Droit Fiscalité belge

Decree-Law nr. 249/2009, of September 23, has been published yesterday in the Diário da República, the Portuguese Official Journal.

It approves the Tax Code of Investment (“Código Fiscal do Investimento”), which, among other measures directed at improving Portuguese international competitiveness, creates a new Personal Income Tax (“Imposto sobre o Rendimento das Pessoas Singulares”, hereinafter “IRS”) regime for non-habitual resident individuals.

This status will be granted to individuals who become resident for tax purposes in Portugal starting from January 1, 2009 without having had this status in the five years preceding its acquisition.

Non-habitual resident individuals may enjoy such status for a ten year period, after which they will be taxed under the standard IRS regime.

Portuguese tax residence for IRS purposes, in a given fiscal year, may be acquired via a number of different ways, such as:

a)         Staying for more than 183 days in the Portuguese territory, whether these days are consecutive or not;

b)         If staying for a shorter period, having in the Portuguese territory, on the 31st of December, a dwelling under circumstances that lead to the presumption of an intention to hold and occupy it as a place of habitual abode; 

c)         Being, on the 31st of December, a crew member of a ship or aircraft at the service of an entity with residence, head office or effective management in Portugal; or

d)         Being a member of a household where one of the spouses is, on the 31st of December, a Portuguese tax resident.

The new tax regime targets non-resident individuals who are likely to establish both a permanent and a temporary residence in Portugal.

Therefore, the regime includes two different sets of rules, one of them applicable to foreign-sourced passive income, similar to non-domiciled taxation regimes such as the ones of the United Kingdom and Switzerland, and the other to active income, in this case encompassing income derived both from foreign and domestic sources, following expatriate, rectius impatriate, taxation regimes such as the ones existing in Spain and France.

Under the first set of rules, passive income derived by non-habitual residents will be IRS exempt (with progression) in Portugal, provided that it may be taxed in the source State under the rules of a tax treaty entered into by Portugal or, if no treaty exists, that i) it may be taxed in the source State according to the rules of the OECD Model Tax Convention on Income and on Capital, as interpreted according to the Portuguese reservations on its articles and observations on its commentary; ii) it is not considered to arise from a Portuguese source under the IRS Code territoriality rules; and iii) the source State, region or territory is not included in the Portuguese tax havens’ black list.

The regime requires only a potential liability to taxation in the source State under the rules of a tax treaty or of the OECD Model Tax Convention, no effective taxation being thus required. However, in respect of income deriving from pensions, taking into account its specific nature, this will not be the case. Actual taxation under the rules of a tax treaty or, in the cases where no treaty is in place, no connection of the income with the Portuguese territory under the territorial scope rules of the IRS Code, is required in order for the exemption regime to be applicable.

The passive income included in this regime comprises interest, dividends, capital gains and other income from capital, income from immovable property and pensions.

The second set of rules will be applicable to active income deriving from employment, independent personal services and also to royalties.

Under it, foreign-sourced employment income will be exempt (with progression) from IRS, provided that it is taxed in the source State according to the rules of a tax treaty entered into by Portugal or, if no treaty is in place, that it is taxed in the source State and that it is not considered to arise from a Portuguese source under the IRS Code territoriality rules. Income from independent personal services and royalties will be exempt (with progression) if it may be taxed in the source State according to the rules of a tax treaty entered into by Portugal or, if no treaty is in place, that i) it may be taxed in the source State according to the rules of the OECD Model Tax Convention on Income and on Capital, as interpreted according to the Portuguese reservations on its articles and observations on its commentary; ii) it is not considered to arise from a Portuguese source under the IRS Code territoriality rules; and iii) the source State, region or territory is not included in the Portuguese tax havens’ black list.

Effective taxation is therefore only required in regard of employment income. However, the independent personal services exemption will only be applicable to income derived from certain high value added activities of a scientific, artistic or technical nature, as defined by a Ministerial Decree still to be drafted.

Income deriving from employment or independent personal services of a domestic source or from a foreign source, but, in the latter case, not qualifying for the exemptions applicable under the first set of rules, will be liable to autonomous taxation at a special 20% flat rate and not to the general and progressive IRS rates (whose higher bracket is 42%), provided that it derives from high value-added activities of a scientific, artistic or technical nature.

Non-habitual residents deriving foreign-sourced income that will be IRS exempt under both these sets of rules will be allowed to opt, in its regard, for the credit method, the standard method for the elimination of international double taxation in Portugal. Whenever this option is exercised, the income will be taxed under the standard IRS regime, being liable either to progressive rates of up to 42% or to special lower flat rates, depending on its nature.

Additionally, non-habitual residents deriving income taxed at the special 20% flat rate may also opt for the standard IRS regime in its regard. However, individuals exercising this option and also earning foreign-sourced income eligible for the above mentioned exemptions should beware that it will imply that all of their income will be, in this case, taxed under the standard IRS progressive rates (no flat rates whatsoever being applicable), and that the credit method will switch-over (the exemptions therefore being lost).

It is expected that this new Portuguese tax regime for non-habitual residents will be effective in the attraction to Portugal of the high net worth individuals, increasing demand in the domestic market, and fostering increased fiscal revenue, namely in regard of real estate and consumption taxes, from individuals that otherwise would not be taxpayers in Portugal. Moreover, it should encourage the return of highly qualified Portuguese nationals currently domiciled abroad.

Further information :

Ricardo da Palma Borges

Specialist Lawyer in Tax Law by the Portuguese Bar Association LL.M.

ricardo@ricardodapalmaborges.com