Portugal: Tax Residence in Portugal

Introduction

A person resident in Portugal is liable to Portuguese tax on worldwide income and, to some degree, tax on capital gains. A person not resident in Portugal is liable to income tax on his Portuguese source income, and to certain capital gains in respect of assets in Portugal.

The tax year

The Portuguese tax authorities (Finanças) treat any individual who spends more than 183 days in the tax year (1 January - 31 December) as a resident for Portuguese tax purposes. The 183 days do not have to be consecutive - this is a cumulative rule. You are then treated as tax resident from 1st January, but if you come from a country with a Double Tax Treaty you may be treated as being resident for only part of the year.

It is now accepted in Portugal that spouses can have different tax residence statuses. However, the spouse who is claiming to be non resident in Portugal must prove that s/he does not have the majority of their economical activities in Portugal. The non resident spouse will only be taxable on Portugal on any income arising in Portugal.

The spouse who is resident in Portugal will file a separate tax return reporting his/her worldwide income and his/her share of any joint worldwide income.

Permanent home

In addition if you have available a 'permanent home' in Portugal, as of 31 December you may be deemed to be resident of Portugal for tax purposes if it appears that you intend to keep and occupy it as your permanent home. Unusually, you will be deemed to be resident for tax purposes in Portugal if, on 31 December in any year, you are the member of a crew of an aircraft or ship registered in Portugal. If you are resident in a country with a suitable Double Tax Treaty with Portugal, such as the UK, then this particular rule can be ignored.

De Facto residence

Portuguese tax is levied according to de facto residence. This has nothing to do with citizenship, nationality or whether you have a permanent residence visa or work permit.

Scope of taxes

If you are a resident of Portugal you will be liable for Portuguese income, capital gains and inheritance taxes. In addition you will be liable for other ancillary taxes e.g. property rental tax, tax on the transfer of real estate, stamp duty, vehicle sales tax and VAT.

Non-declaration

A number of individuals have not declared themselves as Portuguese tax residents even though they live in Portugal for more than 183 days in a calendar year. Many of those who have declared themselves, many have shown a very low income inconsistent with their lifestyle. The Portuguese tax authorities are tightening up in these very areas, and much more care will be required in the future.

Any dependent relative of an individual deemed resident in Portugal, is also automatically resident.

Burden of proof

In cases of non-liability to tax, the burden of proof will be shifted to the taxpayer, as opposed to the claimant.

Leaving the UK and Keeping a UK Home

We advise you NOT to keep UK accommodation available for your use when you first leave the UK.

The retention of accommodation in the UK may be no bar to the individual becoming not resident and not ordinarily resident if their actions after leaving this country support a stated aim of living abroad permanently.

This might be the case, for example, if a person:

• acquired accommodation abroad to live in as a permanent home;
• remained abroad, and their visits to this country were within prescribed limits;
• demonstrated that the reason for their having accommodation in the UK available for use, and the nature of it, was consistent with the aim of permanent residence abroad.

Our advice is that if you are leaving the UK to establish non-residence in the UK, it is better that you should sell your UK house. If it is not possible to sell it because of a weak residential market, it should be let to a third party (not a friend or a relative, but a real third party let). Ideally, try and avoid buying a smaller UK residence even for your occasional visits to the UK, though such a purchase is not necessarily fatal for your non-UK residence claim, it depends on your circumstances.

How the Revenue may attack your "Non-UK Residence"

The Inland Revenue can attack your leaving the UK if you retain a property in the UK. They may argue that your property overseas is much more of a holiday home rather than a permanent home base. They may also argue that they day counting does not have any relevance until it is established that you have really left the UK for a settled purpose. Maintaining a property, with perhaps your spouse returning frequently to the UK and staying in the same family home, may be attacked.

To be non-resident, you must first establish that you have left the UK either permanently or indefinitely. If you haven't left for a permanent and settled purpose, the day counting is irrelevant.

You need to show that you have left the UK and broken your links and ties with the UK, and that your personal life is no longer based in the UK. The mere purchase of a property overseas, with your staying in it, is insufficient.

Proof that you have left the UK permanently would include your becoming a tax resident in your new country, selling your house and car, cancelling membership of various clubs, removing yourself from the Electoral Roll, informing your doctor that you have left the UK, and genuinely moving the family to the new country. In the new country you would buy a house and a car, obtain a driving licence, take out medical insurance, join various clubs, and move your finances to a local bank, as well as signing on with the local doctor.

It is dangerous to place too much emphasis on simply complying with counting the days.

© Blevins Franks International Limited 2002

“Living in Portugal” 3rd Edition 2002, Bill Blevins & David Franks.
Reproduced with the permission of Blevins Franks.

(*The information contained here been updated as at August 2006)

Further information on this topic can be found in “Living in Portugal”, by David Franks & Bill Blevins.