Klisiaris & Klissiaris Lda. Tax Solutions. Portugal s Proposed State Budget for 2013

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1 Klisiaris & Klissiaris Lda Tax Solutions Portugal s Proposed State Budget for 2013 Personal Income Tax Highlights

2 Klisiaris & Klissiaris Lda Tax Solutions Contents Section Page Personal Income Tax...3 Blacklisted Jurisdictions...13 Klisiaris & Klissiaris Lda State Budget

3 Klisiaris & Klissiaris Lda Tax Solutions Personal Income Tax Klisiaris & Klissiaris Lda State Budget

4 Income brackets The personal income brackets and rates for 2012 and 2013 are shown in the table on page 6. For 2013, the number of brackets has been reduced from 8 to 5. Pensions The maximum state pension deduction is Euros per payer. For pensions above, Euros, there is still a reduction of 20% on the difference between the pension earned and Euros. Salary income The specific deduction for professional training expenses has been revoked. For non-resident payers earning a Portuguese salary, will be withheld at a rate of 25% for Self-employed income The relief applicable to self-employed income for those registered under the Simplified Regime, carrying out services, has been reduced to 25%, meaning that 75% of income will be able in 2013 (70% of income was able in 2012). Up to 30 January 2013, the self-employed registered under the Simplified Regime can opt to be moved to the Regime for Organised Accounts (also known as General System or Profit and Loss system). IRS retention at source (retenção na fonte) on self-employed income, as foreseen in the table at Article 151º of CIRS, will be at a rate of 25% (was 21.5% in 2012). Non-habitual residents The income of categories A (employees) and B (income from business and professional activities), obtained by individuals that qualify as non-habitual residents and develop high value activities, are liable to withholding at a rate of 20%. Investment income The withholding es applicable to investment income derived in Portugal are: Dividends retrospective adjustment for 2012 means that this income will be ed at a rate of 26.5% (previously 25%). For 2013, the rate will be 28%. Interest retrospective adjustment for 2012 means that this income will be ed at a rate of 26.5% (previously 25%). For 2013, the rate will be 28%. The above rates are also applicable if a resident payer isolates these types of income (i.e. chooses option of não englobamento) in their return. Investment income paid or made available to recipients resident in Portuguese territory by non-resident entities that do not have a permanent establishment in Portuguese territory and are domiciled in a blacklisted jurisdiction are liable to a rate of 35% (also applicable in 2012). A list of blacklisted jurisdictions is set out on pages 14 and 15 and includes countries such as the Isle of Man, Jersey, Guernsey and Gibraltar. Klisiaris & Klissiaris Lda State Budget

5 Rental income Non-residents will be ed at a flat rate of 28% on rental income derived in Portugal (was 16.5% in 2012). Residents in Portugal must include this income in their total aggregated income and thus have it ed under the normal progressive brackets. IRS retention at source on rental income will be 25% (was 16.5% in 2012). Stamp duty paid on the property is deductible from the associated rental income. Intellectual property The 50% exempt amount of income from literary, artistic, educational and scientific intellectual property has been reduced from 20,000 Euros to 10,000 Euros. Capital gains on sale of property Non-residents will be ed at 28% on the capital gain arising from the sale of their property in Portugal. Capital gains on sale of shares A retrospective adjustment for 2012 means that residents will suffer a of 26.5% on the positive difference between the capital gains and capital losses on the sale of Portuguese shares (previously 25%), or if the gain is from non-portuguese shares, and is isolated and ed at a flat rate. For 2013, the rate will be 28%. However, the rate for 2012 for nonresidents will remain at 25%. The annual exemption from personal income of capital gains up to a limit of 500 for residents on the sale of shares, bonds or other debt securities has been eliminated. Income rates for each category of income The table on page 7 summarises the IRS withholding rates (retention at source) for each category of income earned in Portugal, payable on account of the final liability. It also shows the flat rate es applicable for certain categories of income if the isolation option is chosen, as well as the rates applicable for non-residents. Evidence of wealth The difference between the income declared by the payer and the reference income, as stated in the table of manifestation of wealth, has been reduced from 50% to 30%. Klisiaris & Klissiaris Lda State Budget

6 Additional solidarity rate There is an additional solidarity rate of 2.5% for payers with able income above 153,300 Euros in 2012 and 80,000 Euros in In addition, payers with able income above 250,000 Euros in 2013 will pay the additional solidarity at a rate of 5% on the amount above 250,000 Euros. Extraordinary for 2013 All Portuguese residents will be subject to an extraordinary of 3.5% on their total aggregated income declared on their annual IRS return, as was applicable for the 2011 year. This extraordinary will also apply to some types of income subject to special rates, for example, salary and self-employed income of Non-Habitual Residents in Portugal, and investment income from blacklisted jurisdictions. The 3.5% will only be charged on able income above Euros (14 x National Minimum Wage of 485 Euros per month) per payer. Employees and those receiving a state pension in Portugal will pay this extraordinary via a monthly retention at source. This withholding will be considered as a payment on account of the final extraordinary, which is assessed on the annual return. 50% of the 13 th and 14 th salary/pension payments will be pro-rated and paid over 12 months, and will be subject to this extra-ordinary. For other types of income, including income from abroad, the extraordinary will be based on the annual return submission. Taxable income (Euros) Progressive Tax Rates (additional extraordinary and solidarity rates are excluded) Tax rate Deductible Taxable income Tax rate (%) amount (Euros) (%) Deductible amount (Euros) (Euros) Up to % 0.00 Up to % 0 From to % From to % 980 From to % From to % From to % From to % From to % Above % From to % From to % Above % Klisiaris & Klissiaris Lda State Budget

7 Withholding rates applicable for Residents and Non-Residents for income derived in Portugal Income source Category Resident Tax % Note Nonresident Tax % Note Resident Tax % Note Nonresident Tax % Employment income A 11.5 to 46.5 (1) to 48 (13) 25 Commission B 21.5 (1) (2) (8) (13) 25 Self-employed (13) B 11.5/21.5 (1) (3) /25 income (14) 25 Rental of equipment E 16.5 (1) (4) 21.5 (12) 16.5 (4) (13) 25 (12) Royalties B/E 16.5 (1) (4) 21.5 (12) 16.5 (4) (13) 25 (12) Dividends E 26.5 (5) (6) (6) (7) (10) (10) (7) (10) (10) 28 (12) (12) (11) (11) Interest E 26.5 (5) (7) (10) (11) 26.5 (10) (12) 28 (7) (10) (11) Other investment E 16.5 (1) (4) 26.5 (12) 16.5 (4) (13) 28 (12) income Rental income F 16.5 (1) (8) (13) 28 (8) Capital gains on shares G 26.5 (1) (7) (7) (13) 28 Capital gains on property G 11.5 to 46.5 (9) to 48 (9) 28 Pensions H 11.5 to 46.5 (1) to 48 (13) Note (10) (12) (1) Income is ed under the normal progressive brackets, which are 11.5% to 46.5% for (2) IRS retention at source is 21.5%, as payment on account of final liability. (3) IRS retention at source is 11.5% or 21.5%, depending on the nature of income, as payment on account of final liability. (4) IRS retention at source is 16.5%, as payment on account of final liability. (5) Taxed at a flat rate of 26.5% if paid by non-resident entities and the option of isolation is selected. (6) Only 50% of this income is reported in the return if the option of englobamento is chosen. (7) If already ed at source in Portugal, then this income does not have to be reported in return. (8) IRS retention at source is 25%, as payment on account of final liability. (9) Only 50% of gain is able, but can rollover the gain provided that the sale proceeds are reinvested in another principle permanent home in the EU within 3 years. (10) Income paid or made available to accounts opened in the name of holders acting on behalf of unidentified third parties will suffer a withholding at a flat rate of 35%, unless the beneficial owner of the account is identified. (11) Income paid or made available to residents in Portuguese territory by non-resident entities without a permanent establishment in Portugal, domiciled in blacklisted jurisdictions will be subject to a withholding of 35%. (12) Income paid or made available to non-resident entities without a permanent establishment in Portugal, domiciled in blacklisted jurisdictions will be subject to a withholding of 35%. (13) Income is ed under the normal progressive brackets, which are 14.5% to 48% for (14) IRS retention at source is 11.5% or 25%, depending on the nature of income, as payment on account of final liability. Klisiaris & Klissiaris Lda State Budget

8 Personal allowances The personal allowance for each payer has reduced from Euros in 2012 to Euros in However, the allowances for dependant children have increased in 2013, and those for dependant ascendants have remained unchanged. Taxation of disabled individuals The exclusion from personal income of 10% of the gross income earned in each of the categories A, B and H by disabled payers is applicable for However, the income excluded from ation may not exceed Euros, for each category of income. Allowable deductions In addition to the personal allowance, there are still credits and benefits available which can further reduce the final liability. Limits on the total expenses deductible by payers apply in 2012 and 2013, one for credits and another one for benefits. These limits vary according to the income bracket, but are not applicable to payers whose able income lies in the first income bracket for 2013 (for 2012, it was the first two brackets). On the other hand, payers who fall into the last bracket of income in 2013 are not entitled to deduct credits and benefits. Tax credits In the case of credits, the total expenses incurred on the following are subject to limits between 0 Euro and Euros: Health expenses Education and training Nursing homes Housing Alimony These limits are increased by 10% for each dependant that it not a personal income payer. In the case of divorce or separation, when parental responsibilities are exercised by both parents, the credits will correspond to half of the expenses and have a limit of 50% of the maximum legally allowed amount, in the case of health, education and disability expenses. Health expenses The amount deductible for health expenses will continue to be at a rate of 10%, with a limit of Euros (twice the social support index: Euros) for However, for households with 3 or more dependants, the health expenses limit shall be increased by Euros for each dependant. Alimony Tax credits in respect of alimony are still 20% of the amount spent with a limit of Euros per month for each beneficiary. Klisiaris & Klissiaris Lda State Budget

9 Housing The limit of 591 Euros as the maximum deduction for interest on housing loans has been reduced to 296 Euros in In fact, only interest under contracts concluded by 31 December 2011 is deductible. Repayments of capital are not allowable. There is still the possibility of an increase based on the able income bracket of the payer, as set out on pages 10 and 11. This credit, as well as the deductions for housing co-operative expenditures and rents paid under leasing contracts, will be progressively reduced in future years. Tax benefits The value of benefits, which are listed below, are subject to limits varying between 0 Euro and 100 Euros: Contributions to Retirement Savings Funds and Retirement Savings Plans (PPR) Health insurance premiums Contributions to the Public Capitalisation Regime Donations The tables below and on the following pages show a comparison of the allowances, credits and benefits available for 2012 and the values for Tax Allowances Amounts in Euros Married Not married Married Not married Allowances in respect of payers and their relatives i) Taxpayer ii) Single parents iii) Dependants >= 4 years of age as at 31 December of the relevant year iv) Dependants <= 3 years of age as at 31 December of the relevant year v) Households with 3 or more dependants, per dependant vi) Ascendants living with the payer whose income is <= the minimum pension payable under the general regime vii) Only one ascendant living with the payer whose income is <= the minimum pension payable under the general regime Disabled individuals i) Disabled payer (1) (1) ii) For each disabled dependant iii) For each disabled ascendant iv) 30% of education and rehabilitation expenses No limit No limit No limit No limit v) 25% of life insurance premiums or contributions paid to mutual societies - If contributions paid are for old age retirement Klisiaris & Klissiaris Lda State Budget

10 Tax Credits Amounts in Euros Married Not married Married Not married Health expenses There is a deduction for the following expenses: 10% of expense - limit of 10% of expense - limit of a) Goods and services exempt from VAT or subject to VAT at a rate of 6% (2) (2) (2) (2) b) Other health expenses supported by a medical prescription or 2.5% of a), if higher or 2.5% of a), if higher or 2.5% of a), if higher or 2.5% of a), if higher c) Limit shall be increased for households with 3 or more dependants in their care, for each dependant, by: Education and training expenses i) 30% of education expenses with a limit of ii) Limit shall be increased for households with 3 or more dependants in their care, for each dependant, by: Nursing homes 25% of the expenses for homes and institutions to support the payer and relatives up to the 3rd degree whose income is below the minimum national wage Life and personal accident insurance premiums 25% of life and personal accident insurance premiums (covering risk of death, disability or retirement due to age after 55 years old and 5 years of contract) Revoked - except for shortlived professions and disabled individuals Revoked - except for shortlived professions and disabled individuals Alimony payments 20% of alimony payments Housing expenses the following expenses: a) Interest on loans, for contracts entered into by 31 December 2011, made for the acquisition, construction or improvement of a residential property used as the payer s permanent private residence, or rent paid in respect of a tenant s duly substantiated permanent residence b) Instalments payable as a result of contracts entered into by 31 December 2011 with housing co-operatives or under the group purchasing regime, for the acquisition of residential property for use as the payer s personal and permanent residence, or rent paid in respect of a tenant s duly substantiated permanent residence, to the extent in which they refer to interest on the related debt c) Rent paid under a leasing contract entered into by 31 December 2011 in respect of a personal and permanent residence under this regime, to the extent that it does not constitute repayment of capital d) Amounts expended by way of rent, net of subsidies or official contributions, concerning an urban real estate or fraction for permanent housing under the Urban Rental Regime or the New Urban Rental Regime, as long as the contract has been registered by the office and the associated stamp duty paid With a monthly limit of per beneficiary With a monthly limit of per beneficiary Klisiaris & Klissiaris Lda State Budget

11 Tax Credits (continued) Amounts in Euros Married Not married Married Not married Housing expenses (continued) For 2012, the limits in a) to d) are increased as follows: - able income up to the 2nd bracket - 50% able income up to the 3rd bracket - 20% able income up to the 4th bracket- 10% For 2013, the limits in a) to c) are increased as follows: - able income up to the 1st bracket - 50% able income up to the 2nd bracket - 20% For 2013, the limits in d) are increased as follows: - able income up to the 1st bracket - 50% able income up to the 2nd bracket - 20% Tax Benefits Amounts in Euros Married Not married Married Not married Contributions to Retirement Savings Funds and Retirement Savings Plans (PPR) (3) 20% of the amount invested with the following limits: i) For payers younger than 35 years ii) For payers between 35 and 50 years old (inclusive) iii) For payers older than 50 years Health insurance premiums 10% of health insurance premiums With a limit With a limit With a limit With a limit of of of of Increase for each dependant Donations 25% of donations to: i) Central, Regional and Local Administration No limit No limit No limit No limit ii) Foundations (with conditions) No limit No limit No limit No limit iii) Other entities Public Capitalisation Regime 20% of the amount invested in individual accounts managed under the public capitalisation regime Klisiaris & Klissiaris Lda State Budget

12 Limits to deductions from Limit of Tax Credits(4) Euros Euros The limits are as follows: - able income within the 1st bracket No limit No limit - able income within the 2nd bracket No limit (5) able income within the 3rd bracket (5) (5) able income within the 4th bracket (5) (5) able income within the 5th bracket (5) able income within the 6th bracket (5) able income within the 7th bracket able income within the 8th bracket Limit of Tax Benefits (6) The limits are as follows: - able income within the 1st bracket No limit No limit - able income within the 2nd bracket No limit able income within the 3rd bracket able income within the 4th bracket able income within the 5th bracket able income within the 6th bracket able income within the 7th bracket able income within the 8th bracket Notes: (1) Assuming that both payers are disabled. (2) This limit applies to lines a) and b). (3) Amounts invested after pensioning-off date are not deductible. (4) Health expenses, education and training costs, housing costs, nursing home fees and alimony payments are included. (5) These limits are increased by 10% for each dependant, or civil godson, who is not a payer. (6) PPR, health insurance premiums, contributions to the Public Capitalisation Regime and donations are included. Klisiaris & Klissiaris Lda State Budget

13 Klisiaris & Klissiaris Lda Tax Solutions Blacklisted Jurisdictions Klisiaris & Klissiaris Lda State Budget

14 Portaria 150/2004 of 13 February, amended by Portaria 292/2011 of 8 November Set out below is the approved list of countries, territories and regions that are considered to have favourable regimes and thus are blacklisted jurisdictions: 1) Andorra 2) Anguilla 3) Antigua and Barbuda 4) Dutch Antilles 5) Aruba 6) Ascension Island 7) Bahamas 8) Bahrain 9) Barbados 10) Belize 11) Bermuda Islands 12) Bolivia 13) Brunei 14) Channel Islands (Alderney, Guernsey, Jersey, Great Stark, Herm, Little Sark, Brechou, Jethou and Lihou) 15) Cayman Islands 16) Cocos Islands 17) Cook Islands 18) Costa Rica 19) Djibouti 20) Dominica 21) United Arab Emirates 22) Falkland Islands 23) Fiji Islands 24) Gambia 25) Grenada 26) Gibraltar 27) Guam Island 28) Guiana 29) Honduras 30) Hong Kong 31) Jamaica 32) Jordan 33) Keslim Islands 34) Kiribati Island 35) Kuwait 36) Labuan 37) Lebanon 38) Liberia 39) Liechtenstein 40) Maldives 41) Isle of Man 42) Northern Mariana Islands 43) Marshall Islands 44) Mauritius 45) Monaco 46) Montserrat 47) Nauru 48) Christmas Islands 49) Island of Niue 50) Norfolk Isles 51) Sultanate of Oman 52) Pacific Islands 53) Palau Islands 54) Panama Klisiaris & Klissiaris Lda State Budget

15 55) Pitcairn Isle 56) French Polynesia 57) Porto Rico 58) Qatar 59) Solomon Islands 60) American Samoa 61) Western Samoa 62) Island of St Helena 63) St Lucia 64) St Kitts and Nevis 65) San Marino 66) Island of Saint Peter and Miquelon 67) St Vincent and the Grenadines 68) Seychelles 69) Swaziland 70) Svalbard 71) Tokelau Island 72) Tonga 73) Trinidad and Tobago 74) Tristan da Cunha Island 75) Turks e Caicos Islands 76) Tuvalu Island 77) Uruguay 78) Republic of Vanuatu 79) British Virgin Islands 80) Virgin Islands of USA 81) Arab Republic of Yemen Klisiaris & Klissiaris Lda State Budget

Klisiaris & Klissiaris Lda. Tax Solutions. Portugal s State Budget for 2014

Klisiaris & Klissiaris Lda. Tax Solutions. Portugal s State Budget for 2014 Klisiaris & Klissiaris Lda Tax Solutions Portugal s State Budget for 2014 Personal Income Tax Highlights Klisiaris & Klissiaris Lda Tax Solutions Contents Section Page Personal Income Tax...3 Social Security...14