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With the end of Summer, school starts, business gets back to full speed and those working more closely with tax matters start wondering about what next Budget will bring.

The fact that Portugal has a minority government brings an added level of uncertainty as every year a hard Budget negotiation takes place.

For 2020 the press has started to drip feed information about an intention to end, in some cases, the possibility of opting for the flat rate of 28% on income tax on rental income and dividends.

For a long time, the Portuguese individual income tax system (IRS) allowed the taxpayers the option of choosing to be taxed on certain types of income, namely interest, dividends, capital gains and rental income, either with a flat rate of 28% or under progressive rates where the bigger the total income higher the tax rate (up to 48%).

In recent years some criticism has increased that this effectively means that employment and consulting income is more heavily taxed than capital income. There is truth in this but it should be noted that this occurs in most jurisdictions with which Portugal has to compete.

In the end the final proposal should be much more diluted but still some alteration is possible. Should the rumours manifest themselves in the reality of a change, rental income, dividends and capital gains on financials products would be subject to the application of progressive rates (there’s no talk of alteration on capital gains on the sale of real estate). Therefore the possibility to opt for the flat rate would not allowed. However, this should only apply above a relatively high global income threshold and the period of ownership should also be taken into account, favouring long term investment and penalizing short term, speculative holdings.

EDGE tax team will be monitoring the Budget proposal very closely and will be able to provide advice and planning in order to avoid an increase to your tax burden. In any event if you have NHR status you should be protected of any change.

Gonçalo Figueira
EDGE International Lawyers