Worldwide Individual Taxes Summaries——Portugal（2001-2002）
Worldwide Individual Taxes Summaries——Portugal（2001-2002）
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Portugal has instituted a simplified taxation system for independent workers and individuals with income from a commerCIAl, industrial, or agricultural activity and from intellectual rights.The definition of Portuguese-source income has been expanded to include remuneration borne by a Portuguese company or permanent establishment.New rules have just entered into force with regard to taxation of capital gains and company cars.Deductions have generally been replaced by a system of tax credits.
TERRITORIALITY AND RESIDENCE
For tax purposes, residents are taxed on their worldwide income at progressive rates varying from 12 to 40%. Nonresidents are only liable to income tax on Portuguese-source income, which now includes not only the portion of the remuneration that can be allocated to the activity carried out in Portugal, but also the remuneration that is borne by a Portuguese company or permanent establishment. Nonresidents are taxed at a flat rate of 25% on the above remuneration.A person is deemed to be resident in Portugal for tax purposes if:
1. More than 183 days in aggregate are spent in Portugal during the calendar year; or
2. Although the person spends less than 183 days in Portugal during a calendar year, a residence suggesting a habitual residence is maintained in Portugal as of December 31.
It should be noted that residence status applies for an entire tax year, which is the calendar year. Split-year residence is not possible under domestic law.Married couples are deemed to be resident taxpayers if one spouse is resident for tax purposes in Portugal.
Employment income/Employment income or remuneration is specifically defined in the personal income tax code and covers all payments in
connection with work carried out in Portugal, such as salary, bonuses, commissions, tax reimbursements, redundancy payments, pensions, allowances (e.g., cost-of-living and housing allowances), and benefits-in-kind (e.g., company cars), regardless of geographic source of payment.Domestic and foreign travel allowances in excess of those permitted to employees of state department are also taxable as employment income.
Mileage and lunch allowances within the thresholds established for employees of state departments are not taxable.
Benefits-in-kind/In general, benefits-in-kind provided by an employer are subject to income tax at the employee level. There are specific provisions on taxation of employer-provided housing or housing allowances and interest-free or law-interest loans.
The taxable benefit from the use of a company car is 0.75% of the acquisition cost of that car, multiplied by the number of months of use of the car. If the company car is then acquired by the employee, a further benefit-in-kind will correspond to the difference (if positive) between the average market price of the car and the total amount already taxed to the employee as a benefit-in-kind as a result of using the car.Pensions/The first PTE1,523,000 of pension income is tax exempt, unless
the total income exceeds a certain limit (approximately, PTE13,000,000-this limit has not yet been updated for 2001), in which case the exemption is reduced by the amount above the limit.
Termination of employment/Redundancy payments are taxable on the portion that exceeds one-and-a-half times the average remuneration paid during the last 12 months of service, multiplied by the number of years of service, unless a new employment contract or service contract is made with the
employer or a related person in 24 months from the date of termination of the employment contract.
Payments received by employees as a result of legal action (or a court-approved agreement) regarding the termination of employment can be taxed in the years to which they relate, to the extent that they compensate for income accrued but unpaid during those years.Capital gains and investment income/Fifty percent of capital gain on real estate is taxed as regular income unless the property sold is the taxpayer’s primary residence and the gains are reinvested in another residence in Portugal within two years of the sale, or during the 12 months
before the sale.Capital gains on the disposal of shares acquired after December 31, 2000 by residents in Portugal are taxable at progressive rates varying from 12% to 40% as follows.
1. Shares held for less than 12 months-75% of the amount.
2. Shares held for a period between 12 and 24 months-60% of the amount.
3. Shares held for a period between 24 and 60 months-40% of the amount.
4. Shares held for a period exceeding 60 months-30% of the amount.Capital gains on the disposal of shares by nonresidents are taxable at a flat rate of 20%.Capital gains lower than PTE200,000 will not be taxed. However, they should be considered for purposes of determining tax rate applicable to the taxable income.Gains from the sale of shares acquired before January 1, 2001, are taxable at 10%, if they have been held for less than 12 months and are otherwise exempt.Dividends from Portuguese-resident corporations are taxed at 25%, and a
further 5% inheritance tax is deducted at source.Withholding tax rates may be reduced under the terms of a double taxation
agreement concluded with Portugal.Interest income arising from current or saving accounts on Portuguese banks is taxed at 20% for both residents and nonresidents.Business and professional income/Income from a commerCIAl, industrial, or agricultural activity and income from a sole trader or from intellectual
rights (when earned by the original owner) may be taxed either in accordance with a new simplified regime or based on the taxpayer’s accounts.
The simplified regime will only apply to taxpayers who, not having opted for organized accounts, have a turnover lower than PTE30,000,000 or a gross business and employment income lower than PTE20,000,000. Under this simplified regime, 20% of income from sales of products or 65% of income arising from other business and professional services is taxed.
Rental income/Maintenance and repair expenses may be deducted from rental income, to the extent that they are duly documented. Municipal property tax paid with regard to the rented property may also be deducted against the rental income.
Pension income/Retired individuals entitled to pension income may continue to pay union fees to receive the benefits available to union members. Union fees (the part that does not constitute a direct contribution for health, education, elderly support, home, insurance, or soCIAl security benefits) may be deducted against pension income up to a limit of 1% of that income. This deduction is equivalent to the union fees increased by 50%.
Among the changes introduced by the 1999 Budget is that “old” deductions from taxable employment income have been converted into credits against the amount of tax due. Only alimony payments or other amounts defined by court order are still deductible from taxable income.The following tax credits are available for 2001 against the amount of tax due by an individual.
1. Personal tax credits:
a. Single person-PTE40,200;
b. Married couple (husband and wife)-PTE67,000;
c. Per dependent child-PTE26,800;
d. Per ascendent-PTE33,500;
e. Single parents-PTE53,600.
The above tax credits are increased by 50% for individuals with proven disabilities.
2. Health expenses:
a. A tax credit of 30% of nonreimbursed health expenses, if properly documented, including health expenses (exempt from VAT, or subject to VAT at a rate of 5%) incurred by the taxpayer and his or her spouse and dependents. The credit can also be applied to expenses incurred by the taxpayer’s ascendents with an income lower than the national minimum wage
(PTE67,000 per month) and interest on loans made to cover the expenses.
b. A tax credit of 30% of all other health expenses resulting from a medical prescription is also available, limited to the higher of PTE10,500 or 2.5% of these expenses.
3. Education expenses: 30% of all education expenses up to a limit of PTE107,200. This limit is increased by PTE20,100 per dependent where the number of dependent children who are studying is three or more.
4. Housing interest or rent: 30% of interest or capital repayments on loans made for acquisition of principal private residences or rental of a permanent house, limited to PTE101,000.
5. Life insurance premiums and contributions to complementary soCIAl security schemes: 25% of premiums with a limit of PTE10,500 for a single person and PTE21,000 for married couples.
6. Health insurance premiums: 25% of premiums with a limit of PTE14,000 for a single person and PTE28,000 for married couples. These limits are increased on PTE7,000 for each dependent child.
7. Contributions to individual retirement saving plans (PPR), educational plans (PPE), or individual retirement/educational plans (PPR/E): 25% of the above contributions with a limit of PTE112,250 per taxpayer, or 5% of the total taxable income, if lower. These limits may be increased to 5% for taxpayers between 35 and 50 years old, and 10% for taxpayers under 35.
8. Payments to Planos Poupanca em Accǒes (speCIAl saving plans in shares): 7.5% of the above payments, limited to PTE39,300 per taxpayer, on the condition that no reimbursements are made within six months after the payments.
9. Acquisition of shares at public offerings made by the Portuguese State: 5% of the acquisition cost of shares of companies being privatized until December 2002, up to a maximum of PTE34,100 for a single person, and PTE68,200 for married couples. For employees of the company being privatized, a tax credit of 7.5% of the acquisition cost with a limit of TE51,400 for a single person and PTE102,800 for married couples will be
10. Annual deposits in Contas Poupanca-Condomínio (speCIAl saving accounts used to fund the maintenance and repair expenses of commonly owned real property, e.g., apartment buildings): 1% of the taxpayer correspondent rated value with a maximum of PTE10,500.
11. Annual deposits in Contas Poupanca-Habitacǎo (savings accounts used to fund housing acquisition and maintenance): A tax credit of 25%, limited to PTE110,000 is allowed.
12. Acquisition of new equipment for the utilization of renewable energy: 30%, limited to PTE100,000. This limit may be increased to PTE120,000 if other equipment has to be acquired as a result of the acquisition of the mentioned equipment for utilization of renewable energy.
13. Acquisition of personal computers, hardware or software: 25% on the acquisition expenses, limited to PTE35,000.
14. Expenses with lawyers and other legal services: 20% of the above expenses, limited to PTE26,200.
15. Fees and expenses paid to retirement homes in respect of parents and grandparents whose income does not exceed the national minimum salary (PTE67,000 per month): 25% with a limit of PTE59,200. The combined amount of credits for education and retirement home expenses is limited to PTE136,000.
16. Donations to the central or local government or any government agency or body: Donations to a church, religious institution, charity, museum, school, library, or other recognized soCIAl welfare or cultural entity are offset by a tax credit of 25%, limited to 15% of the individual’s income
17. Double taxation on dividends: 60% of the corporate tax rate (currently, 32%) attributable to gross dividends received in a calendar year should be added to the total taxable income and deducted as a tax credit up to a limit not exceeding the portion of those dividends on the amount of tax due.
18. International double taxation: Tax credits are available on
Social security/SoCIAl security taxes are levied as follows.
1. Employee contributions:
individuals are subject to social security contributions on their gross income at 11%. These contributions cover family, pension, and unemployment benefits. Foreign residents may be exempt from social security in Portugal if they contribute to a compulsory security system in an EU country or a country with a bilateral soCIAl security agreement with Portugal.
An employee is entitled to an earned-income deduction of 70% of earned income (with a limit of PTE550,000), or of PTE578,880, or of the actual soCIAl security contributions, whichever is highest.
2. Employer contributions: In addition to social security contributions at a general rate of 23.75%, employers must contribute to an insurance fund for occupational accidents. These contributions vary according to work and risk classification.Note that members of statutory boards of companies are subject to different soCIAl security rates (10%, with respect to contributions due by the employee, and 21.25% regarding contributions due by the employer). The contributions of members of statutory boards are based on their effective