CONSTRUIR PORTUGAL: tax perspective

CONSTRUIR PORTUGAL: tax perspective

by | May 29, 2024

The new elected government announced a set of measures to address the housing crisis. The new housing strategy (“Construir Portugal”) aims to provide an urgent response to difficulties in buying or renting a home.

In a nutshell, this proposal includes the following measures from a tax standpoint:

  1. Exemption from Property Transfer Tax (IMT) and Stamp Duty for individuals under 35 years old on properties up to € 316,000 (the value corresponding to the fourth bracket of IMT), who purchase their first property. The government expects to implement this measure from August 1, 2024;
  2. Reduction of VAT from 23% to the minimum rate of 6% for property construction works and rehabilitation, with limits based on prices. The government expects to implement this measure until the end of the legislative term;
  3. The end of the extraordinary contribution on local accommodation is also planned (“contribuição extraordinária sobre o Alojamento Local”).

For more information and assistance with taxes or real estate transactions, please contact us through geral@sbpslegal.com.

 

Rental income: tax deductions

Rental income: tax deductions

by | May 29, 2024

The deadline to file Portuguese personal income tax returns is June 30, and in this context, several issues arise as to the deductibility, for tax purposes, for tax purposes, for landlords, regarding net rental income obtained, and for tenants, related with rents paid under residential lease agreements.

Landlords

Owning a property comes with costs, even when it is rented out. For tax purposes, certain expenses related to the property can be deducted from the rental income, thereby reducing the amount of tax owed. All expenses effectively incurred and paid by the taxpayer to obtain or secure rental income may be deducted, including:

  • Insurance costs;
  • Property taxes;
  • Stamp duty;
  • Condominium fees;
  • Expenses for the conservation and maintenance works.

However, financial expenses, such as those related to depreciation, furniture, appliances, and items of comfort or decoration, as well as the additional municipal property tax, are not tax deductible.

Foreign rental income obtained by tax residents in Portugal follow the same rules, therefore deductions allowed under the legislation of the country from where it originates might not match Portuguese deductibility rules. 

If a loss occurs, the taxpayer can offset this loss against any rental income earned over the next six years. However, to take advantage of such loss, net rental income will be liable to progressive tax rates (up 48%, plus surcharges), instead of the standard flat tax rate of 25% (residential property).

Tenants

For tax residents in Portugal, 15% of the gross amount of rents paid by the tenant, for permanent housing purposes, can be deducted from income tax due up to a limit of € 600/year, which can be claimed upon filing the income tax return.

This deduction may reach € 900/year, depending on yearly taxable income.

For more information and assistance with taxes or real estate transactions, please contact us through geral@sbpslegal.com.

 

My visa is being rejected: what should I do?

My visa is being rejected: what should I do?

by | May 23, 2024

Receiving a visa rejection can be disappointing and very stressful, considering that you made your plans with the expectation of a positive decision, within a specific timeline, and several preparations are surely underway.

First of all, it is important to note that this rejection is not the end of your dream of relocating to Portugal, as it is in fact a notification, from the Portuguese Consulate, of the intent to reject the application, which should not be taken as a final decision.

Secondly, and equally important, under Portuguese law, before a final decision is issued, applicants always have a right to be heard, which translates into the ability to appeal this pre-decision within a deadline of 10 business days typically.

The appeal should be carefully prepared to address all the concerns and non-compliance issues the Consulate (or AIMA, who always reviews the applications) listed. A thorough review of the original application, to detect inaccuracies, mismatching or missing information or attachments is also crucial.

The submission of additional (or even repeated) evidence may be advisable as well, to ensure the success of the visa application, as it may simply be a case of a misfiled document.

Once the appeal is completed and submitted to the Consulate (or its VFS proxy), you need to wait for the final decision, which should take up to 60 working days.

What if the visa is rejected again?

Before resorting to the courts, Portuguese law foresees the possibility of challenging decisions through ex gratia appeals (appealing to the author of the decision) and hierarchical appeals (appealing to the hierarchical superior of the officer or department issuing the rejection decision – e.g. Ministry of Foreign Affairs in the case of the Consulate or Ministry of Internal Affairs in the case of AIMA). Alternatively, one can always reapply as there is no provision in Portuguese law that prevents it.

In the end, it is all about calmly and carefully reviewing the notification and drafting an appeal that checks all the boxes, but obviously getting legal assistance to help you navigate the process will reduce the risk and processing times, both when submitting the application or when facing a rejection.

For further information or assistance with preparing successful visa applications or in case of a rejection, please contact us at geral@sbpslegal.com.

 

Relocating to Portugal: D7 or D8 visa – which is best?

Relocating to Portugal: D7 or D8 visa – which is best?

by | May 23, 2024

Residence visas are meant for non-EU nationals intending to stay in Portugal for more than one year. This type of visa, valid for 4 months, grants legal entry into Portugal for the purpose of converting the visa into a residence permit valid for an initial period of two years, with the option to renew for an additional three years.

Within residence visa types, the D7 was designed for individuals who receive retirement pensions or other forms of passive income sourced abroad, including rents, dividends, interest, and royalties.

The D8 visa is intended for employees or self-employed individuals who work remotely for individuals or businesses based outside Portugal, deriving their primary (active) income from abroad.

To understand which is best, one should consider that the D7 requires proof of a passive gross monthly income of at least € 820 (circa USD 888) in total (e.g. rents plus a retirement pension) in the 4-6 months prior to the visa application, whereas the D8 requires proof of an active gross monthly income of € 3280 (circa USD 3550), on average, in the 3 months prior to the application.

However, the choice is not just about meeting minimum income requirements, but, more importantly, of being able to prove it to the satisfaction of Consulates and AIMA (AIMA stands for Integration, Migration and Asylum Agency) in Portugal.

Therefore, should someone earn both active and passive income, the decision should be based on the option offering the most favourable approval prospects, either because the income is higher and provable, or because it will enable a simpler, clearer or stronger application. Last but not least, the decision should also consider the tax implications of each of these visa routes.

For further information or guidance with preparing successful visa applications or for understanding the tax implications of relocating on a D7 or D8 visa, please contact us at geral@sbpslegal.com.

 

Moving your business to Portugal: Affiliate vs Branch

Moving your business to Portugal: Affiliate vs Branch

by | May 23, 2024

When deciding to move a business abroad, it is important to understand the main differences between an affiliate company and a branch in terms of power of direction and liability.

Affiliate companies (subsidiaries) may assume the legal form of a:

  •       Private limited liability companies (Lda.) with two or more partners;
  •       Single-member limited liability companies (Unipessoal, Lda.) held solely by one partner;
  •       Private limited liability companies by shares (S.A.), with a minimum of five shareholders.

Subsidiaries are independent legal entities and are therefore legally distinct from the parent company. 

The share capital is held mostly by the parent companies, who exercise a dominant influence, either because they hold a majority stake in the share capital or because they have more than half of the votes or may appoint more than half of the members of the management body.

Affiliates are subject to Portuguese tax laws and regulations, but the parent entity’s liability is limited to its investment in the share capital of the affiliate company.

In some cases, affiliates only provide services to the parent entity (intra-group transactions) under a service provision agreement (e.g. a development centre), in which case an adequate tax setup can be devised.

Branches, however, are not independent legal entities, being only an extension of the foreign entity. Thus, these develop the same economic activity as the foreign entity, who is fully liable in the case of debt or non-compliance by the branch.

The advantage of the branch is the free flow of capital between the branch and the head office, which is not deemed as profit distribution, but as an intra-corporate transaction.

 The branch can be named after the parent entity, but the name must include the expression “Representação Permanente” (permanent representation) or “Sucursal” (branch).

For further information or assistance with company incorporations and with the setup of subsidiaries and branches, please contact us at geral@sbpslegal.com.