IN ADDITION to routine reporting of income and expenses, certain events may affect all of us at some time or another.Let’s take a brief look at life’s special (and not so special) situations and the tax implications that may exist.
a) BIRTH and ADOPTION
What impact does the birth or adoption of a child have on my tax situation?
In the year of birth or adoption, you are permitted a tax credit equal to 40% of the National Minimum Wage. (40% X ¤4,872.14 = ¤1,946.86 in 2003).If the child in question has a 60% or greater handicap, this tax credit is increased to 50%.
What should I do first?
Parents should report the additional dependent to their employer so that adjustments can be made in withholdings from salary.
Are there any other tax breaks?
Yes. Medical expenses related to the birth are entitled to a 30% tax credit.
b) FIRST JOB
I am about to begin my first salaried job in Portugal.What do I need to do?
You must provide your employer with the following information:
a) marital status
b) number of dependents
c) your spouse’s earnings
With this information, your withholdings will be done correctly and you shouldn’t have any nasty surprises at tax time.
I am starting my own business.Is there anything I need to do to get started?
Yes. Before you are permitted to start your independent business activity in Portugal, you must register your business.
• This is done through the completion of a form called “Início de Actividade” at your local Finanças office via their computer system.You will also need to purchase an official Receipt Book (“Recibos Verdes”).
• Periodic declarations of “IVA”, or Value Added Tax, are also required.If you gross less than ¤9,975.96 annually, you are exempted from IVA reporting.Otherwise, you must declare on a quarterly (or monthly) basis.
•You will also need to register at the local Social Security office.However, this is only required in the first month of the second year of your activity.
What are the tax consequences of losing my job?
Obviously, the first consequence is the loss of salary income and no further withholding at source. No income, no tax. If you receive unemployment compensation, this subsidy is not taxed.If you are still unemployed at the end of the fiscal year, you will need to report you earnings up to when you lost your job.However, you may still take full tax deductions and credits for the entire year.
I got married last year.What impact does this have on my tax situation?
Shortly after the ceremony, you and your spouse need to report the change to your respective employers to bring withholding up-to-date with the new situation.
Your IRS tax return will now be joint.However, on this single return, you will each report your earnings separately.Expenses are normally reported together. You will benefit from the “marital coefficient” which should reduce your rate of tax.
I have been living with my boyfriend now for the last 4 years.Must we continue to file separate returns?
No. Couples co-habiting together for over two years may file a joint return.This applies to homosexual couples as well as heterosexuals.You will most likely benefit from the “marital coefficient” in reducing your rate of tax.
e) SEPARATION and DIVORCE
What tax changes occur in the year of divorce or separation?
The divorce/separation should be reported to your respective employers to alter tax deductions at source.
Remember, it is your status on 31 December that determines your situation for the tax year. You should each file separate returns for both income and expenses.You should each report your individual share of any joint income.
Upon the death of a spouse, what are the tax implications?
The death of a spouse must be reported in the tax return.The survivor submits a tax return, ticking the widow/widower box for marital status (section 6, box 2) and reports the fiscal number of the deceased in box8. Both incomes, as well as deductions and credits, need to be reported on the appropriate annexes.
In some instances, the estate may generate income prior to final resolution that will need to be reported as well.If there are complications or delays in the settlement of the estate, it is highly advisable to seek professional advice.
As of January 1, 2004, Gift and Inheritance Tax (“Sucessório”) was abolished. Gratuitous transfers between immediate family members (spouses, children, grandchildren, parents and grandparents) are tax exempt.All others are assessed a flat 10% stamp duty on the transfer.