By: DENNIS-SWING GREEN
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
Non-residents are taxable on income and gains within Portugal. When the paying entities are resident or assets located within or services performed in Portugal, then the following examples of income would need to be declared:
• local rental income;
• capital gains on sale of shares;
• capital gains from property sales;
• fees from scientific, artistic or specialised services;
• administrator/director’s fees from resident companies;
• domestically sourced pensions;
• lottery winnings.
Employers should deduct tax at source on earnings. This withholding is final, unless governed by specific treatment under a Double Taxation Treaty.
On all sources of income, proof of tax paid is required when transferring the proceeds outside of Portugal.
Questions and answers
I am only a visitor to Portugal (less than six months per year) but rent out my flat when I’m away. Do I need to declare this income in Portugal, even though I report it on my tax return back home?
Yes. Your first obligation is to settle up with the tax authority in the country where the income is generated.
As such, non-residents are taxable on income arising in Portugal, usually at the flat rate of 15 per cent.
Once declared and paid in Portugal, this tax should be eligible for a tax credit in your home jurisdiction, thus eliminating double taxation.
Although I don’t have income in Portugal, I want to open a bank account here. Do I need anything special?
Yes. In order to open a bank account, you need to have a fiscal number. In fact, fiscal cards are a prerequisite for most official acts in Portugal. In order to obtain your tax number, you will need a fiscal representative.
Fiscal representation
Non-residents sometimes wonder why they must have fiscal representation. First and foremost, it is a legal requirement.
Any non-resident owning property or with income arising in Portugal must designate a resident entity to serve as fiscal representative to fulfil all compulsory tax obligations.
Recent changes in legislation have dramatically altered the responsibility and obligations of the fiscal representative.
Along with new responsibilities and revised enforcement practices, this once benign position has turned into a potential nightmare for both the unwary service provider and the non-compliant property owner.
A fiscal representative is now required to fulfil all accessory fiscal obligations for the non-resident.
Under the reformed version of the General Law on Taxation, a fiscal representative can even be held accountable, in certain instances, for paying any outstanding taxes owed by the non-resident.
Next article: Exemptions from filing
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]
