IRS 2014: Procedures: nº4 – Filing Exemptions

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 exempted from submitting a Portuguese income tax return?

All those with earnings in 2014 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 – €7,070 per individual in 2014.

The only income that I received in 2013 was from bank interest, taxed at source (28%). 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 28%, 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 has been in force since 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.

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

Possibly both. Your first obligation is to Portugal since the property, and therefore the activity, is located here. The appropriate Double Taxation Treaty defines the procedures to follow in your country of residence.

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