Focus On Portugal

2011 saw the introduction of some tax rises for Portuguese residents as part of the austerity measures, and taxpayers are faced with some more increases this year. In Portugal, as el

2011 saw the introduction of some tax rises for Portuguese residents as part of the austerity measures, and taxpayers are faced with some more increases this year. In Portugal, as elsewhere in Europe, we may find that austerity measures are kept in place for longer than currently expected. Tax planning has become more important than ever if you want to protect your wealth from tax.

A new top rate of income tax of 46.5% was introduced last year for income over ?153,300 earned in 2011 and it remains in place for 2012. Previously the top rate was 42%.

A one off extraordinary 3.5% tax was also imposed on all personal income received in 2011, levied on taxable income over ?6,790 per person.

While this extraordinary surtax does not (so far anyway) apply to 2012 income, a new 2.5% additional surcharge has been introduced for taxable income exceeding ?153,300. This is applicable to income received in 2012 and 2013.

Portugal income tax rates for 2012

?0 to ?4,898 – 11.5%

?4,898 to ?7,410 – 14%

?7,410 to ?18,375 – 24.5%

?18,375 to ?42,259 – 35.5%

?42,259 to ?61,244 – 38%

?61,244 to ?66,045 – 41.5%

?66,045 to ?153,300 – 43.5%

Over ?153,300 ? 49%*

* including the 2.5% surcharge

A tax rise that will affect more people is the increase in the fixed rate of tax applied to interest income. This has increased from 20% to 25%, and to 30% where interest arises in a tax haven.

The flat rate of tax applied to the majority of investment income, including capital gains on shares and bonds and dividends, has increased from 20% to 25%. The new tax rate was originally going to be 21.5% but it was upped to 25% in December.

Besides the above tax rises on income, there are also measures to increase the municipal property tax Imposto Municipal sobre Im?eis (IMI). All urban properties are being revalued, the IMI rates are being reviewed and there will be a substantial reduction in existing IMI exemptions.

The tax measures in Portugal include a strategic plan to avoid fraud and tax evasion. This includes an increase in the statute of limitations in tax litigation from four to 12 years on deposit accounts and securities held in financial institutions outside the EU where the taxpayer has failed to declare them on his income tax return. Note that the Isle of Man and Channel Islands are outside the EU.

At Blevins Franks our goal is to help our clients minimise taxation and protect their capital. We have a team of specialists who keep a close eye on tax legislation in Portugal, the UK and other European countries, so we are always in a position to help our clients keep one step ahead of changes as much as possible. Contact us now to find out about tax saving opportunities in Portugal.

The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.