Portugal - it's not just the 300+ days of sunshine, the sandy beaches, the friendly locals and the low cost of living which make it such an attractive place to own a property. Many financially intelligent foreigners choose to buy a home there because of its extremely generous tax rules. These clear and transparent tax rules make it a great place to live, work, start a business or enjoy the fruits of your retirement.
To benefit from many of them, you will have to declare yourself as a non-habitual resident. This is possible for those who spend fewer than 182 days a year living in Portugal and haven't been taxed by the Portuguese government for five straight years prior to applying. You can keep a non-habitual resident status for up to ten years.
Here are seven examples of tax planning opportunities that Portugal can provide.
1. Tax treaties
Portugal has signed tax treaties with more than 60 other nations, ensuring that non-habitual residents aren't doubled-taxed on any income sourced in these foreign countries. It means all income earned from salaries, pensions, investments, capital gains or intellectual property outside of Portugal won't be taxed by the Portuguese government, provided it is covered by one of these 60 tax treaties.
2. Reduced personal income tax
Taxation for salaries, capital gains and real estate yields in Portugal all come under the category of 'Personal Income Tax (PIT), which ranges from 11.5 per cent up to 46.5 per cent - depending on an individual's earnings. Yet, non-habitual residents can apply for a generous 20 per cent PIT rate.
This application will typically be granted if they are a high net-worth individual or the income is gained through a "high value-added activity". Examples of such activities include most jobs in or gains made from architecture, medicine, computer programming, the arts or companies in the listed sector.3. Residence permits
Portugal will grant residence permits to most individuals that transfer a certain amount of wealth to the country's economy. Anyone can apply for a permit once they have transferred a million Euros worth of capital to Portuguese businesses, including investment in stocks or shares, or created at least ten jobs in the country. Property investors can apply for a permit once they have acquired at least 500,000 Euros worth of real estate. Residents can apply for Portuguese nationality after living legally in the country for six years, which could bring long-term tax advantages.
4. No wealth tax
There is no wealth tax in Portugal, meaning there will be no levies to pay on assets in the country, regardless of their productivity. This is certainly an advantage to Europe's wealthiest residents and to property investors looking to add to some Portuguese homes to their portfolio.
5. No inheritance tax
Inheritance tax was abolished in 2004 for spouses, parents and children. For other loved ones, it is payable at a rate of 10 per cent, but only on assets that are in the country. This means, for example, that Portuguese residents could gift a property in Spain to their brother tax-free.
6. Plans to slash corporate tax
In July 2013, Portuguese finance minister Maria Luis Albuquerque spoke of plans to cut the national corporate tax rate to 19 per cent within five years. This is the latest of many initiatives to encourage more businesses to set up shop in Portugal. These gradual tax cuts could begin as early as 2014, provided they are approved by international creditors and found to meet EU regulations regarding government assistance to the private sector.
7. There are even more tax breaks in Madeira
Businesses licensed to operate in the Madeira International Business Centre (MIBC) are subject to lower VAT rates, corporate tax of just five per cent and could be applicable not to be taxed on interest, royalties and various services.
Portugal may be recovering from an economic slump, but there are plenty of reasons to do business in this beautiful country.
Posted on Thursday, August 15, 2013