12 Jul FORTUNES THAT LEAVE TO THE NEIGHBOR COUNTRY. THE CONTROVERSY ON THE TAXATION IN PORTUGAL
The controversy created by the tax legislation Portuguese, coming from the regulations passed by the neighbouring country back in 2009, has made that many people have decided to change their tax domicile moving it to Portugal.
This new regulation, which contains very generous tax rates compared to those of other European countries, is causing a real headache in the Ministries of Finance of many states.
More than 9500 pensioners started moving their tax residence to the southern European country to benefit from the tax benefits provided by the system of non-habitual residents, more commonly known as RNH.
The tax regulation developed by the Portuguese administration during the last decade has managed to reverse the recession, as a result of the economic problems that the country was suffering from.
Since 2009, when the tax regime for non-habitual residents was created, with the clear intention of attracting foreign income with very low tax rates and retired people, exempting them from certain tax payment obligations. These new fiscal measures together with the aid from the rescue from the European Union, back in 2011, have managed to get Portugal out of the economic recession in which it was immersed.
The tax regime for non-habitual residents is regulated in the Article 16 of the IRS (Tax on the Return of Singular Persons), offering great benefits with important discounts in our tax bill.
In particular, the most attractive measure, and also the most disturbing one for the Treasury, is the system of flat rate tax rates on rents.
A simple comparison with the Spanish tax system, suggests the clear advantage of the Portuguese system over our national one. Thus, while in Spain there is a progressive tax system in which different sections are established, with a minimum rate of 19% and later of 24%, 37% and 45% depending on the income obtained each year.
In Portugal, however, the rate is fixed at 20%, regardless of the income received. The Portuguese fixed rate is almost the same one as the minimum rate applied in Spain. In addition, once this condition is achieved, the beneficiary will maintain this condition for the next 10 years.
The Portuguese law establishes 3 requirements for applicants for the non-habitual resident status:
1- Not having pay taxes as a tax resident for the previous 5 years.
2- Stay in the country at least 183 days per year.
3- The application for non-habitual resident status must be submitted before March 31 of each year.
This new taxation system has undoubtedly led many people, especially retired and large fortunes, to move their tax residence to Portugal. That is why the Spanish “Hacienda” has focused its efforts in all those individuals who move their home to the neighbouring country.
There are numerous inspections in order to prevent the application of Portuguese law. Hacienda considers that most cases of people trying to benefit from this tax system are fraudulent, since the only purpose pursued is the reduction of the amount to be paid to the public treasury with a misleading spirit.
Hacienda is trying to prove, through all kind of evidence at its disposal or even requesting the testimonies of friends and neighbours of the inspected subject; that the real residence is still in Spain, although they have officially moved to Portugal.
In spite of the above, there are many Courts that are judging in favour of taxpayers, recognizing the effectiveness of the change of domicile and the applicability of the Portuguese tax regime against Spanish one. The disagreement with the different regulations that are considered applicable is contributing to these results in favour of individuals. While Hacienda considers that the “Ley del Impuesto sobre la Renta de las Personas Físicas” (LIRPF) should apply, taxpayers argue that this piece of legislation cannot be applied over the International Double Taxation Agreement signed between Spain and Portugal, which has a preference.
Hacienda understands that, according to the article 9 of the LIRPF, there is a fictitious transference of the address when a minimum of 183 days has not been resided in the other country and the centre of economic interests and family attachment are in Spain. However, the International Double Taxation Agreement, gives a preference to the location of the habitual residence, taking into account only the centre of economic interests when the taxpayer has housing in the two states.
From Navarro Llima Abogados S.L. we can help you to resolve tax disputes given our long experience in the field.
Joaquín Montiu y Antonio Pastor