Non-residents and filing requirements

By DENNIS SWING GREENE [email protected]

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

This is the third article in the series examining required procedures when declaring Individual Income Tax (“IRS”): 1) Fiscal Residency

2) Submitting your “IRS” Declaration 3) Non-Residents 4) Exemptions from Filing 5) Marital Status 6) Tables of Progressive Tax Rates

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.

Non-residents and 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.

Regime for habitual non-residents

Foreigners and returning Portuguese emigrants who settle in Portugal after January 1, 2009 may be eligible for this new status.

This classification has certain similarities to the non-domicile status under UK and Swiss tax laws and hopefully may increase tax revenues by reducing tax rates.

The “non-habitual tax resident” may be allotted a flat 20% tax rate on Portuguese and foreign source employment and self-employment income.

To qualify, this income must arise from scientific, artistic or technical activity to be defined by the Finance Ministry.

The non-habitual resident may also be exempt from assessment on various forms of income originating outside Portugal if such income is subject to taxation at source under the terms of a double tax treaty and does not involve designated tax havens.

However, exempt income must be declared for purpose of establishing the tax rate to apply to any income taxed at marginal rates.

Next: Exemptions from filing

Dennis Swing Greene is Chairman and International Fiscal Consultant for euroFINESCO s.a.  Private consultations can be scheduled in Guia (Albufeira) on 289561333, by email at [email protected] or on the internet at www.eurofinesco.com
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