# Living with higher taxes in Portugal



## siobhanwf (Mar 20, 2009)

*Courtesy of Belvin Franks*

Over the last few years we have seen a wave of tax rises spread across Europe as many countries struggle to repair their budget deficits after the financial crisis. The term “austerity measures” has become commonplace and I reckon we’ll be hearing it for a few years yet. Portuguese residents are affected in various ways by the measures being imposed here, including tax rises.

Higher tax rates is something we will probably have to get used to, but there may be steps you can take to lessen the impact on your savings and investments.

A new top rate of income tax was introduced last year for income received from 1st January 2011 and it remains in place this year. The top rate of income tax in Portugal is now 46.5% and is charged on income over €153,300. Previously the top rate was 42%. Tax rates were increased across the board, so, for example, the lowest rate rose from 10.5% to 11.5%, though the tax bands also changed slightly.

The margin tax rates for 2012 remain the same as last year’s, and therefore are:

€0 to €4,898 - 11.5%

€4,898 to €7,410 - 14%

€7,410 to €18,375 - 24.5%

€18,375 to €42,259 - 35.5%

€42,259 to €61,244 - 38%

€61,244 to €66,045 - 41.5%

€66,045 to €153,300 - 43.5%

Over €153,300 - 46.5%

Last year the government also imposed an “extraordinary tax” on all personal income received by Portuguese residents in 2011. It was a one-off surtax (though I suppose there is no guarantee it will be not be imposed again this year if necessary) and was charged at a fixed rate of 3.5% on all taxable income (including investment income taxed at fixed rates) over €6,790.

While employees had it deducted from their Christmas bonus last year, for other sources of income the surtax is being assessed on your 2011 tax return.

This year sees the introduction of a 2.5% additional surcharge applicable to personal income that exceeds €153,300. This means that the top rate of income tax is actually 49%. This ‘solidarity tax’ is scheduled to be imposed on income received in 2012 and 2013.

Besides this extra tax, taxpayers who fall into the two highest income tax brackets (so in receipt of taxable income exceeding €66,045) have lost their tax credits, which will result in most of them paying more tax.

Savers and investors are also suffering tax rises on their investment income this year.

The fixed rate of tax which is applied to interest income has increased from 20% to 25%. Where the income arises in a tax haven, interest will now be taxed at 30%. The Channel Islands and Isle of Man are included in Portugal’s list of tax havens.

The flat rate of tax applied to most investment income, including capital gains on shares and bonds, has also increased from 20% to 25% for income received from 1st January 2012. The new tax rate was originally planned to be 21.5%, but it was upped to 25% in December.

Besides the above tax rates on income, the standard rate of VAT has increased from 20% to 23% over the last couple of years and is now being applied to more goods.

You may also be affected by the changes to the municipality tax Imposto Municipal sobre Imóveis (IMI). Urban properties are being revalued, the IMI rates are being reviewed and there will be a substantial reduction in existing IMI exemptions.

Besides actual tax rises the government is also looking to increase tax revenue from its fight against tax evasion, and it is preparing a strategic plan to avoid fraud and tax evasion.

The statute of limitations for tax litigation where a taxpayer has failed to declare income from deposit accounts and securities held in finanancial institutions outside the EU has increased from four to 12 years. The Channel Islands and Isle of Man are outside the EU. The authorities will increase their usage of information technologies to monitor how taxpayers are complying with their tax obligations and penalties will be increased for serious tax crimes.

The Portuguese government has pledged to reduce the budget deficit from 9.8% of gross domestic product (GDP) in 2010 to 5.9% in 2011; 4.5% this year and finally right down to 3% in 2013, and the Prime Minister recently confirmed that Portugal will stick to the targets and will not ask for them to be eased as Spain has just done.

GDP is expected to decline by 3.25% this year, following last year’s 1.5% fall, and although a slow recovery is expected to take hold next year, meeting the deficit targets could prove to be a tough task. Portuguese taxpayers need to be prepared for the possibility of further tax hikes if the government needs to bring in more revenue to aid its efforts.

http://www.blevinsfranks.com/EN/new... - Most Popular Website Articles - APRIL 2012


By Bill Blevins, Managing Director, Blevins Franks


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## canoeman (Mar 3, 2011)

Timely warning to all those expats who don't think they should make a Tax return in Portugal


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