Capital Gains Tax in Portugal: how does it work?
Capital gains are taxed differently in Portugal, depending on how they are created and the taxpayer’s tax residence status. The following is a broad overview of the country’s current capital gains taxes regime.
Residents, for tax purposes, in Portugal are liable to tax on gains made on worldwide property and investments acquired from 1 January 1989 onwards.
While shares, securities and bonds are taxed at a flat 28% rate, assets deemed to be from a ‘tax haven’ (Portugal classifies more than 80 jurisdictions as such, including all British Overseas Territories, Channel Island and the Island of Man), are taxable at 35%.
Any gains on real estate are added to other income for the year and taxed at progressive tax rates that can go up to 48%. Notwithstanding this, only 50% of the gain on the sale of real estate is liable to tax, and one can receive inflation relief, provided conditions are met.
In addition to the above, if one reinvests the proceeds into another main home in Portugal – or anywhere in the EU/EEA that has a tax treaty with Portugal – then no capital gains tax on the property sale is due. To qualify for such exemption, you must realize the new investment within 36 months after the sale (or 24 months before).
Non-habitual residents (NHR)
Those residents holding NHR status avoid liability for capital gains tax on certain worldwide gains, depending on which jurisdiction has the taxing rights under the terms of the double tax treaty. Suppose income is taxable in the source jurisdiction (under double-taxation treaty rules). In that case, Portugal imposes no tax liability for non-habitual residents.
Notwithstanding the above, it is essential to mention that most tax treaties signed between Portugal and other jurisdictions give sole taxation responsibility to Portugal when it comes to financial portfolios and related assets. Given this situation, should one wish to make the most of the exemptions granted under the NHR scheme, income structure analysis and restructuring, should it be the case, must be carried out prior to the NHR status application.
Capital Gains Tax on Cryptocurrencies
Please click here for specific information on the taxation of gains related to cryptocurrencies and other crypto assets.
Non-residents, for tax purposes, in Portugal are liable to a flat 28% rate on the total gain from the sale of Portuguese property, shares, securities or bonds.
Those who qualify as residents, for tax purposes (holding NHR status or not), are required, under law, to report (i.e., filling tax return) not only their capital gains but also their worldwide income earned and corresponding taxes and social security contributions (if any), and IBANs (or equivalent), of bank accounts held abroad.
Non-residents may be required under law to report their capital gains, and corresponding tax paid, in Portugal, depending on the type of asset they have sold.
Tax reporting obligations arise in the taxable event’s following calendar year.
Reducing your capital gains tax exposure
It is possible to significantly reduce one’s income tax liability for capital gains, provided professionals are involved in your income structure analysis and potential restructuring before relocation to Portuguese territory and obtention of NHR status.
This article is provided for general information purposes only and is not intended to be, nor should it be construed as, legal or professional advice of any kind.