|| IRS 2014 Procedures nº 2 – HOW, WHEN AND WHERE TO FILE

In the “good old days”, many were exempt from submitting IRS tax forms. However, the law changed some time ago and now the overwhelming majority of foreign residents must declare.

In the 2014 tax year, everyone is required to submit a tax return with the exception of those earning only Social Security pensions falling below the minimum wage.

No tax return can put you on the wrong side of the law and vulnerable to undesired queries.

If you are from a non-EU country, you will not be able to renew your Residência without one. For EU citizens, it’s only a matter of time before presenting your Modelo 3 is compulsory for renewals.

Important dates

All tax returns must be submitted by the following deadlines to avoid penalties.

Filing dates

The tax year corresponds to the calendar year (Jan 1 – Dec 31).

Residents must submit tax returns by the following deadlines to avoid penalties. Fines start at €150 and go up to €3,750, depending on the level of coerciveness required to achieve compliance.

Filing, both on paper and electronically, is as follows:

▪ March 15 – April 15 – if only salaried and/or pension income
▪ April 16 – May 16 – in all other cases

Also remember that the fiscal year in Portugal corresponds to the calendar year (Jan 1 – Dec 31). British nationals need to be especially careful since their April-to-April “P 60’s” will not correspond to the Portuguese fiscal year.

Where to submit your return

Declarations may be submitted in person at the local tax office, by post or over the internet: www.portaldasfinancas.gov.pt

The website and forms are only available in Portuguese. More and more services are becoming available online, such as checking the newly updated Valor Patrimonial (rateable value) of your home. Most business-related submissions can only be submitted over the internet.

Attention: Getting a password takes several days. This step should not be left to the last minute!

Tax forms keep changing and this year is no exception. Modelo 3 is now only an information cover sheet. Different categories of Portuguese sourced income are reported on the appropriate corresponding annexes.

Foreign income is reported exclusively on Modelo J.

All expenses have moved to Modelo H.

Net taxable income is calculated by reducing taxable income by personal deductions and tax credits. Certain types of income benefit from specific tax incentives. Tax liability is computed according to tax rate tables, reduced by applicable tax credits.

If non-residents are subject to withholding tax, this payment-at-source represents a final payment and they are not required to file a tax return. However, any other income arising in Portugal, such as rent or capital gains on Portuguese real estate, must be reported. In fact, your first obligation is to report the income and pay the tax in the country where it arises (in this case, Portugal), then report again in your home jurisdiction to claim the international double taxation credit.

When to pay your tax bill

Based on your submission, Finanças will calculate what you owe and send a demand later in the year. Income tax is due within 30 days of the issue of a demand by the tax authorities. Late payment will incur monthly interest charges and penalties.

By Dennis Swing Greene
|| [email protected]

Dennis Swing Greene is Chairman and International Tax Consultant for euroFINESCO s.a.