has also been less rain leading to more frequent severe droughts.
For IRS declarations running from April through June, there are several updates to take into account in Annex B (freelancers), with more tables to complete: 17A, 17B, 17C and 17D. All are destined to declaring expenses and charges borne by the independent worker in the exercise of a business activity (income, electricity, water, transportation, communications and insurance, among others). They stem from modifications to the Simplified Regime introduced in the 2018 State Budget.
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%).
The government has reviewed the criteria for properties being considered “vacant”, which may imply an increase in IMI (Municipal Property Tax) by three to six-fold. The increase will occur when an abode is located in a “pressure zone” and has remained empty for more than two years. Lack of consumption of utilities such as water and electricity will be the prime indicators. Exempt from the concept of “vacant” are dwellings integrated in tourist developments or registered as Local Lodging as well as second homes not located in the same municipality where the owner is resident.
There are new deadlines for the payment of the Municipal Property Tax (“IMI”). Instead of running between April and October as before, tax settlement will take place between May and November in 2019. “IMI” is paid in one go or in several instalments, depending on whether taxation is less or greater than €100. May is the month for single assessments when the tax due is under €100; or for the first instalment, in cases where the amount owed is greater. Second payments are in August when “IMI” exceeds €500. Finally, November is for final payments when taxation falls between €100 – €500 or third instalments if the levy is greater than €500.
More than 90% of the taxpayers requesting a reassessment of their property based on an outdated “VPT” (Tax Asset Value) achieved a reduction in the “IMI” due (Municipal Property Tax). Properties were overvalued by more than €447 million. Updating the VPT (on which the tax rate applies) does not happen automatically. Legislation permits owners to call for a reappraisal three years after the previous one. This request – which is free of charge – can be made directly at the local tax office or via the Finanças Portal.
In 2019, the value per square metre for real estate rose from €603 to €615 per m², an amount that had not changed since 2010. This criterion is key in determining a property’s Rateable Value (“VPT”) and consequently the value of “IMI”. The amount due is fixed by factors such as location, condition, quality, size and age of the property. These coefficients are updated every three years at which time a revaluation of the property can be requested. The final “IMI” due is determined by the tax rate established by each Municipality between 0.3% to 0.45% for urban buildings and 0.8% for rustic land.
Established in 2017, “AIMI” is a supplementary property tax assessed on higher valued properties, based on the sum of all taxable “urban” real estate (“VPT”). This incremental levy is sometimes euphemistically referred to as a Portuguese Wealth Tax. Urban properties classified as “commercial, industrial or service” and “other” are exempt.
In 2019, AIMI rates are as follows:
Companies (non-residential use by owners/directors; otherwise same as Individuals):
0.4% for total of rateable urban “VPT”s;
Individuals (for couples, double exempt value):
0.7% When the total “VPT” value of all properties is between €600,000 and €1,000,000;
1% For “VPT” real estate totals between €1,000,000 and €2,000,000;
1.5% For “VPT” total exceeding two million euros (new in 2019).
Assessment of the Additional to IMI is calculated in June referring to real estate holdings on 01 January of each year. Payment is due in September.
The transition of Jersey, Guernsey and the Isle of Man off of the EU “grey” list follows legislative changes that strengthen tax transparency in these Crown Dependencies. The actions include the implementation of disclosure rules of investors’ tax residency related to the enforcement of the Common Reporting Standard as well as the sharing of beneficial ownership information with national registries.
As with other policy areas, one of the fundamental purposes of the EU Blacklist is to harmonise and replace sometimes contradictory member state practices. Although it has as yet to be defined when the EU-wide transposition to national legislation will be put into place, recent experience points to a quicker response than in the past.