By: PEDRO SIMÕES
Pedro Simões is licensed in fiscal law and management, and is the Managing Director of ACOQ Consultancy Lda, based in Lisbon.
PORTUGAL AND the Algarve are major destinations for a number of foreign investments. Some of those investments are made by foreigners that come to live in Portugal but other investments are made by individual people or companies that are not resident in Portugal.
When you don’t live in Portugal and you want to buy a property here, you need to have a fiscal number.
The effect of being non-resident and the owner of a property in Portugal is that you will need to request a fiscal number in Portugal and to have someone or an entity to represent you to assist you on all fiscal matters.
This fiscal representative can/may be an individual or a company.
Let us now take a look at the tax implications of having income here.
When you own your own property and you rent it out but you live abroad, you have to pay 15 per cent tax on the rental income received in Portugal.
You do not have the option to deduct any kind of expenses.
Naturally, you will deduct the tax paid in your country of residence but be sure you understand what has been agreed between Portugal and your home country in terms of taxation.
Portugal has many agreements with other countries to avoid double taxation.
If you are the sole owner of a property in Portugal and you sell that property, you have to pay 25 per cent tax on the gain, which is the difference between the price you puchased it at and the price at which it was sold.
The Portuguese tax law gives you 50 per cent tax free on capital gains when you a sell a property in Portugal.
However, for non-residents there is no reduction.
A non-resident will pay on 100 per cent.
There was a dispute between a german lady (Mrs Hollmann) and the Portuguese tax authorities, with respect to her income tax from 2003.
The basis of assessment for capital gains in Portugal are different for residents and non-residents.
The dispute was resolved by the ECJ (European Court of Justice) last October and the non-resident (Mrs Hollmann) was considered to be in the same situation for tax purposes as a resident in Portugal.
The ECJ decision meant that Mrs Hollmann should be taxed only on 50 per cent as if she was resident in Portugal.
I do not believe that Portugal will change the law but there is a window for everyone that is in that situation to apply for “residency”.
On the other hand, if the property owner is not an individual, but a company, then the company will also need a fiscal representative and taxation is basically the same as for individuals.
However, the situation is different if the owner is an offshore company.
When a property is owned by an offshore company, even if the property is not rented, there is a tax to pay by the offshore company.
In those circumstances, there will be an income to be taxed, which is 1/15 of the fiscal value of the property.
Also, offshore companies need to have someone to represent them in Portugal to fulfill all their tax obligations.
However, if the offshore company can prove that the property is abandoned and not used by a local entity, it won’t pay any tax.
What is the function of a fiscal representative?
The fiscal representative is responsible to fulfil all fiscal requirements for the non-resident and will be the connection between tax authorities and the non-resident.
Also, it is not uncommon for the fiscal representative to be responsible for the payment of the taxes on behalf of the non-resident.
However, this is only possible when the fiscal representative is also the manager of the assets of the non-resident.
All correspondence between Portuguese tax authorities and the non-resident is through the fiscal representative, who is also able to assist the non-resident when any claim or request needs to be made by the non-resident.
In conclusion, fiscal representation is an activity that has a higher level of responsibility for the fiscal representative, as the filing of the portuguese taxes are slightly different than for the individual and can, in some circumstances, be more complicated.
For more information, please email [email protected], call 219 205 225 or fax 212 468 352.