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
The imposition of IMI and IMT for companies directly or indirectly based in so-called tax havens, approved in the State Budget, does not distinguish between the jurisdictions with which Portugal has double taxation (ADT) and information exchange (ATI) agreements from those in which complete opacity prevails in capital movements. Sovereign funds and other investors from Oman, the United Arab Emirates or Qatar as well as investors based in Hong Kong – all included in the list of tax havens but with ADT with Portugal – will be some of the hardest hit. The same happens with the Cayman Islands, Jersey, Guernsey, Isle of Mann or Panama, where the funds are established, which aggregate a large part of institutional investors worldwide.
Even in the year of the pandemic, many British nationals continue to seek out Portugal as a popular destination. The UK government has multiplied notices to UK citizens who reside in Portugal to have their documentation in order by 31 December. Currently, there are more than 50,000 British nationals residing in Portugal, ranking Portugal in sixth place behind Spain, Ireland, France, Germany and Italy. Official data in 2019 from the Portuguese Immigration and Borders Service (SEF) indicated there were 34,358 UK citizens officially residents in Portugal. SEF officials explain that from January to October 2020, a further 6,469 new Residency Permits were issued to UK nationals for a total of 40,827 current residents. Since 2016, the year of the Brexit referendum, 19,384 Britons registered in Portugal. Up until last October, the increase reached 111%.
The British embassy in Lisbon recognises that there are, in fact, many more Britons living in Portugal than the official figures would indicate. By the end of the year, many more are expected to register officially with SEF. What is certain is that now all will have to deal with the new bureaucracy necessary to remain in the country in January 2021 and beyond. At this point, the embassy also does not have definitive record of the number of British nationals who have already completed all the necessary steps.
At the top of the concerns of the British in Portugal are upcoming changes. One of the reasons for the aggressive advertising campaign to ask British citizens to take care of all necessary documentation is also due to Portuguese bureaucracy. There may be delays in scheduling services as well as problems in accessing services due to the pandemic. The embassy clarifies that Portugal does not oblige UK nationals to apply for a new residency status according to the current agreement. However, as there are many who are still unregistered, it is important that everyone needs to become compliant to protect their rights after the transition period at the end of December. In October, the embassy, in partnership with SEF, launched a joint campaign asking the British living in Portugal to register where they reside by the end of the year.
You can drive in Portugal with a UK driving licence until it expires. You must register your address in Portugal with IMT services within 60 days of settling in Portugal. The IMT online (Instituto da Mobilidade e dos Transportes – IMT) allows for the exchange of a UK licence for a Portuguese one. Even if you are unable to affect the exchange immediately, British citizens have 90 days after 1 January, so no road test should be necessary.
Another concern is access to the Portuguese National Health System. Coverage may be dependent on your residency status. If British nationals are registered as residents in Portugal, they should have full access to the Portuguese National Health Service (Serviço Nacional de Saúde, SNS).
British embassies are no longer involved if a passport expires. Renewal is now carried out online. The embassy warns that British citizens living in Portugal that they must have a valid passport after 1 January 2021.
The British Government has posted a dedicated website called “Living in Portugal” (gov.uk/livinginportugal or sef.pt/en). The embassy indicates that the Portuguese Government is responsible for implementing the Exit Agreement. British citizens are accountable for ensuring that they have their documentation in order before the end of the transition period.
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.
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.
The Banco de Portugal wants companies and shops to accept at least one form of electronic payment in addition to cash. With cash increasingly in decline, the covid-19 pandemic has only accelerated the digitalization of transactions, thereby increasing online consumption and the use of contactless payments.
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.
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.
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.
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
Under the final version of the 2020 State Budget, pensions will no longer enjoy full exemption from taxation in Portugal. Instead, pensions will be subject to a flat tax of 10%. A minimum levy of €7,500 had been proposed, but this measure was eliminated in the final version of the Budget.
by Suzana Horta Greene
Are you planning to fly with your pet to Portugal? TAP and some other airlines welcome dogs to travel in the cabin or the hold, as long as the owner provides valid documentation and the pet carrier is deemed safe.
Ticket: Regardless of the status of your dog, you must book your ticket with the airline directly (over the phone). You cannot purchase the animal’s ticket separately. If you are travelling with a Service Dog, you will have to provide a completed form from your personal physician that will be emailed to the airline prior to departure subject to approval. (Due to respiratory issues, flat-faced dogs are not permitted to fly).
Veterinary/USDA: You must book an appointment with your vet. They will facilitate the paperwork to be sent overnight to the USDA for approval. You will have to get a money order for USDA payment and include an overnight FedEx return envelope.
Carrier: You must have an airline-approved carrier, regardless of the status of your dog.
Customs: You will have to book an appointment with the custom’s vet in advance of arrival at Lisbon Airport. There will be a €40 fee.
We do not recommend procuring Emotional Support Animal (ESA) or Service Dog (SA) status if you intend to travel only once. The airline may prove difficult. You will have to pay for the certification and physician’s sign-off which is similar to the cost of the pet’s plane ticket.
Service Dog status: As there is no accredited entity that supervises Service Dog certification, this status will not be recognized in the EU. Furthermore, there is no legislation that covers ESA so the airline might still charge for the ticket. That said, you can always travel with your dog in the cabin (if the dog falls under the airline weight limit).
Note: To be able to have the dog travel outside of the carrier, it must have the appropriate training (be able to remain calm for the duration of the travel – no barking, no peeing, etc).
Currently, US nationals are not able to travel to Portugal simply on a US passport. If you are able to procure an exemption, you will not be allowed to travel with a pet in the hold (in-cabin only, in accordance with weight restrictions). Once the present travel ban is lifted, so will these limitations. If your pet is over the weight limit, it can be transported in the hold.
Advice on pet well-being
- Be sure to exercise your dog in advance of travel. Fortunately, the US-PT flights are overnight, so the dog should already be primed to sleep for the duration of the flight. If you travel from JFK, Terminal 5 has an outdoor dog run which is right by the Lisbon departure gate. It is well worth it to book this route as it is a long flight and your dog will be stressed from the check-in/security process. The flight itself is 6-8 hours depending on wind. If you add the travel to the airport, check-in and luggage claim, security at departure and arrival with the custom’s vet, the whole procedure adds up to ±12 hours.
- Do not feed your dog dinner (breakfast only). Use dinner as a slow-feed opportunity to calm your dog at take-off with any relaxation protocols you might already have in place. Toys and treats are very important for the duration of the flight. Bring a water bowl and allow for small amounts of water during the flight, as pets too get dehydrated. Be sure to manage intake since there will be no opportunity for pee breaks. Bring a pee-pad for emergencies to be used in the plane’s WC. It is highly unlikely that the animal will relieve itself in such an awkward setting, but if it is trained to go on command or it is clearly having trouble, this may be very helpful.
- If you opt to medicate your dog, be sure to do a trial run well in advance of your departure so that you can mitigate any adverse reaction with the assistance of your vet.
Suzana Horta Greene is a dual US/PT national and flies frequently with her dog.