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IRS 2007 procedures Part Four


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IRS 2007 procedures Part Three: Non-residents and filing requirements

Dennis Swing Greene is Senior Partner and International Fiscal Consultant for euroFINESCO s.a

In this series of articles, we examine required procedures when declaring individual income tax (IRS) in Portugal:

1) Fiscal residency explained

2) Submitting your IRS declaration

3) Non-residents and filing requirements

4) Exemptions from filing

5) Marital status for IRS procedures

Before 1989, a conscientious foreign resident wanting to declare income from abroad would have been turned away at the local finanças office.

The reason was quite simple. Under the former tax code called “Complementary Tax”, only individual income derived in Portugal was taxable.

Therefore, most income from abroad was exempt.

Sadly, those days are long gone and all but a meagre few are expected to declare their worldwide income as fiscal residents of Portugal.

Questions and answers

Who is exempt from submitting a Portuguese income tax return?

All those with earnings in 2007 are required to submit a tax declaration with the following exceptions:

a) those who only have earnings subject to final withholding tax (except dividends) and accept the tax paid as final;

b) those receiving only pensions falling below the annual pension allowance – National Minimum Wage – 5,642 euros per individual in 2007.

The only income that I received in 2007 was from bank interest, taxed at source (20 per cent). Do I have to declare this income?

If the interest and respective withholding were in Portugal, no declaration is required.

Nevertheless, if your tax rate falls below 20 per cent, you may achieve a small savings in reporting and submitting a return. In other words, you may be entitled to a refund!

If the interest that you received came from outside of Portugal and you are resident for tax purposes, this income should be reported regardless of the withholding.

Beware: The EU Savings Directive came into force in July 2005 and has substantially changed reporting procedures. Make sure you declare correctly under these regulations!

My Old Age Pension falls below the Portuguese minimum wage. But I also had a small amount of income from investments abroad. Do I still have to submit a tax return?

Yes. The true purpose of this reporting waiver is to exempt the large number of small Portuguese pensioners who would only clog up the system without bringing in any appreciable income to the State’s coffers. All others must file.

In addition to the standard Modelo 3, any investment income from abroad must be reported on Annex J (Income from Abroad).

Even though I’m resident here, my pension is paid into the bank back home. Do I still have to declare?

Yes. Where your income is paid is irrelevant: neither where you receive it, nor if you spend it, nor the currency in which it is paid. What matters is that it is available to you. That’s what makes it taxable.

My bank interest is paid in GB Sterling. How do I report income in another currency?

All income and expenses must be reported in euros, regardless of the original currency of the transaction.

As a non-resident, I receive rental income in Portugal. Do I declare here or in my home country?

Both. Your first obligation is to Portugal since the property, and therefore the activity, is located here.

In accordance with the Double Taxation Treaty, you will subsequently receive at foreign tax credit at home before applying local rules.

Next article: Marital status – how to report

Private consultations can be scheduled at our offices in Guia (Albufeira), Lisbon (Chiado) and, starting January 2008, in Funchal (Sé), Madeira. In the Algarve, call 289 561 333, Lisbon at 213 424 210, Madeira at 291 221 095. Email [email protected]