The Portuguese draft state budget (DSB/2022) has been released by the newly formed government headed by Prime Minister Antonio Costa.
As the government now has an absolute majority, it is unlikely there will be any significant changes to the proposed budget before the final, approved version.
This year will see a significant implementation of the Recovery and Resilience Plan (RRP), with GDP (gross domestic product) in volume expected to be higher than before the pandemic. However, the upsetting events that continue to unfold in Ukraine will undoubtedly impact public finances.
What is the current landscape for expatriates living in or moving to Portugal?
The Socialist Party support the immigration of foreign nationals, believing them to be necessary for sustaining the economy and developing positive change in demographics. Therefore, the party has declared their intention to continue with progressive immigration policies that reflect the values of ‘tolerance and openness’.
A decision has been made to replace the Portuguese Foreigners and Borders Service (SEF) with the Portuguese Agency of Migration and Asylum (APMA), which will serve a more administrative function than one of law enforcement.
The government has also announced plans to create an intuitive digital platform for immigrants in order to reduce the bureaucracy of Portuguese administrative functions. This would include simplifying the types of visas available and the complexities involved in their application, ensuring the whole immigration process runs much more smoothly.
What are the main tax changes to expect?
Short term capital gains – Gains on assets that have been held under 12 months, known as short term capital gains, will now be included in your income tax return and taxed at scale rates if the taxable income is higher than €75,009 (the revised highest tax threshold).
The proposal would include gains from tax havens, meaning the rate will increase from 35% to 48% (or up to 53% if the income exceeds €250,000). If you have elected for a flat 28% tax on withdrawal fees from a life insurance policy, you should not be particularly affected by this new measure.
Learn more about capital gains tax in Portugal.
Returning residents regime to continue – This was a provision introduced in 2019 and applies to individuals who have previously been a resident of Portugal.
The regime provides a 50% reduction in employment/self-employment taxes and social security. The current proposal is to extend the ‘returning residents’ regime until 2023.
Gifts of movable assets fall into line with Portuguese real estate – Gifts of land are subject to an anti-avoidance rule for onward gifts. As the gift of land is not subject to capital gains tax, but to stamp duty, which is exempt between families, the recipient’s base cost for the gift is the value of the stamp duty. This could be compared to council tax in the UK.
The draft budget proposes extending this rule to shares and other movable assets for two years after the gift, which aims to prevent gifts from being made for recipients to avoid or mitigate the tax on capital gains.
New income tax scale rates –
|Taxable income €||Tax rate %||Band||Tax on band||Cumulative tax
|0 - 7,116||14.5%||7,116||1,032||1,032
|7,116 - 10,736||23%||3,620||833||1,865
|10,736 - 15,216||26.5%||4,480||1,187||3,052
|15,216 - 19,696||28.5%||4,480||1,277||4,329
|19,696 - 25,076||35%||5,380||1,883||6,212
|25,076 - 36,757||37%||11,681||4,322||10,534
|36,757 - 48,033||43.5%||11,276||4,905||15,439
|48,033 - 75,009||45%||26,976||12,948||28,387
Cadastral tax value – When a property is sold at a significantly higher price than the cadastral value, tax authorities will update the cadastral value to align with the increased price, rather than retaining the old one.
Portuguese Golden Visa – There are no current plans to abolish the Golden Visa. Real estate investment is the most common route to acquire residence this way, provided the property costs:
- At least €500,000, or
- €400,000 for property located in a low-density area, or
- €350,000 for real estate that is over 30 years old, located in an urban rehabilitation area and you renovate it.
These sums can be divided between multiple properties, so long as the minimum required amount is met. Note, however, that properties in the Algarve, Lisbon, Porto and Silver Coast no longer qualify for the Golden Visa. There are also other qualifying investments with their own minimum investments.
Tax planning for Portugal
Reviewing your financial planning to ensure everything is optimised for your family’s circumstances and goals is a sensible course of action.
The way you structure your assets and wealth can make a big difference to your tax bill, and Blevins Franks offer personalised, cross-border advice to make sure you make the most of tax-efficient opportunities and secure financial peace of mind in Portugal.
Contact Blevins Franks today.