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Personal Income Tax (PIT)

Youth PIT (“IRS Jovem”)

There is an update of the tax regime applicable to income earned by young workers aged between 18 and 26 years who are not dependents. The following amendments are introduced:

  •  The regime shall cover also income from Category B (self employment/business income) and not only income from Category A (employment income) as before;
  • Increase of the limit age to 28 years, in case of conclusion of a PhD;
  • The exemption applies during the first five years following the conclusion of the eligible degree;

  • The exemption is of 30% of the income earned in the two first years; 20% in the two following years; 10% in the last year, capped respectively at 7.5 * Social Support Index (“Indexante dos Apoios Sociais” or “IAS”), 5 * IAS and 2.5 * IAS;
  • The exemption can apply in non-consecutive years, provided that the taxpayer is not aged more than 35 years;
  • Information on the taxpayers eligibility for the exemption is made available by the tax authority in the automatic PIT return, or in the prefilled PIT return.

The new exemption rules apply to taxpayers which first year of income earning (following the conclusion of a cycle of studies) is 2021 or a following year. Taxpayers that have opted for the regime in 2020 can benefit from the new rules for the remaining period, with the necessary adjustments.

“The tax exemption can apply in non-consecutive years, provided that the taxpayer is not aged more than 35 years”.

Tax regime applicable to former residents extended until 2023

There is an extension of the tax regime applicable to former residents that returned to Portugal in 2019 and 2020. The 50% relief from taxation on employment and self-employment/business income applies to taxpayers that became or become resident in the Portuguese territory in 2021, 2022 and 2023.

The relief requires that the taxpayers were resident in the Portuguese territory respectively prior to 31 December 2017, 2018 and 2019. The remaining requirements remain unchanged. Namely the taxpayers should not have been resident in the Portuguese territory in the 3 prior years and must have their tax situation regularized.

The tax relief also applies to withholding taxes levied by paying entities.

There are practical mechanisms foreseen for taxpayers that have required their registration under the (alternative) regime for Non Habitual Residents (“Residente Não Habitual” or “RNH”) and wish to benefit in 2021 from the regime for former residents. In those situations, taxpayers can file the 2021 PIT return Form 3 (“Modelo 3”) (or a replacement PIT return, until 31 July) opting for the special regime for former residents. The registration as RNH is automatically canceled.

Capital gains on securities

Mandatory aggregation

The positive balance between capital gains and capital losses arising from the transfer for consideration of shares and other securities is mandatorily aggregated  and taxed at progressive rates if all of the following conditions are met:

  • The assets have been held for less than 365 days;
  • The taxable income of the taxpayer including the balance of the capital gains and capital losses amounts to or exceeds EUR 75,009.
  • These rules apply also to the balance between capital gains and capital losses subject to the aggravated 35% tax rate (country, territory or region subject to a clearly more favorable tax regime).

These rules apply only to income earned from 1 January 2023 onwards.

 

Assessment method

First in first out (FIFO) rule shall apply in case of a disposal of securities deposited in more than one credit institution or financial company, with this rule applying with reference to each of these entities. Credit institutions and financial companies involved in security-related transactions are required to provide a document to the taxpayers, by 20 January of the following year, identifying the amount, date, historical acquisition value and sales value of the securities disposed of.

In case the date and historical acquisition value are unknown, the acquisition value corresponds to the lower quotation amount in the two years prior to the sale, unless a lower amount is declared.

 

Acquisition by means of an exempt donation

The acquisition cost of securities acquired by means of a donation that is exempt from Stamp Tax will correspond to the amount considered for the purpose of the assessment of said tax, in the two years prior to the donation.

Simplified tax regime – Category B (self-employment income)

Expenses 

It is no longer possible to claim against the amount of deductions as assessed by the tax authority.

However when filling the PIT return, it shall continue to be possible to amend the amounts shown in the invoice portal (“e-fatura”) concerning staff costs, rents and other expenses incurred with the acquisition of goods and services that are necessary to carry on the business activity. Any amendment requires proof.

General tax rates

The third and sixth income brackets are split. There will be a reduction of rate for the lower amount of those brackets. The table with the general PIT rates shall include nine income brackets as follows:

Taxable income (EUR)

Rate

Amount to deduct (EUR)

Up to 7,116

14.5%

0.00

Above 7,116 up to 10,736

23.0%

604.86

Above 10,736 up to 15,216

26.5%

980.63

Above 15,216 up to 19,696

28.5%

1,284.99

Above 19,696 up to 25,076

35.0%

2,565.21

Above 25,076 up to 36,757

37.0%

3,066.79

Above 36,757 up to 48,033

43.5%

5,455.84

Above 48,033 up to 75,009

45.0%

6,176.56

Above 75,009

48.0%

8,426.51

Subsistence level

There will be an increase by EUR 200 of the amount of the subsistence level in the PIT to be assessed in 2022 concerning income earned in 2021.

On the computation of the PIT concerning income earned in 2022 the previous rules will apply. This will correspond to the computation rules foreseen in the legislation (1.5 * 14 * IAS) or any other rules enacted in the future. 

It is established that the Government will assess the introduction of changes to the “subsistence level”, with a view to continue to increase its value and correct elements of regressive taxation.


Assessment of the adequacy of withholding tax rates

It is foreseen an assessment of the introduction of a mechanism that allows applying a withholding tax rate that is more adequate to the taxpayer’s situation, in those cases where an increase of salary results in a lower amount of net monthly income than the one earned previously.

Deductions for dependents

The legislation in force foresees a personal deduction per dependent amounting to EUR 600, as well as an additional deduction of EUR 126 for dependents aged up to three years (with reference to 31 December of the tax year concerned). Said additional deduction amounts to EUR 300 in respect of the second and following dependents, regardless of the age of the first dependent.

It is now foreseen an additional deduction of EUR 150 for the second and following dependents aged between four and six years old, regardless of the age of the first dependent.

Deduction for requesting invoices

There is an increase to 35% (currently, 22.5%) of the deduction concerning the VAT amount incurred with the acquisition of veterinary medicines.

Amendments to tax credits

It is no longer possible to claim against the amount of deductions as assessed by the tax authority in respect of expenses with health, education, rents for permanent accommodation, and retirement homes.

However when filling the PIT return, it shall still be possible to amend the amounts shown in the invoice portal (“e-fatura”) concerning expenses incurred with health, education, rent for permanent accommodation and retirement homes. Any amendment requires proof.

Civil custody

People who are covered by civil custody are currently regarded as dependents for tax purposes. This rule will not apply in case a person (i) was until adulthood under custody of any of the members in charge of the household, (ii) is not aged more than 25 years and (iii) does not earn annual income exceeding the monthly minimum wage.

Legislative authorisations

Environmental deductions

The Government is granted authorisation to introduce environmental deductions for PIT purposes concerning a number of expenses related namely with thermal and hydric efficiency and the production of renewable energy for personal use. The purpose is to allow a PIT deduction of part of the VAT incurred with said expenses, capped at EUR 500 per household. 

Startups

The Government is granted authorisation to establish a legal definition of startup. This will allow determining the eligibility of start-ups for financial and tax allowances. The Government is also granted authorisation to establish a special regime applicable to gains from stock plans (stock option, subscription, attribution or equivalent effect) in this context.

Incentives for civil servants in inland regions

The temporary compensation granted to civil servants placed in inland regions becomes exempt from PIT and Social Security.

“The Government is granted authorisation to establish a special regime applicable to gains on stock plans (stock option, subscription, attribution or equivalent effect).”

Contact us

Rosa Areias

Rosa Areias

Tax Lead Partner, Membro da Comissão Executiva, PwC Portugal

Tel: +351 225 433 101

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