News

2011-12-15 - Summary of Portugal’s State Budget for 2012

Read the full document here

 

2011-12-15 - Social Security Changes

Contributory Code

 

 The basis for determining contributions to Social Security has several changes under the new code. The self-employed person can no longer elect which level is to apply. Contributions will be based on one twelfth of the relevant income of the previous.

The value of the relevant income is determined by the Social Security Administration based on the values unofficially declared for tax purposes in the previous year, which corresponds to:

• 70% of total services in the calendar year, and
• 20% of the total income associated with the production and sales.

The base will be set annually in October and will run for 12 months, determined by conversion of one twelfth of annual income as a percentage of the relevant IAS (Indexante dos Apoios Sociais). The value of the base is that of the income bracket immediately below.

Where a worker has Standard Accounting the relevant income is the amount of taxable income (if this is lower than that resulting from the above rules), while the minimum will always be the 2º level (IAS 1.5), i.e., in 2011, € 628,83. In the case of resumption of activity, Social Security contributions are fixed a level 1º (IAS 1.0 or € 419,22).

However, if the employed person starts or restarts their business and their relevant income is less than or equal to 12 times the value of the IAS (€ 5.030,64 in 2010) he may request as the base the value of one twelfth of that income, with a minimum of 50% of the IAS. This benefit has a maximum duration of three consecutive or non-consecutive years.

This code also sets some transitional rules for the progressive adjustment of the contributory base of independent workers. In September 2011 the Social Security Administration will determine the income to fix the base that will run from October of that year. If the base of workers determines higher than present, adjustment can be to the next level. In subsequent years, any increases are limited to the following level even if the increase is greater. These rules cease to apply once income matches the previous year.

The self-employed who on January 2011 are contributing based on twelfth of gross income with minimum 50% of the IAS, retain the right to maintain this contributory base.

This right shall expire at the request of the independent, from the year in which the relevant income of the worker equals or exceeds 12 times the value of the IAS, or the suspension or closure. Self-employed workers who, on 01 January 2011, are contributing at a higher rate can either maintain this level or request an adjustment to the appropriate level.

The accumulation of self-employment with another occupation

Employees who accumulate independent work with the same company or companies within the same corporate group must pay Social Security contributions at the same rate on the totality of the two incomes.

Self-employed workers who accumulate independent professional activity on behalf of others are only exempt from paying contributions, provided that both of the following conditions are met:

• the exercise of self-employment  and other activities are supplied to different companies and between them have not a relationship or group;
• social protection resulting from the conduct of activities on behalf of others must cover sickness, parenting, occupational diseases, invalidity, old age and death;
• the value of the annual remuneration considered for other social protection scheme is not less than 12 times the value of the IAS, or € 5.030,64.

 

 

2011-03-17 - IRS - Non “Residentes Habituais”

Introduction

This law, Decreto Lei n.º 249/2009, for the taxation of “residentes não habituais” came into effect on 1 January 2010.  It was approved by Parliament and published on 23 September 2009.  It was supplemented by Portaria n.º 12/2010 dated 7 January 2010 which defined the approved activities which can benefit from this new legislation.  Instructions were provided to the Finanças on 26 April 2010 in relation to the application of this law in practice.

This new law gives newcomers to Portugal the opportunity to be taxed in a manner different from other residents of Portugal if their earnings relate to certain scientific, artistic or technical activities carried out in Portugal and abroad.  The law has also been extended to investors, managers and administrators of companies which “add value” to Portugal´s economy.

Such newcomers will have the opportunity to apply for the “residente não habitual” status in Portugal.  This means that a person is resident in Portugal and thus has an obligation to report his earnings and thus pay his taxes here, as is the case for all other residents of Portugal.  However, specific categories of income will attract the option to be taxed at a flat rate of 20% for 2010, rather than under the usual progressive tax rates.

Purpose of the new legislation

This new legislation has been introduced to promote investment in Portugal by encouraging qualified persons with “know-how” to relocate to Portugal, and thus bring new economic projects to Portugal.  Such persons will provide “added value” to the economy in Portugal by working in Portugal, whether it be on a project basis or not, within their field of expertise. 

Who qualify?

A person would need to meet one of the following criteria in order to obtain the status of being “residente não habitual”:

1. It is applicable to newcomers to Portugal with specialist “know-how” related to one of the activities detailed in the following section, i.e. when a person first obtains their resident fiscal number, an application can be made to be classed as “residente não habitual”.  Under this option, a person would have no prior history of being a tax resident in Portugal.
   
   
2. If a person already has a fiscal number as a non-resident in Portugal, then when that person becomes a resident in Portugal, they can apply to be a “residente não habitual”.  However, that person must not have submitted tax returns in Portugal as a tax resident in any of the preceding 5 years.
   
   
3. Unfortunately, this option is not available to existing residents in Portugal who have a history of submitting tax returns in Portugal.

The application is valid for 10 years, with 2010 being the first year that a person can apply for this status and thus use it in their 2010 tax return.  There is, however, an exception for those who became resident between September and December 2009, they can also apply for this special status.

Should a person leave Portugal for a period of time and thus become non-resident in Portugal, then that person would not lose this status of being “residente não habitual”.  On their return to Portugal, they can recover this “residente não habitual” status for the remainder of the 10 year period. 

Activities that qualify

The sectors that qualify under this new legislation are:

• Industry
• Tourism
• Services related to IT
• Agriculture
• Investigation and development
• Production, news and information technologies
• Natural energy and environment
• Telecommunications

The following activities within these sectors qualify for this option:

• Architects
• Engineers
• Geologists
• Artists of theatre, ballet, cinema, radio and television
• Singers
• Sculptors
• Musicians
• Painters
• Auditors
• Fiscal consultants
• Dentists
• Medical analysts
• Surgeons
• Naval doctors
• General practitioners
• Physiotherapists
• Gastroenterologists
• Ophthalmologists
• Orthopedists
• Otolaryngologists
• Pediatricians
• Radiologists
• Other specialist medics
• University professors
• Physiologists
• Archeologist
• Biologists and specialists in life sciences
• Computer programmers
• Consulting and other activities related to information technology
• Management and operation of IT equipment
• Activities related to information services
• Data processing, hosting and other related activities, including WEB portals
• Activities related to news agencies
• Scientific research and development
• Research and development in relation to natural and physical sciences
• Biotechnology research and development
• Designers
• Investors, administrators, senior managers and managing directors of companies involved in the sectors detailed above

If a person´s income is related to one of these activities within one of the sectors stated above, then this income can be isolated and treated differently from income under the usual fiscal laws, which is taxed at progressive tax rates.  This applies to income generated in the capacity of being an employee, self-employed or company shareholder.

Taxation

The first tax year that this legislation can be used is the 2010 tax year.  Under this legislation, there is an option for income from the activities described above to be taxed at a flat rate of 20%. 

The “residente não habitual” taxpayer has a choice as to how their income is taxed, as follows:

1. All worldwide income generated from applying their “know-how” to approved activities set out above (including category A income which is from employment and category B income from self-employment) can be isolated and taxed at a flat rate of 20%.  This means, for example, that a person could live and work in Portugal, thus applying their “know-how” in Portugal, whilst still owning a company in the UK, from which they generate income also related to applying this “know-how”.  All this income can be taxed at a flat rate of 20%.
   
   All other income including bank interest from outside of Portugal, dividends, pension, capital gains, rental income and any other earnings will be taxed under the normal IRS regime using the progressive tax rates; or
   
   
   
2. Alternatively, only income generated in Portugal from applying their “know-how” to approved activities will be taxed at a flat rate of 20%.  Any income earned overseas from applying their “know how” can either a) be taxed under the normal IRS regime using the progressive tax rates (along with other income, such as interest, dividends, pension, capital gains, rental income and any other earnings) and credits given for any tax paid abroad, or b) declared, but not taxed, in Portugal and thus tax is only paid in the overseas country in which the income was generated.
   
   All other income including bank interest from outside of Portugal, dividends, pension, capital gains, rental income and any other earnings will still be taxed under the normal IRS regime using the progressive tax rates.

It is recommend that prior to choosing an option, tax simulations are prepared under both scenarios to determine which is the most favourable tax option.

 

The “residente não habitual” taxpayer will submit their tax return under Phase 1 or Phase 2 (depending on their categories of income), completing the usual annexes.  In addition, Annex L which relates to “know-how” income will need to be completed.  The “know-how” income will be split into the following categories:

• Income obtained in Portuguese territory, identifying whether the taxpayer was an employee, self-employed on the simplified or general system or a shareholder of a company.
• Income obtained from countries outside of Portugal.

On this annex, the taxpayer will choose whether they want the overseas income from “know-how” to be isolated and taxed at 20% or whether it is to be added to any other income such as dividends, interest, pension and capital gains and taxed under the normal IRS procedure, with credits for tax paid abroad given.

How to apply for this status

Although the law was effective from 1 January 2010, anyone who became resident in September 2009 onwards (when the Decreto Lei 249/2009 was published) could apply for this “residente não habitual” status.

There is no specific form to complete to apply for this status, as the request will be specific to the individual taxpayer.  The application has to be made in writing in a letter format, detailing the activity to be carried out and the capacity in which the taxpayer will operate.  The letter will also need to enclose the following information:

• Copy of residency certificate
• Copy of passport
• Copy of fiscal number showing the date the fiscal number was issued
• Copy of the Início de Actividade, if the taxpayer is to operate on a self-employed basis
• Copy of the Pacto Social, if the taxpayer is to operate through a company
• Cancellation of their tax residency in the last country in which they resided
• Proof tax submission in the last country in which they resided

The application can be submitted to the local Finanças, however, the local FInanças is not able to approve the request.  The application has to be processed and approved by the Central office in Lisbon.  If the application is successful, the central office will change the status of the taxpayer to “residente não habitual” on their online system.  The taxpayer can, therefore, log-on to the Finanças website to see what their approved status is.

Those wishing to apply for the 2010 tax year should do so as soon as possible, as the deadlines for submitting tax returns are 30 April 2011 for Phase 1 and 31 May 2011 for Phase 2.

Further information

This is the information that we have available to date.  We enclose a copy of the document that has been issued in Portuguese to the individual Finanças offices for your information.  If you have any questions or would like to know whether this new legislation would be of particular benefit to you, please do not hesitate to contact Georgete Klisiaris on (+351) 282 476 160.

 

2008-12-01 - REPORTING DATES AND PAYMENT

The tax year in Portugal is the year ending on December 31. Advance payments of tax are made as specified below. • 3 advance payments based on the tax paid in the previous year. The advances are paid in July, September and December. • A fourth advance payment of 1% of turnover must be paid by the date of filing the report. There are minimum and maximum amounts for the advance payment. • Individuals and companies are obligated to file financial statements by May 31 for companies, and by April 30 for individuals