Capital Gain – All Finance Matters

Capital Gains: Rent with Purchase Option

October 17, 2024

By Ricardo Chaves

Capital Gains: Rent with Purchase Option

A taxpayer entered into a lease agreement with a purchase option. Can these rents be included in the seller’s capital gains calculation? How?

Rents as Advance Payments

In a non-residential lease agreement with a company, the rents were structured as part of the property’s sale price to the company. The taxpayer received the rents, issued receipts, and reported the amounts on their IRS return.

This year, the taxpayer sold the property to the leasing company. A question arises: Will the sale amount stated in the deed be taxed in full, or can it be reduced by the rents paid? Alternatively, can these amounts be treated as expenses? To clarify, the taxpayer requested a binding ruling from the tax authorities.

Capital Gains: General Rule

Generally, capital gains arise from the sale of real estate rights, unless the gains fall under business, professional, capital, or rental income.

Calculation: For these cases, the capital gain subject to IRS is the difference between the sale price and the acquisition cost. Note: Although the sale price (referred to as the realization value) typically equals the consideration paid, if higher values were used to determine IMT (or what should have been calculated if IMT were applicable), those values prevail.

Charges: The law specifies certain expenses and charges relevant to capital gains calculation, including:

Costs for property improvements incurred within the last 12 years (e.g., renovations);
Necessary and actual expenses related to acquisition and sale (e.g., notary fees);
In certain situations, compensation paid for relinquishing contractual rights related to the property (e.g., position transfer).

Do Rents Paid as Advance Payments Fit These Concepts?

Rents Not Covered: According to the AT, there are no provisions in the relevant norms for deducting received rents.

Total Capital Gains: Therefore, for the AT, the sale value used to calculate capital gains is the amount stated in the deed, and rents cannot be deducted as expenses or charges. This results in double taxation (first as rents and then as part of the sale).

But There’s a Solution!

In the binding ruling, the tax authorities proposed a solution:

Convert Rents into Payments: To include rents as part of the sale price, the AT suggested the taxpayer should appeal the IRS assessment for the past 2 years and initiate administrative litigation. Important: During this process, the taxpayer must prove that the received rents were an advance payment towards the sale price.

From Category F to Category G: If the taxpayer can prove during administrative litigation that the rents were an advance payment for the sale price, they will be reclassified from Category F to Category G in the IRS. In practice, this means the rents will be integrated into the sale price.

Taxpayers with lease agreements featuring a purchase option can request a review of declared rents in the IRS, incorporating them into the sale value.

For personalized advice and to ensure compliance with tax regulations, please reach out to AFM at info@afm.tax or visit www.afm.tax.

Exemption from Capital Gains: What if Only One Room is Used for local lodging (AL)?

October 15, 2024

By Ricardo Chaves

Exemption from Capital Gains: What if Only One Room is Used for local lodging (AL)?

A property owner seeks to obtain IRS exemption on the capital gains resulting from the sale of their permanent home. However, complications can arise if part of the property, such as the ground floor, is designated for Alojamento Local (AL) — even if it’s just one room.

Monetizing a Portion of the Property:

The surge in tourism and the need for additional income have prompted many homeowners to rent out parts of their permanent residences through local accommodation. But could this create complications?

Ground Floor concerns: A taxpayer expressed uncertainty about the implications of selling their permanent home, particularly regarding the reinvestment of profits into another property. With the ground floor utilized for AL, they wondered if they would have to pay capital gains tax. Therefore, they requested a Binding Information from the Tax Authorities
Single Room for Rent: Another taxpayer faced a similar dilemma, but in this instance, only one room was used for AL activities, accounting for less than 10% of the property’s total gross area. This taxpayer also requested Binding Information.

Capital Gains Tax Exemption Conditions:

In their responses to the Binding Information requests, the Tax Authority (AT) reminded that the exemption from capital gains applies to the onerous transfer of properties that serve as the taxpayer’s or their family’s permanent residence, provided that the following conditions are cumulatively met:

The selling price, minus any loan repayment for acquiring the property, must be reinvested in the purchase of another property, in land for construction, or in the expansion or improvement of another property with the same purpose.
The reinvestment must occur within 24 months before and 36 months after the date of sale.
The taxpayer must express the intention to reinvest, even partially, specifying the amount in the income declaration for the year of sale.
The property sold must have been used as the taxpayer’s or their family’s permanent residence, proven by the respective tax domicile in the 24 months prior to the sale (this period will soon change to 12 months).
Taxpayers cannot have benefited from this exclusion regime in the year they realized the gains and in the three previous years, except in exceptional circumstances.

Important Note: This exemption does not apply if the reinvestment in another property is not intended for the taxpayer’s or their family’s permanent residence within 12 months from the date of reinvestment.

Understanding Permanent Residence:

Permanent residence is defined as the location where the taxpayer organizes their domestic life in a stable and lasting manner, including where they sleep, eat, and receive family and friends. Key characteristics of permanent residence include habituality, stability, and the establishment of the center of domestic life organization. However, challenges arise when this situation intersects with economic activity.

Local Accommodation on the Ground Floor: The AT determined that the fact that part of the property is used for AL indicates that it is not exclusively intended for the taxpayer’s permanent residence (even partially, there is an allocation to the AL activity).
Local Accommodation in the Room: Similarly, the AT considers that if the property is used for AL in the form of “Rooms,” it will also not be exclusively allocated to the taxpayer’s permanent residence since there is a partial allocation.

Responses from the AT:

In both scenarios, the AT determined that the conditions for exemption were not met, resulting in the taxpayer’s ineligibility for capital gains tax exemption.

Important: In practice, this means that the taxpayer loses the right to the exemption provided by law, and the profit from the sale of the property will be subject to the general rules of taxation under the IRS.

Conclusion:

Even allocating just a portion of a house, or a single room, to Alojamento Local can disqualify the property from IRS exemption, regardless of its status as a permanent residence.

Legal Basis: Binding Information nos. 25217 and 26330.

For personalized advice and to ensure compliance with tax regulations, please reach out to AFM at info@afm.tax or visit www.afm.tax.

The End of the NHR Regime and Introduction of the New IFICI+ Regime (Tax Incentive for Scientific Research and Innovation)

August 12, 2024

By Ricardo Chaves

The End of the NHR Regime and Introduction of the New IFICI+ Regime (Tax Incentive for Scientific Research and Innovation)

Overview of the New IFICI+ Regime

As of 2024, Portugal is closing the chapter to its long-standing Non-Habitual Resident (NHR) regime, a program that offered substantial tax benefits to expatriates. In its place, the government has introduced the “Tax Incentive for Scientific Research and Innovation” (IFICI+) regime. This new scheme is designed to attract highly skilled professionals to Portugal, particularly those involved in scientific research and innovation.

The IFICI+ regime offers these professionals a special income tax rate of 20% (in addition to social security contributions) on employment income, whether dependent or independent, for a non-extendable period of 10 consecutive years. This initiative is part of Portugal’s broader strategy to boost its knowledge-based economy and attract global talent in key innovative sectors.

Eligibility Requirements:

To benefit from the IFICI+ regime, expatriates must meet specific criteria:

1. Becoming a Portuguese Tax Resident from 2024:

– The individual must establish tax residency in Portugal, either voluntarily (by securing a residence permit and establishing a permanent address) or automatically (by residing in Portugal for more than 183 days within any 12-month period or establishing a habitual residence in the country).

2. Engagement in Eligible Activities:

The expatriate must engage in one of the following highly qualified activities related to scientific research and innovation, without an interruption exceeding six months:

– Higher Education Teaching and Scientific Research: Employment in scientific research within entities integrated into the national scientific and technological system.

– Technology and Innovation Centers: Employment or participation in organizations recognized as technology and innovation hubs with effective management and facilities in Portugal.

– Entities Benefiting from Investment Incentives: Employment in companies that have signed tax incentive contracts with the Portuguese government for strategic investments.

– Qualified Professions in Specific Sectors: Work in sectors like industry and services, particularly in companies benefiting from the Investment Support Tax Regime (RFAI) or those with substantial export activities.

– Economic Activities Recognized by Public Entities: Involvement in sectors deemed critical for national economic development by public bodies like AICEP or IAPMEI.

– R&D Personnel: Employment in companies that qualify for the R&D tax incentive system (SIFIDE).

– Certified Startups: Employment in startups with less than 10 years of activity, meeting specific criteria like workforce size and revenue.

– Work in the Autonomous Regions: Activities in the Azores and Madeira, pending further regulatory details.

3. No Previous NHR Status:

– Individuals who previously benefited from the NHR regime and have since left and returned to Portugal are ineligible for the IFICI regime.

4. Employer Restrictions:

– The employer cannot be deducting salary expenses under the RFAI regime (tax incentive regime for investment), which needs to be confirmed by the employee with their employer.

Fiscal Benefits

The IFICI+ regime offers several tax advantages:

– Reduced Personal Income Tax (IRS) Rate: A flat 20% rate on employment income, in contrast to the typical progressive rates of 14% to 53%.

– Exemption on Foreign Income: Most foreign-sourced income, such as employment, self-employment, capital gains, and real estate income, is exempt from Portuguese taxation (except from offshore jurisdictions). Notably, foreign pensions are fully taxable under standard rates.

Important Note:

It’s important to note that there is currently no official decree or State of Budget for 2025 regarding the IFICI+ regime, which means the details above may be subject to change.

For any inquiries or support with the residency process for businesses or individuals, our team can guide you through the whole moving process. Feel free to reach out to us at info@afm.tax or call us at +351 281 029 059.

Understanding the Changes in Real Estate Capital Gains Taxation under the “Mais Habitação” Program

April 26, 2024

By Ricardo Chaves

Understanding the Changes in Real Estate Capital Gains Taxation under the “Mais Habitação” Program

The Mais Habitação program, effective as of October 7th, 2023, brought significant changes to real estate capital gains taxation, particularly regarding eligibility criteria for tax exemption.

Capital Gains: Stricter Reinvestment Requirements

Under Mais Habitação, changes to the exclusion regime for capital gains taxation entail stricter reinvestment rules. Previously, gains from the sale of primary residences were exempt from taxation if reinvested in another property within a specific timeframe.

Now, to qualify for this exemption, two additional criteria have been introduced:

The property sold must have served as the taxpayer’s primary residence for at least 24 months preceding the sale, as evidenced by their tax domicile.
Taxpayers cannot have benefited from this exclusion regime in the year of sale or the preceding three years, except in cases of exceptional circumstances, which must be verified during the tax assessment process.

Second Home Sales for Loan Repayment Exempted:

Additionally, the Mais Habitação program includes a transitional provision exempting capital gains from the sale of land or second homes used to repay the mortgage on the taxpayer’s primary residence or their descendants’.

This exemption applies when the proceeds from the sale, minus any loan repayment, are directed towards reducing the outstanding mortgage balance. However, any surplus sale proceeds beyond the mortgage repayment remain subject to taxation under IRS regulations.

This provision covers sales made between January 1, 2022, and December 31, 2024. Taxpayers may be required to provide documentation of loan repayment after filing their IRS declarations for 2023 and 2024.

The loan repayment must occur within three months of the sale, with the three-month period commencing from October 7^th for sales made before the new law’s enactment.

Sales to the State Entitled to Exemption, with Exceptions:

Furthermore, the new law grants tax exemption on gains from property sales to specific entities, such as the State, Autonomous Regions, and local authorities. However, certain exceptions apply, including gains realized by residents in jurisdictions with favorable tax regimes and gains resulting from preferential alienation rights.

It’s important to note that exempted income under this measure is factored into the overall income tax calculation for determining applicable tax rates.

Capital Gains: How much will you pay in 2024?

April 26, 2024

By Ricardo Chaves

Capital Gains: How much will you pay in 2024?

If you sold a house in 2023, you may have to pay capital gains tax in 2024.

Anyone who sells a house must always declare the transaction to the Tax Authority. If you purchased the house after January 1, 1989, and sold it for more than the purchase price, you could be liable for taxes on the profit.

Capital gains refer to the profit you make from selling something for more than its purchase price. The government levies taxes on this profit. Here’s a breakdown of how it works:

Typically, only half of your capital gains are subject to taxation. For example, if you made €80,000 from selling your house, you’d only be taxed on €40,000 for tax purposes.

However, if your property received financial assistance from the government for acquisition, construction, or renovation, and you sell it within ten years, you might be required to pay taxes on the entire profit.

What is the tax rate?

There’s no fixed tax rate for property capital gains. They’re combined with your other income, and the total determines your tax liability.

Therefore, if you sold a house in 2023, you’ll settle taxes on your gains in 2024 when you reconcile your tax affairs.

How are they calculated?

To calculate your tax liability, you start by deducting the purchase price from the selling price. If it’s been more than two years since you bought the house, you’ll also adjust the purchase price for inflation.

Then, certain expenses are subtracted from that amount. These may include selling fees, maintenance costs, and taxes incurred during the purchase.

The expenses you can deduct are as follows:

Energy certificate;

Commissions paid to the real estate agency for the sale;

Maintenance and conservation works carried out in the last 12 years;

Stamp Duty (IS) at the time of purchase;

Municipal Property Transfer Tax (IMT);

Costs related to the purchase deed of the property;

Solicitor costs (if applicable);

Land registry fees.

Therefore, the formula for calculating capital gains is as follows:

Selling price (realization value) – (purchase price x currency depreciation coefficient) – (costs associated with acquisition and sale + expenses related to property appreciation)

Example of capital gains calculation

Let’s consider a house purchased in 2008 for 150 thousand euros and sold in 2023 for 250 thousand euros. The costs borne by the owner were 14 thousand euros. In this case, we have:

250,000 – (150,000 x 1.20) – 14,000 = 56,000

This sale generated capital gains of 56 thousand euros, of which only 28 thousand (50%) will be taxed.

Note: The Tax Authority always considers the highest value between the purchase/sale price and the TAV (Taxable Asset Value) at the time of purchase/sale.

How are capital gains calculated for a house built by the owner?

In these situations, the calculation formula is the same, but the acquisition value considers the highest between:

The TAV (Taxable Asset Value) The value of the land, plus the construction costs duly proven

What if it’s an inherited house?

If you sold a house you inherited, the acquisition value is the one used for stamp duty settlement at the time of inheritance. This is calculated based on the TAV listed in the property booklet up to two years before the inheritance.

Are there exemptions?

Before understanding the impact that capital gains taxation has on IRS, it is important to highlight some exemption scenarios. Examples include cases where the sold property is the main and permanent residence, and the realization value is used to buy another house for the same purpose in the 24 months prior to or 36 months after the transaction.

If there is a reinvestment of the entire amount, the exemption is total. However, if only a portion is reinvested, the exemption occurs in the same proportion. For example, if you reinvest 30%, the exemption will be 30% on the taxable amount.

Similarly, individuals over 65 years old or retired who reinvest the sale proceeds in an insurance contract (such as a PPR), a pension fund, or contribution to the public capitalization scheme are exempt.

Note: In reinvestment cases, the sale price of the house is taken into account, not the capital gains. That is, if you sell for 250 thousand euros, you are only fully exempt if you reinvest the entire amount.

What is the impact on IRS?

To illustrate how capital gains taxation affects IRS, let’s use the value calculated in the example above, that is 56 thousand euros. The seller has a gross salary of 1,700 euros per month (23,800 euros annually).

Without exemption

Taxable amount: 28,000 euros

Collectible income: 47,696 euros (23,800 + 28,000 – specific deductions of 4,104 euros)

Total tax: 14,937.51 euros (47,696 x 43.5% – 5,810.25 euros), of which 10,750.80 belong to capital gains

This will not be the amount of IRS due, as deductions from the total tax still need to be subtracted. Hence, the net tax is obtained. If this is less than the amounts withheld at source throughout the year, you receive a refund. If it is higher, you must pay additional tax.

However, with this example, you can already understand how capital gains affect your IRS.

With total exemption

Taxable amount: 0 euros

Collectible income: 19,696 euros (4th bracket)

Total tax: 4,186.71 euros (19,696 x 28.5% – 1,426.65 euros)

With partial exemption after reinvestment of 30%

Taxable amount: 19,600 euros (28,000 – 30%)

Collectible income: 39,296 euros (7th bracket)

Total tax: 11,283.51 euros (39,296 x 43.5% – 5,810.25 euros), of which 7,096.80 belong to capital gains

How to declare?

When completing your tax return, you’ll need to provide details of the sale if you purchased the house after January 1, 1989. If you reinvested any portion of the proceeds, that should also be disclosed.

If you purchased the house before January 1, 1989, you’re not liable for taxes on the sale, but you’re still required to report it.

“Mais Habitação” approved!

July 21, 2023

By Ricardo Chaves

“Mais Habitação” approved!

⚠ 𝐈𝐦𝐩𝐨𝐫𝐭𝐚𝐧𝐭 𝐧𝐨𝐭𝐢𝐜𝐞: ⚠
The Mais Habitação programme launched by the Portuguese government, was approved in the final vote in Parliament on July 19th 2023.

The President of the Republic has now 20 days to decide to do one of 3 things:
➡ Approve the law;
➡ Veto it, in which case the law is sent back to Parliament for full justification or changes;
➡ Send it to the Constitutional Court, which can veto the law if considered unconstitutional.

𝐍𝐄𝐖 𝐀𝐋 𝐌𝐄𝐀𝐒𝐔𝐑𝐄𝐒 𝐀𝐏𝐏𝐑𝐎𝐕𝐄𝐃 𝐁𝐘 𝐏𝐀𝐑𝐋𝐈𝐀𝐌𝐄𝐍𝐓:
➡ suspension of new AL registrations in the Apartamento and Estabelecimento de Hospedagem categories when implemented in a horizontal property (condominium building), except in low-density areas defined in the Annex of this ordinance: Portaria n.º 208/2017 de 13 de julho;

➡ new AL registrations in condominium buildings require unanimous approval of the condominium or that the habitation license already allows for the AL;

➡ existing ALs in condominium buildings can be closed with a 2/3rds majority vote of the condominium;

➡ existing ALs are not transferable, in case the ownership of the property in a condominium belongs to a company, it’s not allowed to transfer any share capital of the company unless in case of inheritance, without losing the AL license;

➡ existing AL registrations become temporary and must be renewed every 5 years starting in 2030.

➡ existing AL registrations need to demonstrate, within 2 months after the start of the new law, they are active, by showing tax evidence of the activity;

➡ if owners of properties with an AL registration from before 31st December 2022 cancel the AL before the end of 2024, and put the property on the long-term rental market, they will be exempt from tax on such rentals (IRS in the case of individuals, IRC for companies) until the end of 2029;

➡ the new CEAL tax was approved, and this will be taxed at 15%. The CEAL will be published each year and it’s an additional coefficient and applies only to autonomous residential units (not detached houses in the Moradia category or complete buildings). It also doesn’t apply to AL in the permanent residence of the owner, if not active for more than 120 days per year. This means that a property that was not rented may still have to pay 15% of the CEAL as it is not related to the rental income.

𝐂𝐇𝐀𝐍𝐆𝐄𝐒 𝐎𝐍 𝐋𝐎𝐍𝐆-𝐓𝐄𝐑𝐌 𝐑𝐄𝐍𝐓𝐀𝐋𝐒:
➡ The standard rate is now 25% instead of 28%. Al the other rates for longer periods of the contract were also adjusted.

𝐂𝐇𝐀𝐍𝐆𝐄𝐒 𝐈𝐍 𝐂𝐀𝐏𝐈𝐓𝐀𝐋 𝐆𝐀𝐈𝐍𝐒 𝐎𝐍 𝐓𝐇𝐄 𝐒𝐀𝐋𝐄 𝐎𝐅 𝐏𝐑𝐎𝐏𝐄𝐑𝐓𝐘:
➡ Reinvestment of the sale of the property deemed for main residency is valid if the taxpayer has lived in the property (address at the tax office/NIF) in the previous 24 months prior to the sale;

➡ Reinvestment is not allowed if, in the previous 3 tax years, the taxpayer already benefited from this tax exemption/deduction. The taxpayer can still benefit from the reinvestment if he can prove that the previous sale was due to exceptional conditions.

Crypto Assets in Portugal

November 15, 2022

By Ricardo Chaves

Crypto Assets in Portugal

What you need to know about crypto assets in Portugal and what changes from January 2023

The Portuguese Government introduced in the 2023 State Budget proposal the taxation of crypto assets (this exceeds the concept of cryptocurrencies), and short-term capital gains (up to one year) with cryptocurrency transactions will be taxed at 28%, but not all gains are liable to tax. Please find here what are the proposed changes for 2023 and how these may affect you.

Up until the end of 2023, what was the tax regime applicable to Crypto?

There was no tax regime and no specific law for cryptocurrencies until now, which made Portugal one of the most crypto-friendly countries.

Do I have to declare to the Portuguese tax authorities, that I own cryptocurrencies?

No, there is no wealth tax in Portugal, therefore you will only need to report income received from cryptocurrencies or gains made for the sale of these assets. The State Budget proposal now considers mining operations, as a business activity and the gains obtained with the sale of crypto are taxable at 28%, provided the crypto was bought less than a year ago.

I made a profit from selling cryptocurrencies I bought less than a year ago. Do I have to declare?

If the State Budget proposal for 2023 is approved, you will have to report the sale operations when submitting your Personal Income Tax and the gain obtained (difference between the market value at the date of sale and the acquisition value, net of necessary expenses and effectively carried out, inherent to acquisition and disposal) will be liable to tax.

How and when do I have to declare?

The tax year in Portugal is from January 1st to December 31st and the tax submission is normally available between April 1st and June 30th. When submitting the tax return – to be done mandatory online – you will have to include the crypto assets sales operations you had in the previous tax year.

How much tax will I pay for the gains I made from selling cryptocurrencies?

If you held the cryptocurrencies for a period of fewer than 365 days, and if you made capital gains, you will be subject to a tax rate of 28%. If you aggregate this income with your others source of income, you will be taxed at the progressive tax rates and the tax rate will be the one corresponding to your income bracket.

Can I be punished if I don’t submit the tax return or do not include this information on my tax return?

Yes, failure to report income and or earnings or failure to submit the tax return constitutes an administrative offence, subject to penalties. The amounts of the fine depend on the specific situation. If there is a voluntary regularization, the waiver or reduction of fines may apply, depending, among other factors, on the date on which the fault committed is regularized, as well as whether or not a report was raised, a report or complaint was received or initiated tax inspection procedure.

Compensatory interest (at an annual rate of 4%) will also be payable on the missing tax.

How do the tax authorities know about my crypto assets?

In the proposed state budget, there is now a reporting obligation by intermediaries. Thus anyone who provides custody and administration services of crypto-assets on behalf of third parties or manages one or more crypto-assets trading platforms must notify the Portuguese Tax Authorities, up to at the end of January of each year, for each taxable person, through an official model, the operations carried out with their intervention, concerning crypto assets.

What can I offset against my gains on the sale of crypto?

In the case of the sale of crypto assets, the gain liable to tax is made “by the difference between the sale value and the acquisition value”, net of the necessary and effectively incurred expenses, related to the acquisition and disposal. For this purpose, the sale value corresponds to the market value of the crypto assets at the date of sale.

What happens to cryptocurrencies I bought more than a year ago?

Capital gains related to cryptocurrencies held for a period equal to or greater than 365 days will be exempt from tax.

I have two units of the same cryptocurrency purchased at different times: one more than a year ago and the other less than a year ago. I made a profit by selling one of them, but I don’t know which one. Do I have to declare profit?

The PIT Code provides for the application of the FIFO method (First In, First Out) in the calculation of capital gains obtained from the sale of securities, according to which the securities sold are those acquired the longest. This rule has not undergone any change in the proposed State Budget for 2023, to ensure its application to the calculation of gains obtained from the sale of crypto-assets that do not constitute securities.

The value of my cryptocurrency portfolio increased last year, but I haven’t made any transactions. Do I have to declare it?

If you did not carry out any transaction in the previous year, it means that you did not have any capital gains from the sale of cryptocurrencies, so you will have nothing to declare to the Tax Authorities since the PIT one taxes realized gains.

I do mining of cryptocurrencies. Do I have to declare it? Is this a gain or a business activity income?

Cryptocurrency mining is now considered a commercial/industrial activity covered by the IRS under category B (self-employment). The income obtained from the exercise of this activity will be liable to the IRS, and the taxable income will be taxed at progressive tax rates.

The rule contained in the State Budget proposal for 2023 is not clear concerning the coefficient to be applied under the simplified regime, but it seems to imply that the taxable gain will correspond to 15% of the income obtained from the activity.

I received cryptocurrencies from a friend. Do I have to declare too?

In the case of a free transmission (for example, a donation of cryptocurrencies) there is a 10% Stamp Duty fee. This is not an income, so it won’t be reported in the tax return, only when it is sold.

I received cryptocurrencies as part of my salary, how is this taxed?

The cash equivalence of income in kind will now apply in situations where the income takes the form of a crypto asset. This means that in case the crypto is received as a payment, then it will be taxed under the income category rules (salary if it refers to salary, business income if it refers to business, etc). These assets will only be liable for capital gain tax if they are sold within less than a year and if there is a gain.

In case I use crypto assets to buy a house, how does the IMT apply?

The value of the crypto-assets given in exchange (determined under the Stamp Duty Code) must be considered for the purposes of calculating the deed value and therefore the IMT – Property Transfer Tax, will be based on this value.

My income comes from my activity of buying and selling cryptocurrencies. How do I declare?

If this is a repeated and continued practice, then you need to report this to the tax authorities and register your business activity, declaring the income as a sole trader.

Can I offset losses?

If you made losses the negative balance calculated in each year, related to the sale of crypto assets, can be carried forward for the following five years, if you opt for the inclusion of this income in category G and chose to aggregate this income to your other income, in order to be taxed at the progressive tax rates.

Do Crypto Assest Pay Stamp Duty?

The State Budget for 2023 proposes to tax “free transmission of crypto assets, when they are deposited in institutions in Portugal or, if they are not deposited, if the author is domiciled in Portugal, in the case of inheritance by death, or if the beneficiary is domiciled in Portugal, in the case of another free transmission”. Stamp Duty will be applicable at a rate of 10%, of free transmission of crypto-assets, understanding as crypto-assets any digital representation of value or rights that can be transferred or stored electronically, using distributed ledger or similar technology.

What are the rules for determining the taxable value of a crypto asset for Stamp Duty purposes?

It is expected that the valuation will be determined under the official quotation value if any and this will be the value declared by the inheritor/beneficiary.

How are legacy crypto assets taxed?

As the stamp duty will only apply to crypto assets in Portugal, there is a tax on inheritances by death when the author of the transfer is resident in the country. In the case of donations, it applies if the beneficiary is also domiciled in the national territory. In both cases, the rate will be 10%. As is what happens currently with shares or securities the withdrawal of crypto-assets that have been subjected to a free transmission cannot be authorized, without the respective Stamp Duty having been paid.

When are crypto assets considered to be located in the national territory?

In what concerns to residency rules, the State Budget 2023 determines that crypto-assets deposited in institutions with headquarters, effective management or permanent establishment in the national territory are considered situated in Portugal, or, in the case of non-deposited crypto-assets, in successions upon death, when the author of the transmission is domiciled in national territory; in other free transmissions, when the beneficiary is domiciled in the national territory.

Do commissions charged for providing cryptocurrency services (so-called intermediaries) pay stamp duty?

The State Budget for 2023 includes the taxation of Stamp Duty, at 4%, in commissions and fees charged by or with the intermediation of crypto-asset service providers. This means that CASPs (Crypto Asset Services Providers) will have to pay stamp duty at a rate of 4% on the transactions they intermediate and on the commissions they charge.

This means that CASPs domiciled in Portugal to will have to settle this tax. If the commissions are charged by service providers not domiciled in Portugal, this responsibility will fall on CASPs domiciled in the national territory that has intermediated the operations and on fiscal representatives who are mandatorily appointed in Portugal, if the operations have not had any intermediation in Portugal.

I bought NFT (non fungible token). Do these rules also apply?

Yes, an NFT is included in the definition of cryptocurrency provided in the IRS code.

Do I also declare income with stacking (crypto interest)?

The proposed State Budget for 2023 did not establish any specific rule for this income, therefore this income will only be taxed if it results from business and professional income (taxed under category B – sole traders).

A brief overview of the asset in each country, type of taxation, and the applicable tax rate if, applicable.

Country	Classification	Type of tax	Tax rate
Australia	Property	Progessive income tax GST	19-45% 10%
Belarus	Digital asset	NA	NA
Brazil	Asset	Capital gains tax	15%
Canada	Asset	Progressive income tax	15-33%
China	Virtual commodity	Progressive income tax (for international trading)	3-45%
Denmark	Private money	NA	NA
France	Property	Capital gains tax	30-34%
Germany	Private money	Progressive income tax	0-45%
India	Digital asset	Progressive income tax GST	0-30% 18%
Israel	Digital asset	Progressive income tax VAT	10-50% 17%
Japan	Property	Progressive income tax Consumption tax	5-45% 8%
Malta	Commodity	NA	NA
Netherlands	Asset	Income tax	30%
Panama	Digital asset	NA	NA
Portugal	NA	NA	NA
Russia	Digital asset	Income tax	13%
Singapore	Property	NA	NA
Slovenia	Movable property	NA	NA
South Africa	Intangible asset	Progressive income tax	18-45%
South Korea	Property	Income tax VAT	20.9% 7%
Sweden	Digital asset	Progressive income tax	0-57%
Switzerland	Movable property	Progressive wealth tax Progressive income tax	0-0.67% 7-34%
Turkey	Commodity	Progressive income tax	15-35%
UAE	NA	NA	NA
UK	Private money or Asset	Corporation tax Progressive income tax	19% 0-45%
USa	Property	Capital gains Progressive income tax	0-20% 10-37%

Source: https://3commas.io/blog/cryptocurrency-taxes-guide

Anti-Inflation measures that will affect rentals in 2023

October 19, 2022

By Ricardo Chaves

Anti-Inflation measures that will affect rentals in 2023

Anti-inflation measures and how this will affect rentals in 2023

The Portuguese Government has launched an anti-inflation package and new rules will apply to the taxation of long-term rentals in 2023, as compensation for the limited established annual rent increases.

How much was the inflation in Portugal in September?

The Portuguese Statistics Institute (INE) has stated that the inflation in September 2022 will be 9.3%. This is an increase of 0.4% compared with August 2022 and is the highest inflation rate since October 1992. In the Eurozone, the average inflation is currently 10%.

How much and when are the house rents updated?

As a rule, rents are updated annually, although there are cases in which this increase may not occur. It happens, for example, if there is an agreement between the tenant and the owner, which determines that there is no room for an increase. Even so, for leases after 1990, the most common is that this update is made every year and reflects the income update coefficient, whose value is defined by the Government based on the value of inflation. This coefficient is normally published in October each year.

What is the coefficient for 2023?

If the government would consider the inflation rate as of August 2022, like normally happens, the annual increase would be 5.43%. However, the Portuguese Government has established a limit of 2%, as a way of fighting inflation. This increase is applicable for both types of contracts: habitation and commercial.

How and when does the rent increase comes into effect?

If the rental contract allows for yearly rental updates, the landlord must inform the tenant by registered letter of the intention to increase the rent. This should be done after the publication of the law, which normally occurs each year in October and needs to be done with a minimum of 30 days’ notice. The new rent should start in January.

The first rent update should only be done after 1 year of the contract.

The Government will create a tax relief, to compensate landlords for the low rent increase.

The Portuguese Government has informed that will publish a law to compensate the landlords. This compensation is only valid for contracts before 01-01-2022 and it means that for individual taxpayers, who normally are taxed at the rate of 28%, the taxable rental income will be 91%, instead of 100%.

This means that if you have a net rental income of 10.000€ in 2022 and the tax is 28%, this equates to 2.800€. The same rental income in 2023, will generate a tax bill of 2.548€. As this will only be effective in 2023, the tax is only submitted and paid in 2024.

Please note that this applies to long-term rental contracts (category F) and not to touristic lettings which are service and reported under category B.

What about the rental income received by companies?

This law will also benefit companies and in this case, the coefficient to calculate the tax will be 0.87.

How can landlords save tax on rental income?

If you are a landlord with rental income from category F, please be aware that the longer the contract, the lower the tax rate applicable to your net income and this is not new. What is new is that the government will include in this law reductions to the taxable income and these reductions will increase with the length of the contract, as per the image below:

Term of the contract	Tax Rate	Taxable income
Up tp 2 years	28%	91%
From 2 to 5 years	26%	90%
From 5 to 10 years	23%	89%
From 10 to 20 years	14%	79%
More than 20 years	10%	70%

This law that was proposed by the government will also include these new coefficients for contract renewals. For instance, a contract of 2 years when it’s renewed, will benefit from the tax at 24% and only 89% of the net rental income will be taxed.

Please feel free to send any tax questions you may have to info@allfinance.pt.

Capital Gain Tax on financial assets

October 19, 2022

By Ricardo Chaves

Capital Gain Tax on financial assets

Capital Gain Tax on financial assets: what will change in 2023?

There are new rules applicable to the taxation of capital gains on financial assets, which will become effective in 2023.

What are the main changes?

The Portuguese State Budget for 2022, approved in the end of June includes an amendment to the Personal Income Tax Code (IRS) which will have an impact on the capital gains from financial assets, when the assets in question are held for a period of less than 365 days and the taxable person reaches an income taxable amount equal to or greater than the value of the last tax bracket, which currently is of 75,009 euros.

Currently when you make capital gains from financial assets, you may choose to aggregate this income to your overall income and be taxed at the progressive tax rates (which range from 14% to 48%) or be taxed at the autonomous rate of 28%. From 2023 onwards, if the assets are held for less than 365 days, the agregation is mandatory.

Is this change applicable to everyone?

No, firstly this is only applicable to tax residents who have an overall income (including all sources of income) greater than c and when the financial assets were held for less than 365 days. If you are not tax resident or if you are, but your overall income is lower than 75,009 euros, then the rule will not affect you.

Are all the financial assets included in this new law?

Regarding the capital gains arising from the redemption of units from investment funds, this new rule is not applicable and these can still be taxed at the autonomous rate of 28%. However, in relation to the income from the redemption of units of investment funds located outside the national territory, if the income from the redemption of units in investment funds foreign investments are not paid through entities with head office, effective management or permanent establishment in Portugal, such income, being qualified as capital gains under the terms provided for in the IRS Code, are likely to fall within the scope of application of the new rule and be subject to mandatory aggregation, once the other legal requirements have been verified.

When does this law come into effect?

Since the State Budget Law for 2022 did not establish any transitional rule, the (new) approved capital gains taxation regime can only be applied to the disposals of shares, securities, and other financial assets, that took place after 2023, since the relevant fact in the taxation of capital gains, for the determination of the applicable law, is the moment of disposal, that is, the moment when the transaction takes place.

This means that when you fill the Personal Income Tax Return (IRS) for 2023, which is submitted in 2024, this alteration will already be in place.

How much more tax can this represent?

Currently if your income is more than 75,009 euros and you own capital assets that are held for less than 365 days, you would pay 2.800€ of tax for each 10.000€ of gains. In the future the same gain will mean 4.800€ of tax.

If I am Non-Habitual Resident, will I also pay this tax?

This law is applicable to all residents and there is no special provision for those with the NHR status.

What happens to the tax I paid in the country of source, will I pay the same tax in Portugal again?

Like any other resident if the CGT is made in another country where you were also taxed, depending on the Double Tax Agreement with Portugal, you may be able to deduct the tax paid in the country of source. But please note that is in case of aggregation only.

Are there any ways of mitigating the tax to be paid?

If the market value of your shares at the end of the year is lower than the actual purchase price, you should consider the possibility of selling those shares before December 31st and then re-purchase them. The reason for this is that in case of realised losses, on the sale of shares, you can carry forward this loss for 5 years.

Also, in case you are considering becoming tax resident in Portugal and have substantial capital gains, you should consider selling those financial assets, prior to becoming tax resident in Portugal.

Please feel free to send any tax questions you may have to info@allfinance.pt.

Capital Gain Tax on rental properties in Portugal

October 19, 2022

By Ricardo Chaves

Capital Gain Tax on rental properties in Portugal

Capital Gain Tax on rental properties: what has changed?

There are new rules applicable to the taxation of capital gains, on properties that are registered for Local Lodging activity. These new rules can be more beneficial for some but can also be more penalising for others. It’s important to understand what the implications are and what you intend to do with your property in the future, to make the most sensible choice.

Please note that the taxpayers must choose between the old and new regime and this choice can only be made in this year’s tax return (IRS).

What are the main changes?

When you register for a Rental License (AL) you also register your business activity with the tax office. As this activity is carried out in your property, it means that you are transferring the property from your personal sphere into your business sphere. This transfer is virtual and up until 2021 could trigger capital gain taxes.

For instance, if you wanted to stop the activity and there was a capital gain on the property, it meant that simply because you were stopping the activity and transferring back to your personal sphere, you could be liable for a capital gains tax.

Now this problem does not exist anymore, with the new regime there is no capital gain tax due when transferring the property from or into the personal sphere neither there is capital gain taxes when stopping the activity.

Does it mean that in the old regime I would pay capital gain tax twice?

Not necessary and that is why tax planning is critical. When registering the activity and reporting the value of the virtual transfer, this should be done in a way that if the activity stops, there is no capital gain tax liability (or at least would be minimal) and this would only exist when the property was sold. But not always was possible and this regime was more penalising for those that were resident and had for instance inherited a property.

Does this affect all the properties in AL?

No, all those that registered for the AL business after January 2021 will only be able to choose the new rules. Also, this is only applicable to those owners that explore the properties directly, in other words, when they are cumulative the property owners, the holders of the Rental License and the beneficiaries of the rental income. If for instance the license is owned by a third party, a rental agent, or a relative, etc this is not a problem. Also, if you are not renting as a business, but declare it as rental income (paying the higher 28% tax rate) then this problem also does not exist.

Is the new regime better for future CGT calculation?

If for instance you stop the rental activity for 3 years before selling the property, this regime is a lot easier. Because if the property is sold 3 years after the date of cancellation of activity, capital gain is calculated as if the property was never under a business and all rules of private sale of property apply.

However, if you decide to stop the activity this year and sell in 2023, then if you are resident, it should be better to do it under the old regime, because under the new regime the capital gain tax will be levied on 95% on the gain, even when you are resident. But with the old regime only 50% of the gain would be taxed in case you were resident.

So which regime should I chose?

The decision depends on your personal circumstances and what you intend to do with the property in the future. Are you planning to stop your activity and put your house in the market? Are you planning to become tax resident in Portugal and live in that property to later sell it? Did you made considerable refurbishments to the property, during your AL activity?
Depending on the answers to these and other questions, it may be better to choose one or the other regime.

Examples of the CGT in the new regime:

Robert had a property on the local lodging activity from 2018, until 2022. The property costed him 250.000€ and he stopped the activity so he can sell it in 2023 for 300.000€.

Normally his gain would be 50.000€, however as the property was in the AL business, he will have to add 1.5% of 250k for the 5 years that he had the property in the AL business. This means that the Capital Gain is calculated not on 50.000€, but 68.780€.

Robert decided that he wants to stop the activity in his name and register the activity in the name of his rental agent. He will now pay more rental tax, but then if he decides to sell the property in the future, providing he does it later than 3 years from now, then the normal CGT rules apply and he will pay tax on 50.000€ of gain.

It is important that you plan, as you can’t afford any tax surprises. Please feel free to ask us for assistance, but please allow some time for a reply, due to the high level of enquiries received and the tax season.