While there were only minor changes to income tax this year, Portugal has introduced a new wealth tax from 2017 which could affect you if you own a property in Portugal.
It is important to review your tax planning from time to time, to check that it is up to date with the Portugal tax reforms over recent years as well as international developments that may affect you. You also want to make sure you are using the opportunities available in Portugal to reduce tax liabilities for yourself and your heirs.
A year ago there was speculation that the new socialist government could introduce an inheritance tax. This has not happened, but a ‘wealth tax’ on property was introduced instead, which affects properties or a financial interest in them worth over €600,000.
Income tax and surcharges
The personal income tax bands have increased slightly since last year, though the tax rates themselves remain the same. The 2017 tax rates are:
| Income |
Tax rate
|
| €0 – €7,091 |
14.5% |
| €7,091 – €20,261 |
28.5% |
| €20,261 – €40,522 |
37% |
| €40,522 – €80,640 |
45% |
| Over €80,640 |
48% |
The surtax introduced under austerity measures will be phased out during 2017. Individuals who pay Portugal tax under PAYE will cease to pay surtax at different stages in the year, depending on their income level:
| Income |
Tax rate |
Surtax payable until |
| Up to €7,091 |
0% |
|
| €7,091 to €20,261 |
0.25% |
31 March 2017 |
| €20,261 to €40,522 |
0.88% |
30 June 2017 |
| €40,522 to €80,640 |
2.25% |
30 September 2017 |
| In excess of €80,640 |
3.21% |
30 November 2017 |
If you are not subject to PAYE but receive, for example, pension and investment income, you are subject to surtax at the above rates until 31st December 2017.
The additional solidarity tax applied to individuals with higher income (2.5% on income over €80,000 and 5% over €250,000) continues to apply.
Investment income
As previously, interest and investment income is taxed at a flat rate of 28%. If you are resident here you can choose to be taxed at the scale rates above instead, if this more beneficial.
If the bank account or investment is in a jurisdiction on Portugal’s blacklist of ‘tax havens’, income is taxed at a higher rate of 35%.
Non-Habitual Residence regime
Portugal’s NHR regime remains in place, providing new residents with very attractive tax benefits for their first 10 years. If you are not yet resident in Portugal, seek advice on how you could use this regime to your advantage.
Portugal wealth tax
Portugal introduced a form of wealth tax in the 2017 state budget. The method of introduction has been to include it within the current IMI system as an additional tax for higher-value properties. The official name of this new tax is “Adicional Imposto Municipal Sobre Imóveis” (AIMI).
It is an annual tax, charged on the “Valor Patrimonial Tributário” (VPT) value of Portuguese situs real estate, regardless of where the owner is resident. You are liable if your property (or share of a property) is worth over €600,000. Married couples/civil partners can have a combined allowance of €1,200,000.
The tax rates are –
- 0.4% for properties held by companies/corporate structures
- 0.7% for properties held personally or by un-administered estates up to €1,000,000
- 1% on the value of the holding in excess of €1,000,000
The €600,000 allowance is available for individuals and estates, except for those tax affairs are not in order. Some companies are not eligible, for example where less than half their activities are agricultural, commercial or industrial, property-dealing companies, and those incorporated in tax havens.
Property used in tourism or for commercial, industrial or agricultural purposes is exempt.
This tax can be offset against any income tax payable on rental income from a property, provided you pay tax at the progressive rates. It can also be offset against a company’s corporation tax liability on rental income.
Trusts in Portugal
There are no changes this year to the tax treatment of trusts in Portugal. Since January 2015, Portugal taxes distributions from fiduciary structures such as trusts and foundations made to individuals resident in Portugal.
There can still be good value in a trust – they remain very effective for estate planning purposes. However, if and how you should use a trust, and how you combine it with investment arrangements for an income and gains perspective, depends on your specific circumstances and objectives.
Blacklist
From 2017, Portugal’s official blacklist is no longer the sole source of determining whether a jurisdiction is blacklisted. Now, where the rates of tax levied in a jurisdiction are less than 60% of the equivalent Portuguese tax rate, the jurisdiction may be deemed to be blacklisted.
This could affect you if you own a Portuguese property through a company since the entire value of the property would be subject to the new wealth tax, with no allowance. If the company is wound up and the property distributed to a Portuguese resident, it would liable for 35% corporation tax.
Your estate planning, tax planning and investment planning should be considered together. You should have a tax informed investment strategy, based on a thorough understanding of the tax landscape. Look to protect your wealth for the long-term, for yourself and your family. There are many opportunities available to residents of Portugal to help you do just that, if you take specialist and personalised advice.
Any questions? Ask our financial advisers for help
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 is advised to seek personalised advice.
