Fiscal advantages related to different type of incomes
Firstly we should classify weather the incomes under analysis are obtained in Portugal or abroad.
Income obtained in Portugal:
The holder of incomes of dependent and/or independent work will benefit of a reduced tax of 20%, considering that such income is a result of activities of high value as defined by law, which consist of activities essentially with a scientific, artistic or technical scope, such as:
- Architects, engineers and similar technics;
- Plastic artists, actors and musicians;
- Auditors and fiscal consultants;
- Clinicians and dentists;
- University teachers;
- Liberal professions, technical professions and similar;
- Board members;
- Investors, managers and administrators;
- Creators of companies in Portugal;
Besides the special applicable rate (od 20%), there is the possibility of incidence on the income of an extraordinary overtax of IRS of 3,5%.
Other type of incomes obtained by RFNH (Non-Habitual Fiscal Resident) will be taxed by the general and progressive rates of the IRS (until 48%), to which will add the extraordinary overtax of 3,5%, which will apply to the value of the remuneration which exceeds the minimal guaranteed income, and the solidarity additional tax, applicable on a progressive manner to the part of the collectable income which exceeds 80.000 Euros. The part of the income which exceeds 250.000 Euros will be taxed at a 5% rate.
In certain situations, the received income are subject to special taxes or liberating taxes, which can result in an lower taxation to the IRS progressive rates. As an example, the interest, dividends and capital gains, taxed at a 28% rate.
There are many situations which require a separate appreciation:
Professional income and Royalties
The income from dependent work obtained abroad is exempt from IRS, as long as they are effectively taxed in the source State, in conformity with the double-taxation agreement celebrated between Portugal and such State, or, in absence of a double-taxation agreement, this income is taxed in the source State and cannot be considered obtained in Portuguese territory, in accordance to the rules set by the IRS Code
The income from independent work resulting of activities of high-added value (or royalties), will both be exempt from IRS, as long as, alternatively, can be taxed in the source State, in conformity with when double-taxation agreement celebrated between Portugal and the State in question, or, in absence of a double-taxation agreement: (i) this income can be taxed in the source State, in conformity with the Model of Fiscal Convention on Income and Patrimony of OECD; (ii) the income is not considered obtained in Portuguese territory, accordingly to the IRS Code, and (iii) the country, territory or region origin of the income is not part of the Portuguese list of fiscal paradises (commonly known in Portugal as “black list”).
As stated above, it is key to distinguish: effective taxation OR mere subjection of the income by the source State. Meanwhile in the case of income from dependent work, the application of the exemption depends on the effective taxation of the income on the source State; in the case of independent work income, the legislator has conditioned the application of the exemption to the mere possibility of taxation of this type of income by the source State.
Regarding the real-estate gains: the majority of the double taxation agreements celebrated by Portugal sets the taxation of these type of incomes only by the State where the passive holder is resident, which annuls, by principle, the application of the IRS exemption.
Regarding passive income, such as interests, dividends or other capital income, rents and capital gains obtained abroad, these are exempt from taxation in Portugal since, alternatively they can be taxed in the source State, in conformity with the double-taxation agreement celebrated between Portugal and the state in question, or, in the absence of such agreement, these types of income can be taxed in the source State, in conformity with the Model of Fiscal Convention on Income and Patrimony of OECD; the income is not considered obtained in Portuguese territory, accordingly to the IRS Code, and the country, territory or region origin of the income is not part of the Portuguese list of fiscal paradises.
To this matter, and in what regards the taxation of the real-estate gains, it is important to underline that the majority of the double-taxation agreements celebrated by Portugal set that the taxation of these types of income are to be made uniquely by the state where the passive holder resides, which annuls, by principle, the application of the IRS exemption above.
It is important to note, since frequently questioned, that the Legal and Fiscal Portuguese system doesn’t impose any type of taxation over patrimony and fortunes.
Likewise, and in what regards the taxation of transmissions, namely by death (inheritance) or donation, they are exempt from “stamp duty” the transmissions in favour of the spouse or de facto union subject, descendants or ascendants (however, note that the “stamp duty” will always be applied to the transmission of real-estate property located in Portugal).