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Personal Income Tax (PIT) and Social Security

Personal Income Tax

Capital gains

No capital gains shall be assessed in case of allocation of real estate held privately by an entrepreneur to the respective business activity. The same applies in the opposite case, i.e. private allocation of real estate used by an entrepreneur in the respective business activity.

Any taxable capital gain shall only be assessed in case of disposal of the real estate to a third party, regardless of being used in the business activity.

In case the real estate is disposed of before three years have elapsed following the private allocation, the capital gain is taxed under Category B (business income). The relevant price of acquisition shall be the value of the real estate upon acquisition (currently, it is relevant the market value of the real estate at the time of the private allocation).

The disposal of the real estate taken place after three years following the private allocation implies the taxation of the capital gain under Category G (increase in wealth).

For the purposes of assessing the amount of the taxable capital gain, expenses with improvements in the real estate shall be disregarded if incurred while the real estate was being used in the business activity.

Latent capital gains assessed under the current regime shall be subject to the new taxation regime detailed above.

With reference to 1 January 2021, taxpayers owning real estate allocated to a business activity can opt for the previous tax regime when assessing tax capital gains or capital losses on the allocation of such real estate. Said option should be included in the 2021 PIT tax return, as well as the real estate concerned. 

Capital gains on real estate – Reinvestment

Under the rules introduced in 2019, capital gains arising on the sale of real estate used as permanent home are exempt from taxation among others in case of reinvestment with the acquisition of an insurance contract, units in an open pension fund or contributions to the public capitalisation regime. In respect of the insurance contract, it is now clarified that only life financial insurance is eligible.

In addition, the following cumulative conditions apply:

  • the taxpayer or respective spouse or unmarried partner are retired or have at least 65 years at the date of transfer of the real estate;

  • reinvestment should take place within 6 months following the transfer;

  • in case of reinvestment in an insurance contract or acquisition of unit in a open pension fund, these grant a periodical or regular return of a maximum annual amount corresponding to 7.5% of the amount invested.

It is now established that the payment of said periodical or regular amount must occur throughout a ten year period or a higher period. Any interruption determines the loss of the benefit granted. 

Except for the rules concerning the term of the periodical or regular amount, the remaining amendments to these provisions have an interpretative nature.

“There is no taxation on the capital gains assessed in the allocation of real estate to private use or to a business activity.”

Capital gains – Transfer pricing rules

The terms and conditions of transactions carried out between a taxpayer and an entity with whom special relations exist (as foreseen in the applicable transfer pricing rules), and such transactions giving raise to capital gains or capital losses, should be identical to those of transactions taken place between independent entities, in comparable transactions (the regime foreseen in Article 63 of the Corporate Income Tax Code applies with the necessary adjustments).

“Transfer pricing rules now apply to Personal Income Tax.”

Business income

Assessment

In case of private allocation of real estate previously used in a business activity concerning which depreciation or impairment losses were made respectively recognised, the income of the year concerned and of the three following years should include, in equal amounts, the tax deductible costs incurred while the real estate was allocated to the business activity.

Said amount is added up to the acquisition value in case of computation of the tax due on any taxable capital gains assessed.

Simplified tax regime – Expenses

The amount of costs incurred with employees, real estate rents and other expenses incurred on the acquisition of services (necessary to carry out the business activity) can be amended in view of the amounts stated in the Tax Authorities’ dedicated website (“e-Fatura”). The amendment is made upon filing the 2020 Personal Income Tax return.

Amendments to the amounts stated in “e-Fatura” require proof.

Tax credits

Health expenses

15% of the amounts incurred with the acquisition of protective respiratory devices and sanitary gel are allowed as tax deductible health expenses. These should be subject to VAT at the reduced rate. 

The overall cap of tax deductions for health expenses remains unchanged at EUR 1,000 per household.


Issuance of invoice

Requesting the issuance of an invoice allows a Personal Income Tax credit corresponding to 15% of the VAT incurred by any member of the household. This applies to sports and recreational activities, sports clubs and gyms/fitness clubs. 

The tax deduction of costs incurred with the acquisition of veterinary medicine increases from 15% to 22.5% of the VAT incurred.

This deduction is capped at EUR 250 per household.
 

Amendments to tax credits

The transitional regime allowing amendments to expenses incurred with health, education, real estate and retirement homes, in view of the amounts stated in the “e-Fatura” is maintained. The amendment is made upon filing the 2020 Personal Income Tax return.

Amendments to the amounts stated in “e-Fatura” require proof.

VAT voucher (“IVAucher”)

The amount of VAT used under this regime is disallowed for the purpose of assessment of Personal Income Tax deductions - specifically the general and family expenses, and the deduction allowed in case of requesting the issuance of invoices.

“VAT on fitness activities is now tax deductible.”

Donations

A taxpayer granting donations of an amount exceeding EUR 50,000:

(i) which respective tax liability in the year concerned is lower than the amount of the allowed deduction or

(ii) that reaches the cap of the deduction (15% of the tax liability), can carry the amount of the deduction forward for the following three years, capped at 10% the tax liability in each of the tax years concerned.

Minimum subsistence level

There is an increase by € 100 of the amount of the minimum subsistence level for PIT purposes in respect of the PIT to be assessed in 2021 on the income earned in 2020.

For income earned in 2021, the existing computation shall apply (1.5 x 14 x Social Support Index or “IAS”).

Refund of amounts invested in savings plans

Until 30 September 2021 it is allowed the refund, without tax penalties. of amounts of retirement savings plans, education savings plans and retirement/education savings plans, endorsed until 31 March 2020. The following conditions apply:

  • Refund capped at the monthly amount of the Social Support Index (“Indexante de Apoios Sociais” or “IAS”) in case one of the members of the household:

    • is in preventive isolation or illness or is providing assistance to children or grandchildren;

    • is in a situation of reduction of the normal work hours, or has his labor contract suspended, resulting from the employer being in a situation of company’s crisis;

    • is eligible for the extraordinary support to employment;

    • is eligible for the extraordinary support in case of reduction of the business activity of a self-employed individual;

    • being a worker without economic or social benefits, it is eligible for the extraordinary support in force;

    • has a decrease of the relevant monthly average income above 40%, between March and December 2020, when compared with the relevant monthly average income of 2019, as well as between the most recent quarterly return available with reference to the date at which the support is requested and the relevant monthly average income in 2019.

  • Refund capped at a monthly amount corresponding to 1.5 the IAS in case one of the members of the household which is a lessee in a rental contract of an urban real estate used for permanent habitacional purposes in force at 31 March, benefits from the regime of deferral of rental payments and need said amount to regularise rents.

Legislative authorisations

Forestry Savings Plans (“Planos de Poupança Florestal”)

Similar to the 2020 State Budget law, the Government is once again granted authorisation to establish tax benefits for Forestry Savings Plans (FSP). The regime shall include an exemption from Personal Income Tax on interest arising from FSP as well as a tax credit corresponding to 30% of the amounts invested in cash to a FSP in the year concerned, capped at  EUR 450 per taxpayer.

“Increase by EUR 100 of the minimum subsistence level concerning income earned in 2020.”

Social Security

Sustainability index in case of anticipation of aged-retirement pension

The sustainability index does not apply on the computation of retirement pensions required between 1 January 2019 and 1 January 2020 under the existing aged-retirement pension anticipation regimes.

The respective amount can be reassessed upon request. The new amounts computed apply to pensions paid from 1 August 2020 onward.


Legislative authorisation

Professionals in the cultural field

The Government is granted authorisation to set up a regime of social security applicable to entertainers, professionals in the fields of arts, audiovisual, visual arts and literary creation. The legislative authorisation includes:

  • A definition of the social security and contributions regime applicable to said professionals, aiming at setting up protection in case of sickness, parenthood, occupational illnesses, disability, old age and death; these shall be guaranteed by the social security scheme applicable to employees and self-employees; protection during unemployment is also covered;

  • Establishment of a transitional regime for an extraordinary regularisation of social security contributions and taxes related with the activity developed by said professionals.

“Costs incurred with respiratory protective devices and sanitising gel are allowed as tax deductible.”

Contact us

Rosa Areias

Rosa Areias

Tax Lead Partner, Membro da Comissão Executiva, PwC Portugal

Tel: +351 225 433 101

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