Tough economic conditions in Portugal – as in much of the Eurozone – caused the government there to raise a number of taxes this year.
Article written by The Overseas Guides Company
We thought it was time for a friendly reminder about what taxes you might be liable for as a second homeowners or resident, so here expat Ben Taylor, writer of the PortugalBuyingGuide.com, enlightens us…
“Matters of taxation are inherently complicated, so I’ll start with the one most important piece of advice I can provide: find a good accountant. While there are plenty of perfectly decent accountants in Portugal, there are far fewer who fully understand all the taxation issues that affect expats or second homeowners. You really need to find someone who understands the tax systems in Portugal AND the UK – so ask around for recommendations. On a personal note, we saw three accountants before we found one with the knowledge to manage our affairs.
“Remember, everybody’s tax situation is unique and for every seemingly hard and fast rule, there are countless exceptions and grey areas, which is why, once again, I will emphasize the importance of a good accountant.
“When it comes to income tax, you will encounter plenty of misinformation from expats who choose (often for their own benefit) to misinterpret the rules, but the rules on income tax are in fact quite simple: If you spend more than 183 days in Portugal you are, legally speaking, fiscally resident in the country and liable to pay income tax on your worldwide income.
“Now, in some situations, you may still pay tax in the UK on certain income streams, but dual taxation legislation protects you from having to pay this twice. All income, however, must be declared on your Portuguese tax return. You won’t pay tax twice, but if you are fiscally resident in Portugal and liable for higher rates, you will have to pay the difference.
“Portuguese tax return due dates depend on your types of income and whether you file on paper or online. Assuming you are using an accountant who files online, the deadlines are 30th April for those earning only salary or pension income and 31st May for those with other types of income. Paper filing dates are a month earlier. The Portuguese tax year follows the calendar year (Jan to Dec), which, as you can imagine, can make things very complicated due to the UK’s April to March system.
“If you own a second home in Portugal, and don’t stay in the country long enough to require residency, you can probably avoid the obligation to complete a return but, as always, check with an accountant. If you rent out your property, you must declare and pay tax on your rental income. Sadly, this tax rate has been drastically increased since Portugal’s EU bailout.
“Deadlines for the payment of income tax are usually several months after filing but sometimes change from year to year. Punitive fines can be levied for failure to submit a return or to pay the tax on time.
“Another minefield for permanent residents is social security. Unless you are over 65 and in possession of an S1 document from the UK, you do not qualify for healthcare and benefits in Portugal unless you are paying into the social security system. How you make these payments depends on your employment status. This is a very complex issue and, again, not one where I am qualified to provide detailed advice. Be aware, however, that social security contributions for the self-employed are far higher than you may have become used to in the UK.
“Of course, tax doesn’t end with income tax and social security. IMI property tax applies to some homeowners (although many are currently exempted), and you may be liable for capital gains tax if you sell a property in Portugal. Rather than seek to provide specific advice when I’m not qualified to do so, I’m going to finish, for a final time, with the best advice I can give you: get a good accountant who you trust. They could save you vast amounts of time, money and stress, leaving you to enjoy your time in Portugal to the full.”
For details of property for sale in Portugal, visit the Portuguese listings on Rightmove Overseas. One way to save money when buying property in Portugal or moving there is to use currency exchange specialist Smart Currency Exchange when transferring your pounds into euros. For more information on this, visit the Currency Zone.
To understand the full step-by-step process to buying a property in Portugal, collect The Overseas Guides Company’s ‘Portugal Property Buying Guide’
The views and comments herein are those of the author and do not necessarily reflect the views or opinions of Rightmove Overseas, Rightmove Group Ltd or Rightmove Plc