Portugal simplifies rules for 20% expat tax rate

by Ray Clancy on August 20, 2012

Relaxed tax rules may lead to more investment in the country

Changes to tax rules in Portugal are aimed at encouraging more wealthy expats to invest in the country.

It is no longer necessary for non residents to provide proof of previous tax affairs to qualify for a reduced tax rate of 20% on income generated in Portugal.

The Portuguese Revenue has issued a circular relaxing the previous stringent information required for the tax break.

To be eligible taxpayers deemed by the revenue to be non residents could apply for the reduced rate if they were either High Net Worth Individual or high value added employees or self employed individuals or have been resident in Portugal for less than five years.

Under this system, introduced in 2009 the tax payer would receive a 10 year tax concession, with a flat rate of 20% on income sourced in Portugal and an exemption on foreign income while maintaining eligibility to tax treaty benefits.

But the rules were tough with applicants required to provide proof from a foreign tax authority confirming they had been resident abroad and that their income had been taxed in the source country, both when they were residing in Portugal and before.

Now such documentation is no longer required, according to the Portuguese Revenue and applicants need only provide a declaration saying that they were previously resident in another country.

Also high value added employees or self employed tax payers are now no longer required to prove effective taxation in their former country of residence prior to becoming resident in Portugal.

The Portuguese Revenue also said applicants will be liable to a final 20% withholding tax while being resident in Portugal, and will no longer pay the regular rate of income tax.

For non-expats, Portuguese income taxes are tiered, ranging from 11.5% up to 46.5%. Generally, if you spend more than 183 days a year in Portugal you are considered a resident.

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