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Extra tax on individual income taxation

Christmas is coming, but there are some taxing issues that will represent a thorn in our sides and a drain on our wallets this month.

An extraordinary tax on individual incomes (IRS) was approved by Decree-Law nº49/2011, on September 7, applicable to all taxpayers living in Portugal.

This is meant to be an extraordinary and temporary measure adopted by the Government in order to consolidate the Portuguese public accounts.

Income earned as employees and self-employed, pensions, real estate and gains on the sale of property or shares are covered by this new extraordinary taxation. Even tips will be charged.

However, capital incomes are exempt from this extra tax, since they are already subject to a withholding tax rate, as well as bank interest, share dividends (if they aren’t aggregated) and company income (IRC).

How does this extra tax work?

The Decree-Law added some new articles to the Portuguese IRS Code governing the way this extra 3.5% tax is applied and also the proceedings to withhold it by the competent entities.

The tax is applicable to all 2011 incomes, considering already the tax deductions in the specific categories, on amounts exceeding the 2011 minimum salary of €485 per month.

The extra tax will be charged in two different phases:

1. This December, an additional 50% rate of the Christmas bonus or other additional benefit, which in Portugal we know as the 13th salary.

2. Then, in 2012, at the time you submit your IRS annual declaration, the extra tax due will be calculated and the authorities will notify you when and how to pay it.

The most affected are employees and retired people as they will feel the pinch of this government measure earlier.

Other important notes

If you miss payment within the legal period of time, that will be considered an administrative offence or a tax crime.

According to the Portuguese Law, tax administrative offences and crimes are considered to be those cases when someone misappropriates those amounts that must be delivered to Tax Authorities.

So, the law is now stating that the employer must withhold the amount of the tax at the time the payment of your salary is due. Nevertheless, if the employer misses that payment on time, she/he still being obliged to withhold and deliver the due amounts to the Tax Authorities…

Another important aspect concerns the possible unconstitutionality of this extra tax, implemented in September, as all 2011 incomes will be charged. Therefore, it is probably going against the non-retroactive effect principle in tax law laid down on the 103rd article of the Portuguese Constitution.

Despite all the financial problems that these recent governmental measures are bringing to our families, I wish all Algarve Resident readers a Merry Christmas and a Happy New Year.

Dr Eduardo Serra Jorge is founding member, senior partner and CEO of lawyers firm Eduardo Serra Jorge & Maria José Garcia – Sociedade de Advogados, R.L., created in 1987. He can be contacted at his Faro office at Gaveto das Ruas Pedro Nunes e José de Matos, 5 R/C, on telephone +351 289 829 326, Fax. +351 289 829 327 or email: [email protected]. Alternatively, please visit