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Tax Return and Tax Status Q&A’s

You may remember a few months ago we asked the Pure Portugal community what questions  they had relating to tax and tax returns… Well it’s fair to say you all had a lot!! Thanks so much for your input!

We sent the questions off to Euro Finesco who are one of the accountants on our services directory and they kindly answered as many of them as possible. If you sent a question in and haven’t seen a reply below then it’s well worth emailing or calling them for advice and to see if the can help with you tax return.  Click here to contact Euro Finesco today!

What is the tax situation for a 77 year old whose only income is a UK pension
(and very small private one) when he/she becomes a permanent Portuguese resident?

Pensioners with no withholding tax at source and earning less than €8,500 are not required to file a Portuguese “IRS” declaration.

If my husband and I set up a small business (B&B) in Portugal, and have no other income, what would be tax situation?

You must register as Sole Traders as a tourist business activity and pay taxes under Category B.

Can Portuguese capital gains tax be used/offset to buy another property? Does it have to be in Portugal? Or any other EU states?

If you reinvest the proceeds of the sale of your principal residence, you will be granted rollover relief on the Capital Gains. If there is only a partial reinvestment, the relief is on a pro rata basis. Reinvestments are valid anywhere in the EU.

If I sell a property in the UK as a Portuguese resident with Non Habitual Tax status in place can the Capital Gain Tax liability be negated under the NHR structure? So far l have been told yes it can in full, no not at all and wing it and see if Portuguese and UK authorities communicate with one another regarding liability!! Can you give a definitive answer?

Under NHR rules, the terms of the Double Tax Treaty must be implemented to achieve tax exemption in Portugal. In practice, our experience has been the following: if there is CGT assessment in the UK, there will be no further levy under NHR in Portugal. However, if no tax is paid in the UK, the transaction will be assessed in Portugal. (Parenthetically, there are no definitive answers in taxation!)

Is it possible to add or change business activity categories after being granted Non-Habitual Residence status?

Yes, it is possible. In fact, unless you have one of the “high value” professions taxed at a flat 20%, NHR will not impact the taxation of your “normal” business activities.

If I live in Portugal & the only income I have is UK rental income which falls below the UK tax free allowance, do I have to complete a tax return in Portugal as well as in the UK?

Yes.  As a fiscal resident, you are taxed on your worldwide income in Portugal. To eliminate double taxation, Portugal grants an international tax credit for tax paid in the UK, and then assesses the rental income under Portuguese rules.

As US citizens what do we need to know? We made no US or PT income but think we need to do tax return anyway…we want to do the right thing.

Unfortunately, you have a double obligation. Based on your US nationality, you are always required to file a US tax return annually. As a Portuguese fiscal resident, you must also make a yearly tax declaration. Both are reported on worldwide income, not a remittance basis.

If I own land but nothing else, what is my tax situation in Portugal? I am not living on the land. Not living in Portugal. Just owning land.

Whether resident or not, you must pay “IMI” (Municipal Property Tax) on your land holdings.  As a non-resident, you are only taxable on Portuguese-sourced income such as Rent or Capital Gains.

Is there an IMI exemption in the initial years of NHR?

No.

I will have a private pension of approx £700 per month.  That is after paying UK tax. Would it be better to register the income before tax in Portugal and thus not pay UK tax but pay Portuguese tax which I believe is lower?

How you declare is not your choice; it is a matter of law. If you are a fiscal resident of Portugal, you must pay your taxes here.  However, to stop the withholding at source in the UK, you must complete a “DT” Form (read: double taxation), signed and stamped by the Portuguese authorities and delivered to HMRC.

How about fiscal partnership?  In NL my partner submits them together giving, fiscal benefits. How is that here in Portugal?

If you are a co-habiting couple (living at the same fiscal address for at least 2 years), you receive identical treatment to married couples including the same fiscal benefits.

What if I sell my house in Holland, become a resident in Portugal and wait a few years before buying a house here. How much tax would I have to pay over my savings at a Portuguese bank account?

28%. Taxation is at source done by the bank and the assessment is considered final.

I am new to Portugal but we are renovating a house to partially rent to tourists and to live in probably for 4 months a year.  Where do we pay the tax as UK citizens? InPortugal or UK or both? 

As non-residents, you must pay tax on your Portuguese-based holiday letting income in Portugal.

In Portugal, this activity is considered “business” income (from tourism), not “rental” income (from resident tenants) which is for longer term leases.

If receiving a UK government pension, such as NHS, do I need to submit a tax return? As I understand it, I believe I don’t…

First of all, NHS is NOT considered a “government pension” unless paid by a local council, which is usually not the case.  As a general rule, government pensions are taxed in the source country but must be reported in the resident country for determination of your final rate of tax.

I bought a holiday home in Jan 2017, I have heard that the government were trying to bring in a new law stating that any person with a property would have to pay a new tax. Do you know anything about this or any other tax that may apply to me other than the council tax equivalent?

In 2017, the Additional IMI tax was introduced for those individuals with properties having ratable values in excess of €600,000 (€1,200,000 for couples).  The new levy also applies to all property holding companies.

If you live in Portugal but don’t work and don’t receive pension yet, only live offsavings, do you still have to fill in a tax form?

Living off savings is only a transitional solution as the presumption is that your “savings” should normally generate taxable income.

I have my address in Portugal since May 2017, I receive a sick insurance from Belgium of around 900€ a month, I didn’t go to the Finanças yet to declare this, although I do have a Fiscal number, also I was abroad for several months that year, should I now declare myself?

If you spend more than 183 days in Portugal per annum, you are deemed to be tax resident in Portugal. If you qualify for disability benefits in Portugal, you will pay tax at a reduced rate. (Needless to say, there are several “hoops” to jump through in order to be eligible.) Regardless, 2017 will be a split tax year. You will only be liable for assessment in Portugal on your May – December income.

Would we have to pay capital gains tax on the sale of a Portuguese property if we reinvest in the UK – hopefully before Brexit goes into operation?

If you reinvest the full proceeds of the sale, there is not Capital Gains tax to pay. If the reinvestment is only partial, tax relief is on a pro rata basis.

All recommendations are made without guarantee on the part of Pure Portugal, the blog writer or finance companies who provided answers.

2 thoughts on “Tax Return and Tax Status Q&A’s

  1. Your Q&A about tax returns in PT states the following:

    Q: How much tax would I have to pay over my savings at a Portuguese bank account?

    A: 28%. Taxation is at source done by the bank and the assessment is considered final.

    I think you need to point out that this percentage is paid over the interest, not over the savings.

    1. Hello, thanks for your comment, it is a really tricky subject to answer tax related things as rules change per circumstance. I have attached here a link to a blog we did with an accountant we work with about tax questions which might help, otherwise I would definitely recommend contacting the accountant who helped with the blog – Euro Finesco, their link is also in the blog https://www.pureportugal.co.uk/blogs/tax-return-and-tax-status-qas/

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