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.
The guidelines of the Doctrine Declaration (“Ficha Doutrinária”) dated 04 December 2017 clarify tax liabilities based on nº 5 of article 81º of the IRS Code. Assessment of income from foreign sources classified under categories E (capital), F (long-term rent) and G (capital gains) earned by taxable persons considered to be Non-Habitual Residents follows the exemption method where the source country has the power to tax this income under the applicable Double Taxation Agreement. This rule infers that the tax exclusion does not hold for jurisdictions without such an agreement in place. Tax-exempt income must still be reported annually in Portugal to determine the final tax rate to be applied to total aggregate income subject to assessment.
Following the automatic IRS, the “AT” advances to automate VAT in three phases.
The Tax and Customs Authority has taken the first step in automating the VAT declaration, making available pre-filling of certain amounts in the fields related to “transfers of goods and services” with tax paid and those corresponding to “Tax in favour of the State”. Continue reading
Returning ex-residents will benefit from a 50% exclusion on earnings from salaried employment (Category A) and business and professional income (Category B). Only half of the income will be taxed under the proposed changes in IRS rules. According to the State Budget Proposal for 2019, this regime will apply for five years from the year in which the citizen meets the eligibility conditions. Any entity responsible for withholding income earned by returning former residents will be subject to a withholding tax on half of the attributed income, thus ensuring full application of the tax break.
After the hubbub of the summer, many Local Lodging owners wish to book long-term rentals to assure low-season occupancy over the quieter winter months. As always, there are pros and cons, particularly when distinguishing between long and short term lets is not always easy.
Reporting Long-Term Rentals
Under current legislation, bureaucracy has mushroomed in recent years for long-term rentals:
- a) Registration of Rental Contract – Mandatory Rental Contracts must be reported via Modelo 2. This form identifies the parties, the property, the price and the terms of the agreement.
- b) Stamp Duty – Stamp Duty is due on the rental contract at the rate of 10% of one month’s income. Every time there is a change in the contract, Stamp Duty must be paid again so automatic renewals, if appropriate, should be included in the original contract to avoid repetitive payment of tax.
- c) On-going Electronic Rental Receipts – Similar to Electronic Green Receipts, Electronic Rent Receipts must be issued in Portuguese in duplicate on a monthly basis via the Finanças Copies are issued to the tenant with a second copy retained for the landlord’s records.
- d) Annual Rental income summary – In the following January, landlords must declare an annual summary of rents received via Model 44.
- e) “IRS” Declaration – An annual personal income tax declaration will necessitate completion of Annex F. All claimed deductible expenses must be accompanied by original invoices that include both the name of the landlord and the corresponding tax number.
- f) VAT – On the positive side, long-term rentals are VAT exempt and require no VAT reporting, potentially saving time and money.
As a tourist accommodation, a Local Lodging unit must: a) be a furnished and equipped facility, b) be available to the general public, c) meet specific health and safety standards and d) limit stays to less than 30 days.
However, there is nothing improper about a guest checking out after a month, then checking back in for another 30-day period. If this procedure is adopted, the owner can continue the “AL” operation on a year-round basis, avoiding the additional bureaucracy associated with Category F. In addition, the on-going use of the property under Local Lodging avoids the overlap and potential contradictions of property usage in two distinct business categories within the same fiscal year.
Beyond Stamp Duty and VAT, the income tax calculation for each activity is substantially different. In Portugal, rental income is taxed residentially under Category F (Income from Immoveable Property) while Local Lodging is assessed commercially under Category B (Business Income).
For a Local Lodging activity, most owners are assessed under the “Simplified Regime” where they receive a flat exemption of 65% on gross income. Residents then add the remaining 35% to other taxable forms of income and are assessed at marginal rates. Non-Residents have the standard levy of 25%, leaving a final tax to pay of 8.75% of gross business income.
Under Category F (long-term rentals), Non-Residents are taxed at a flat 25%. Residents may elect to be assessed autonomously at a flat 28% or aggregate this income with other sources and be taxed at marginal rates.
There is no “one-size-fits-all” answer. Some owners will find rolling over a one-month winter “AL” let to be a straightforward solution. Others will be willing to endure the doubled-up bureaucracy of opening a new winter long-term lease as a solution that merits the extra time and effort. Faced with a difficult choice, professional guidance is always the order-of-the-day.
One of the flagship measures of the upcoming 2019 State Budget is intended to encourage emigrants to return to Portugal by granting a 50% discount on their “IRS” over the following 3 to 5 years. In addition, the proposal allows for deductions of associated expenses, such as the cost of the return trip and housing expenses. As part of a package of incentives targeting the relocation of young professionals back to Portugal, the proposal will embrace all those who left the country by 2015 and returning in 2019 or 2020.
The recent wild fires in Monchique have brought to the fore questions regarding charity donations to local “Bombeiros” and other solidarity organisations giving support to the victims of the tragic blaze. Tax Credits for all charitable gifts from individuals are based on the “Estatuto de Mecenato” (Patronage Statutes), allocating contributions according to the nature of the receiving entity. Many taxpayers easily overlook these deductions when completing their “IRS” declaration. The following guidelines clarify what you can deduct and how you should proceed.
The first thing to know is that not all contributions can be taken off your “IRS”. Donations can only be made to recognised entities with social, environmental, cultural, technological, sports and scientific interest. You can consult the list of approved charity organisations on the following website:
Only gifts to Portuguese registered institutions qualify for a tax credit. International organisations must have a registered office in Portugal to be eligible. Certain entities, such as the State and associations of local parishes and municipalities, need no formal approval.
It is possible to deduct 25% of the amount donated to social institutions, up to 15% of your total “IRS” tax due. With donations to the State, there is no upper limit. Depending upon the type of charitable institution, your gift will also be enhanced by between 10% – 40%. This attribution is made automatically, based on the recorded nature of each charity.
The institution receiving your donation must issue a receipt containing the following information: the name of the institution, its fiscal number (“NIF”), the amount received along with the name and “NIF” of the donor. At the end of the fiscal year, the charity declares donations received to the “AT” (Autoridade Tributária) to be registered in your favour. You should keep the receipt(s) as proof of your gift.
To receive a tax credit corresponding to your donation(s), find Table 6B on Annex H of the “IRS” return and use the correct code indicated in the instructions. There are several codes, so be sure to read them carefully.
Deducting charitable gifts on your “IRS” declaration is not the only way to be supportive. The assignment of a small part of your tax due is based on donating 0.5% of your total assessment due which goes to your chosen charity. This gift comes at no additional expense to you, the taxpayer. The half-a-per-cent can go to one of the many authorised entities which can be found through the following link:
To select a given institution, you must use table 11 of your Modelo 3 declaration, identifying the receiving institution by its Fiscal Number (“NIF”), and marking “X” in the box that says “IRS” and the type of institution.
By following the correct procedures, you can maximise the contribution advantages to your favourite charity while locking in valuable tax credits for yourself: indeed a win-win solution.
It is now possible to pay many of your taxes via direct debit. The levies currently available by this payment method are “IUC” (car tax), “IMI” (property tax), “IRS” (individual income tax), “IRC” (corporate income tax) as well as instalment payments. The new functionality can be found on the Finanças Portal in the area to query and pay taxes, by the app “Situação Fiscal” (Fiscal Situation) available for IOS or Android, as well as in person in “AT” (Tax Authority) offices around the country.
The “AT” (Tax Authority) plans to send access passwords by 31 March to those who reported their individual income tax return on paper last year. These taxpayers will receive notice that they will only be able to deliver their IRS over the internet this year. In 2017, there were still approximately 280,000 taxpayers who chose to buy and complete the various paper IRS forms out of a total of 5,600,000 submissions.