Portugal tax considerations for 2019

To massively misquote the famous words of Benjamin Franklin: “In this world, nothing is certain aside from death, taxes and financial penalty for late or incorrect payment of taxes.”

And this is as true for the expat in Portugal as it is for the stockbroker in Stevenage. Here we take a look at some of your obligations in 2019 so you can be prepared. The following are some of the issues you should check and discuss with your tax adviser.

Income tax in 2019
Income tax thresholds in Portugal remain the same in 2019 as for 2018. This means that taxation bands are as follows:
▪ Up to €7,091: 14.5%
▪ €7,092 – 20,261: 28.5%
▪ €20,262–40,522: 37%
▪ €40,523–80,640: 45%
▪ €80,641+: 48%

Tax on your investment income
All income from investments – including dividends, shares, bonds, interest and capital gains – is taxed at a rate of 28%, while rental income attracts the same rate.

As a Portuguese tax resident, you can bundle your investment income with your other income and choose to have the scalable income tax rates applied instead of the 28% rate. However, bear in mind that if you opt for this approach, it will then apply to all of your income sources as well, so it is best to discuss your options with your financial adviser.

There is a separate 35% tax rate on investment income from tax havens which have been black-listed by the Portuguese authorities. Although the blacklist status of a jurisdiction is individually determined, any location with a tax rate less than 60% of the Portuguese equivalent is likely to suffer this fate.

Non-Habitual Residency (NHR) and tax
Despite frequent reports indicating its demise, Portugal’s Non-Habitual Resident regime remains in place. However, NHRs are still required to file an annual tax return detailing their worldwide income and expenses.

Those with NHR status are able to receive any UK-based rental or pension income tax-free in Portugal, with certain capital gains also qualifying for exemption. Non-Portuguese employment income is also exempt from tax under the NHR regime, while it may also be possible to structure interest and dividends in order to keep them free from tax liability in any country.

It is important to understand that the more assets and income streams you have, the more complicated it is likely to be in juggling multiple tax liabilities. As such it is important to seek professional and bilingual advice about how you can make the most of your NHR status. Also, NHR benefits only last 10 years; so, it is imperative that you plan how you will structure your wealth once your NHR status expires.

Your pension in 2019
NHR status can be the route to tax-free pension income for the first 10 years of your residency in Portugal. This means that unless you are the recipient of a UK government services pension (for example, an NHS or military pension), which remains taxable in the UK, you can access your funds without taxation either in Portugal or your home country. This fact can lead to significant savings.

There is some uncertainty regarding the status of lump sums taken from UK pensions. For example, if you withdraw an entire pension in fewer than 10 years, the money may be deemed to be investment income and, therefore, subject to either investment income tax of 28% or the relevant scalable rate. It is important to take independent advice in this regard.

Wealth tax in 2019
Portugal’s wealth tax, Adicional ao Imposto Municipal Sobre Imóveis (AIMI), is a property tax calculated on the ‘catastral’ (assessed) value of your property in Portugal, regardless of whether you reside in the country.

Portuguese real estate worth more than the €600,000 threshold attracts an annual rate of 0.7% – married and civil partners receive a combined threshold of €1.2 million. In 2019, there will be an additional 1.5% rate for properties worth more than €2 million.

Filing deadlines
The Portuguese tax year runs concurrent with the calendar year. Tax return deadlines are as follows:
– April 1 until June 30, 2019, regardless of the income category

If you fail to file your returns or are late or incomplete in doing so, fines of between €200 and €2,500 may apply, while late payments may be penalised at 10% up to double the tax’s value in addition to interest.

Portuguese tax returns can be submitted online and can be provided with an electronic invoice or receipt.

Blacktower in Portugal
Blacktower’s offices in Portugal can help you manage your wealth to your best advantage. For more information contact your local office.
The above does not constitute advice and guidance should be sought from an independent tax adviser before making decisions.

By Manuela Robinson
Manuela Robinson is the Joint-Country Manager of Blacktower in Portugal. With offices in Quinta do Lago, Cascais and representation in Madeira.
[email protected] | 289 355 685
Blacktower Financial Management (International) Limited is licensed by the Gibraltar Financial Services Commission. Licence 00805B. Blacktower Financial Management Limited is authorised and regulated in the UK by the Financial Conduct Authority.