IRS Portugal: Personal Income Tax - What you need to know

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Your questions on IRS in Portugal answered

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Tax season in Portugal is here. IRS (Imposto sobre rendimento das pessoas singulares) is personal income tax. The period for submitting your 2021 tax form is from 1^st April to 30^th June 2022. Submitted online, with much information automatically completed, the process is relatively straightforward. However, the guidance of tax experts and qualified accountants can ensure you are as tax efficient as possible while also complying with all obligations.

Below are some tips and information from Ricardo Chaves at All Finance Matters. Based in Tavira, All Finance Matters offers accountancy and tax services. Their level of expertise and knowledge is outstanding and they pride themselves on offering honest, professional and practical advice on all finance matters for both residents and expats in Portugal.

IRS Portugal: Personal Income Tax 2021 - What you need to know
The IRS delivery time will begin in the 1^st of April and will run until the end of June. So now it’s that time of the year, when we need to clarify some of the questions you may have concerning this important task.

In which form can I submit my IRS tax return in Portugal?
All IRS tax declarations are exclusively submitted on-line, so if you don’t have yet a password to access the tax portal, it’s important to request one per each tax payer. As the tax website is only in Portuguese this may be a difficult task if you don’t understand the language, ask your accountant to get this for you.

When do I need to submit my IRS tax return in Portugal?
All IRS tax returns independently of the type of income earned, need to be submitted from the 1^st of April until the 30^th of June.

What is the period covered in my Portuguese IRS tax return?
The tax year in Portugal is the same as the civil year, so you declare the income from 1^st of January 2019, until 31^st of December.

Who needs to fill an IRS tax return in Portugal?
All the tax residents need to declare their worldwide income in Portugal. The non-residents that earned income from Portuguese source also need to submit the IRS tax return. There are exceptions for residents that have earned only salaries or pensions, from Portuguese sources, lower than 8.500€ per year, and when there wasn’t any tax deducted on source, and or in case they received alimony income up to 4.104€. Also, if you earned income from category B (sole trader) from a unique transaction (ato isolado) and this income is lower than 1.743,04€.

Do I fill a joint return with my partner or a single one each?
You may choose to do it either way, so it’s important to ask your accountant to simulate the two scenarios and see what is more advantageous to you.

What happens if I forget to file a return or do it incorrectly?
It’s important to be aware that the fines for non-compliance with the dates, can be very high. Fines can go from 37.50€ to 112,50€ for a delay of 30 days. However depending on the type of miss conduct, mainly fraud, fines go from 375€ to 22.500€.

I’m non-resident, do I need to submit a return?
First of all, are you sure that you are non-resident? Do you have a fiscal representative? If not, where do you receive your IMI council tax bills? If you receive them at your property in Portugal, then most likely you are resident for tax purposes in Portugal. If you are non-resident, then you will only submit a IRS return in Portugal if you have income from Portuguese source (this includes property rental or property sale even if you haven’t made a capital gain).

I arrived in Portugal last year, do I need to submit a return?
In the first year of residency, you need to submit a tax return for the period you were in Portugal (from … to 31-12-2019). The same happens to all those that stopped being Portuguese residents in 2019, they need to submit a tax return from 01-01-2019 until the date they left.

What happens if I have to submit tax returns in more than one country and the information is not ready before the end of June?
If for any reason you don’t have all the information required to submit the tax return in Portugal by the end of June, you may submit a request via the tax website, to allow you to submit the tax return until the end of December of the current year.

When do I need to pay my IRS?
After submitting your tax return the tax authorities will validate your declaration and you will receive a tax bill in the post, giving you 30 days to pay. Please note that if you intend to be away during the warmer months and don’t have a fiscal representative to receive your bills, you will incur in monthly interest charges and penalties, if paying out of date.

I am NHR, will I start paying 10% tax on my pension?
No, only those individuals that became resident after the publication of the new law, will be liable for 10% tax on their foreign pensions. All others that were already resident, continue to be exempt, even if they apply for the NHR afterwards.

Some suggestions to make your IRS this year a stress-free task
We strongly advise our customers to prepare everything with time, in order to complete this process smoothly:
PASSWORD: Make sure you and your partner have a password to access the Tax Portal. If you do not have one, request a new one immediately;
COPY OF ID AND NIF: for you, your partner and any dependents you may have;
DECLARATIONS OF INCOME: gather the statements of income and withholding taxes;
BANK ACCOUNT: your IBAN will be necessary to include on your IRS return and will make any tax refund much quicker. This also includes the IBANs from any foreign bank accounts opened in your name.
CGT: if you have sold a property in the previous year, make copies of the deeds (for purchase and for sale) and gather invoices for the real estate commission and home improvements. These can be deducted against any capital gain tax.

Remember if you have a resident status but your income was earned abroad, you have to deliver along with the tax return the ‘J’ Annex which discriminates the values received abroad. There are taxation agreements in place between Portugal and several countries to avoid double taxation, so the impact this will have on your IRS will depend on several factors.
If you are registered as a non-habitual resident, don’t forget you will need to fill in the Annex L and also include the IBAN information on all your bank accounts abroad.

And remember, we can assist you with all this bureaucracy, please feel free to book an appointment with us and avoid any late submission fines.

This article was originally published by All Finance Matters.