Wealth Tax in Spain Vs Portugal

Maria Câncio | Lawyer

Last September, the Spanish Government has announced a new wealth tax, to be levied in 2023 and 2024 on Spanish tax residents whose wealth exceeds 3 million euros (the so-called Solidarity Tax on Large Fortunes).

For that reason, many of these HNWI Spanish taxpayers may start looking at Portugal as an opportunity to relocate, not only because of the proximity to their own country but also for the tax advantages that it provides.

Although there is not an actual ‘Wealth Tax’ in Portugal, certain expressions of wealth are also taxed, namely:

Real Estate located in Portugal

The municipal property tax surcharge (v.g. Adicional ao Imposto Municipal sobre Imóveis – ‘AIMI’) is levied on the sum of the real estate value owned by a taxpayer, as follows:

• Individuals and undivided inheritances:
• The tax rate is 0.7% when the taxable value is less than €1,000.000.
• A marginal rate of 1% applies to a taxable amount of more than €1,000.000 and equal or lower than €2,000.000 (or twice that amount in case of taxpayers that are married or living in non-marital status).
• A marginal rate of 1.5 % to a taxable amount that exceeds €2,000.000 (or twice that amount in case of taxpayers that are married or living in non-marital status).

Note: There is a deduction of €600,000.00 per individual/undivided inheritance to the taxable amount.

• Legal entities:
• The tax rate is 0.4%.
• The real estate value held by legal entities for personal use of the equity holders, members of the legal entity, or their spouses, ascendants and descendants, is subject to a rate of 0.7%, when the taxable value is less than €1.000,000. A marginal rate of 1% applies to a taxable amount of more than €1.000,000 and equal or lower than €2.000,000, a marginal rate of 1.5% to a taxable amount that exceeds € 2,000,000.

Properties classified as ‘commercial, industrial or for services’ are excluded from AIMI. An aggravated AIMI rate of 7.5% is applicable to real estate owned by a company based in a jurisdiction or region classified as blacklisted.

Inheritance and Gift tax:

The Inheritance and Gift tax rate in Portugal is usually 10% and it is levied on the value of the transferred assets (regardless of the amount of the wealth transfer) and only the free transfer of assets in favour of individuals is subjected to taxation, meaning that the transfer of assets to companies is not subject to taxation at the level of this tax.

The 10% flat tax rate accrues a tax rate of 0.8% when it comes to immovable property.

The inheritance taxation is levied when the assets are located in Portuguese territory, regardless of the residency of the beneficiaries or of the transmission author.

This tax is payable by the individuals to whom the assets are transferred to; however, for some beneficiaries there is a tax exemption (e.g. surviving spouse or unmarried partner, children, grandchildren, parents and grandparents of the author of the transmission are fully exempt from inheritance tax).

On the other hand, and this is a very important point that increases the attractiveness of Portugal as a prime destination, there is no inheritance or gift tax concerning assets that are not located in Portugal (e.g: financial portfolio, property, cash, etc…).

Capital gains from the disposal of movable property (e.g. stocks, securities):

The Portuguese Personal Income Tax (“PIT”) Code currently differentiates between long-term capital gains and short-term capital gains, subjecting it to different forms of taxation.

From 2023 onwards, short-term capital gains add up to the remaining income of the taxpayer and will be subject to progressive tax rates (that can go up until 53%) if the taxable income is equal or higher than €75.009,00 (including the short-term capital gains income).

On the other hand, Portugal has one of the most competitive tax regimes for non-residents, the so called Non-Habitual Residence Tax Regime (“NHR”). This regime might be the reason for many HNWI Spanish taxpayers to consider Portugal as a good place to relocate to.

The NHR offers several advantages:

• A special tax rate of 20% applicable to employment and self-employment income derived from a ‘high value-added activity’.
• A tax exemption (with progression) on foreign-sourced income (e.g., professional income, rental income, capital gains, interests, dividends, as well as other investment income), provided certain conditions are met.
• A flat tax rate of 10% on pension income from a foreign source, as well as on other payments from pension funds and similar retirement schemes.

An individual may benefit from this regime during a 10-year period, starting from the year of registration as tax resident in Portugal.

If you have further questions regarding this matter, get in touch with us and she will be delighted to assist you.