Portugal’s State Budget for 2022: impact on expats

Portugal´s State Budget for 2022 brought some changes to the Personal Income Tax. In this article we outline the changes with impact on capital gains income taxation, namely from the disposal of movable property and related to fiduciary structures.

Short-term capital gains from the disposal of movable property

Up until Portugal´s State Budget for 2022, capital gains from the disposal of movable property were generally taxed at a flat tax rate of 28% (unless the taxpayer opted to add the capital gains to the remaining income and subject them to taxation at progressive tax rates).

Now, when it comes to the disposal of movable property (e.g., stocks, securities), the Portuguese Personal Income Tax (PIT) Code establishes a difference between long-term capital gains and short-term capital gains, subjecting it to different forms of taxation.

Short-term capital gains will now add up to the remaining income of the taxpayer and will be subject to progressive tax rates (that can go up to 53%) if the taxable income is equal or higher than €75.009,00 (including the short-term capital gains income).

For short-term capital gains one should understand the gains from the disposal of movable property held by the taxpayer for less than 365 days.

A special attention should be paid by taxpayers who benefit from the Non-Habitual Resident (NHR) regime, as capital gains, generally, are not exempt from taxation under the NHR regime.

Fiduciary structures

Up until Portugal´s State Budget for 2022, only the amounts received by the Settlor from the liquidation, revocation, or extinction of fiduciary structures (e.g., Trusts) were regarded as income from capital gains.

From now on, the onerous assignment of rights over fiduciary structures, including the onerous assignment of the beneficiary position, will also be regarded as capital gains income and, thus, subject to the Personal Income Tax in Portugal.

On the other hand, the latest State Budget introduced a rule that establishes as Portuguese-sourced income – and, thus, subject to the Personal Income Tax in Portugal - the capital gains deriving from the onerous assignment of rights, of any nature, over a fiduciary structure, provided that, at any time during the 365 days prior to the assignment, the value of that structure results, directly or indirectly, in more than 50% from immovable property or rights in rem over immovable property located in Portuguese territory.

On another note, capital gains related to fiduciary structures domiciled in a country, territory or region subject to a clearly more favorable tax regime, included in the list approved by order of the member of the Government responsible for the area of finance (e.g., tax havens) will be taxed at an aggravated flat tax rate of 35% (notwithstanding the above-mentioned short-term capital gains regime).

The fiduciary structure is considered to be domiciled in a tax haven if the place of headquarters or the effective management of the Trustee is located in that territory, or, in the case the Trustee is a natural person, this person is deemed to be a resident there for tax purposes.

The State Budget for 2022 came into force after the publication of the law that supports it on Monday, June 27 in the Diário da República, following the due promulgation of the President of the Republic, Marcelo Rebelo de Sousa.

2022 will see a substantial implementation of the Recovery and Resilience Plan (RRP), with GDP (gross domestic product) in volume expected to be higher than before the pandemic. However, the troubling events that continue to evolve in Ukraine will certainly impact public finances, in Europe and Worldwide.

The Government believes that immigration is necessary to sustain the development of both the Portuguese economy and of the positive change in demographics, declaring its intention to continue with progressive immigration policies that reflect the values of tolerance and openness.

There are currently plans, that precede the approval of the State Budget, to replace the Portuguese Foreigners and Borders Service (SEF) with the Portuguese Agency of Migration and Asylum (APMA), which will serve a more administrative function than one of law enforcement.

The government has also announced plans to create an intuitive digital platform for immigrants to reduce the bureaucracy of Portuguese administrative functions. This would include simplifying the types of visas available and the complexities involved in their application, ensuring the overall immigration process runs much more smoothly.

There are no plans to abolish the Portugal Golden Visa programme. However, since January 2022, those looking to be eligible for the Portugal Golden Visa can no longer purchase property in Lisbon and Porto, only in some inland regions of the country. For further information, read our Insight regarding the new rules for Golden Visa applications.