PORTUGAL Law and Practice Contributed by: Miguel Durham Agrellos, Paulo da Rocha Pichel and Ricardo Pereira Amaro, Durham Agrellos
Some general tax principles may be singled out. • Deferral mechanisms – structures implemented should consider deferral mechanisms to avoid unnecessary realisation (investment funds, unit- linked insurance, holding companies). • Offset mechanisms – with the aim to maximise the offset mechanism, structures such as companies, funds or other collective investment undertakings may be considered. • Tax haven avoidance – Portugal regards a wide range of jurisdictions as black-listed, applying aggravated taxes to income obtained on or through these jurisdictions; therefore, re-domiciling or extin - guishing structures with connections to tax havens are matters of significant interest, which is highly relevant for immigrant families whose previous investment structures were planned in accordance with different jurisdictions (particularly UK non- doms and Latin American tax residents). • Compliance and exchange of financial informa - tion (particularly, the OECD’s Common Reporting Standard (CRS) and the US Foreign Account Tax Compliance Act (FATCA rules)). • Multi-jurisdictional approach – multi-layer protec - tion of taxpayers considering international protec - tion instruments (eg, EU law, double tax treaties, bilateral investment treaties). 1.2 Exemptions Although donations and inheritances are generally subject to a 10% tax rate, significant exclusions or exemptions apply. • In accordance with the territorial scope applicable, only events taking place in Portugal are subject to tax (such exclusion is particularly relevant for trans - national succession tax planning purposes). • Donations and inheritances are, in any case, tax- exempted between: (a) spouses or members of unmarried couples liv - ing under de facto relationships; (b) descendants; and (c) ascendants. • Under certain circumstances special exemptions may apply (eg, life insurance premium payments; payments from investment funds).
Even when exclusions or exemptions apply, a step-up in the assets’ value may occur. 1.3 Income Tax Planning In general, there are no step-up planning tools in the Portuguese jurisdiction. 1.4 Pre-Immigration and Exit Planning With regard to individuals intending to transfer their tax residence to Portugal, a prior analysis of their asset-holding structure is advisable, to ensure that it is tax-efficient and compliant with the Portuguese tax framework. This is particularly relevant given that Portuguese law includes specific provisions that may adversely impact pre-existing structures, such as the aggravated tax rates applicable to income derived from blacklisted jurisdictions and the potential appli - cation of the Controlled Foreign Company (CFC) rules. Individuals intending to transfer their tax residence to another jurisdiction should also take into account the potential tax impact of such a change. In this context, it should be noted that, as a general rule, Portugal does not provide for an exit tax, with the exception of unrealised capital gains arising from the holding of crypto-assets and corporate restructuring transactions subject to the tax neutrality regime. In addition, Portuguese citizens who transfer their tax residence to a blacklisted jurisdiction will continue to be deemed tax residents in Portugal in the year in which the change of residence occurs and in the four subsequent years, unless they prove that the change is due to valid reasons, in particular the performance in that territory of a temporary activity on behalf of an employer domiciled in Portuguese territory. 1.5 Taxation of Real Estate Owned by Non- Residents and Non-Citizens Three different taxes must be considered in respect of the taxation of real estate owned by non-residents and non-citizens: (i) municipal property tax levied annu - ally; (ii) real estate property transfer tax levied on the purchase of real estate; and (iii) PIT levied on capital gains obtained on the sale of real estate. Municipal Property Tax There are no major differences between residents and non-residents with regard to the municipal property
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