Income received by a resident is broken down into different categories: A) Salaries, B) Self-Employment, E) Capital, F) Property, G) Capital Gains and H) Pensions, and is taxable in Portugal regardless of its origin. For non-residents, only income actually arising in Portugal is subject to assessment.
A) Income from Salary (Category A)
Wage earners have little choice when it comes to submitting a tax return. Since tax on salaries is normally withheld at source, one of the main objectives in filing a tax declaration is to seek out ways to a refund. Before exploring deductions and tax credits, first it is essential to understand what constitutes taxable salary income besides what you receive in your monthly pay cheque.
Salaried workers must declare all forms of income as well as all goods and services paid for by the employer, such as:
▪ Commissions and prizes
▪ Subsidies such as: education grants, housing allowances, personal use of company cars.
Additional income in category A
The following are also considered to be taxable in this category:
▪ Tips and gratuities (taxed at a flat rate of 10%)
▪ Advances for pay or for non-reimbursed expenses
▪ Gains obtained from the sale of stock options
▪ Acquisition of a company vehicle at a reduced value
▪ Certain types of severance and redundancy payments.
The value of these benefits should be reported on pay statements and are subject to normal withholdings. Employers are required to provide employees with an annual statement by January 20, which must include the following information:
▪ Income tax withheld
▪ Contributions to Social Security
▪ Any taxable subsidies or support
Employer cost supports and subsidies above the following daily limits are also taxable:
meal subsidy € 4.27
meal subsidy voucher € 6.83
travel within Portugal € 69.19
travel abroad €100.24
travel by own car: (per km) €0.36
public transportation €0.11
taxis: one €0.35
three or more €0.11/each
Total gross annual salaries paid in Portugal, along with any withholding tax as well as related contributions to Social Security, are reported on Annex A. Use Annex J to declare wages and other income earned abroad.
Next: Self employment – the simplified regime
By Dennis Swing Greene
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Dennis Swing Greene is Chairman of the Board and International Fiscal Consultant for euroFINESCO s.a. | www.eurofinesco.com