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
Real-Estate Capital Gains
Residents, for tax purposes, in Portugal are liable to tax on gains made on worldwide property and investments acquired from 1 January 1989 onwards.
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 an exemption, you must realize the new investment within 36 months after the sale (or 24 months before).
Financial Assets Capital Gains
The amendment to the Personal Income Tax (IRS) Code that the State Budget Law established for 2022 (no. 12/2022, of 27 June) makes it mandatory to aggregate income from capital gains on securities when the assets in question have been held for less than 365 days, and the taxpayer has a taxable income that is equal to or greater than the value of the last tax bracket, which is currently EUR 75,009.
Taxpayer who finds themselves in the abovementioned predicament will lose the ability to choose the withholding flat tax rate of 28% and will instead be liable to a rate of 48% on profits gained with shares and bonds (plus a surtax of 2.5% or 5%, depending on whether or not it is applicable), on their capital gains.
The mandatory aggregation may not cover capital gains from the redemption of fund units in Portuguese investment funds, even if the criteria set out for this purpose are met. This is because the Statute of Tax Benefits (EBF), which governs how these types of income are taxed, is a special law different from the Personal Income Tax Code.
When it comes to capital gains from the redemption of units in foreign investment funds made by Portuguese tax residents, these funds are not subject to the rules set out in the EBF, so they will, in theory, be covered by the rule that the compulsory aggregation of tax returns, even if criteria set out in the EBF are met.
In short, starting in 2023, taxpayers with a taxable income of €75,009 or more will have to aggregate their capital gains from movable assets to the total income received to determine the tax rate applicable to their total income. Before that, it was up to them whether or not to do this.
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 regarding 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 before 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
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.
Reporting obligations
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. Should you have any questions, please do not hesitate to contact us.
Laurinda holds a Diploma in Business Administration from the South African Institute of Administration and Commerce… Read more
