By DENNIS SWING GREENE
IT MAY come as a surprise that filing a correct tax return in Portugal can actually save you money. Submitting a fiscal declaration is not synonymous with paying tax.
The Portuguese tax code offers generous allowances and unexpected exclusions on certain forms of income, broad deductions for numerous types of expenses and liberal tax credits for many examples of common expenditure. Many people find their tax burden in Portugal to be significantly lower than before. Note the following examples:
Pensions
In 2006, each pensioner has been entitled to a pension allowance of 7,500 euros. This means that a retired couple, after personal allowances, typically receives the first 20,000 euros of pension earnings free of taxation. In addition, by applying basic principles of elimination of double taxation, many pensions paid within the EU and beyond are entitled to an appreciable exclusion.
Rental income
A resident couple with 100,000 euros of income from rentals to tourists paid a grand total of 300 euros of tax in 2005. Non-residents enjoy a flat rate on rental income of only 15 per cent.
Dividends
Dividends paid by Portuguese companies, as well as those from any country within the European Union, are entitled to 50 per cent exclusion and are taxed on only half of their value.
Capital gains tax
On investment portfolios, assets held for more than one year are tax exempt. Short-term gains are assessed at the flat rate of only 10 per cent.
Roll-over relief
If you sell your principal residence and fully reinvest the proceeds in a new abode, the capital gain is exempt. This is soon to be extended to new home reinvestment anywhere in the EU.
Medical expenses
Receipts from medical expenses are eligible for a 30 per cent tax credit. The same is true for education and housing costs, including rent.
Renewable energy
Tax credits will pay for up to a quarter of the cost and installation of a solar hot water heater or a wood burning stove.
Nominee companies
If you purchase property for investment purposes, using a Portuguese nominee company, your eventual capital gains tax rate will drop by 2.5 fold. Even better, the buyer will be exempt from property transfer tax as well. A win-win solution for all concerned!
Inheritance tax
Portugal abolished inheritance tax as of 2004. Transfers to immediate relatives (spouse, children, grandchildren, parents and grandparents) are tax exempt. All others pay only 10 per cent stamp duty.
These and other benefits are guaranteed under current legislation. It is your right as a citizen and taxpayer to take maximum advantage of these tax breaks. Who knows? Portugal may prove to be a legal “tax haven” within Europe for you.
To help you get started on the right foot in Portugal, euroFINESCO offers the Year One Package, covering everything you need to make the transition to becoming fiscal resident in Portugal, from your first Portuguese IRS submission to your refund from your home jurisdiction. It is our goal to help you become fully compliant yet simultaneously pay as little tax as is legally possible.
Dennis Swing Greene is an International Fiscal Consultant and Senior Partner at euroFINESCO. Private consultations can be scheduled at our offices in Guia (Albufeira) on 289 561 333 and in Lisbon (Chiado) on 213 424 210, via e-mail: [email protected], or on the internet at www.eurofinesco.com
