Many Portuguese nationals have emigrated to France, and their descendants become beneficiaries of estates opened or gifts made in Portugal. A mistaken belief circulates within the diaspora that inheritances involving Portuguese property and gifts made in Portugal fall exclusively within Portuguese taxation. Even French or Portuguese notaries handling a division of an estate sometimes overlook the rules applicable to heirs or recipients of gifts living in France. In reality, the interaction of complex tax rules usually results in taxation in France, in addition to Portuguese taxation, for French residents receiving Portuguese assets by inheritance or gift. There is no bilateral France–Portugal inheritance or gift tax treaty comparable to the income tax treaty for individuals and legal entities signed on 14 January 1971. The domestic legislation of both countries must therefore be considered.
Portugal offers favourable treatment for gratuitous transfers. Inheritance and gift tax was abolished and replaced by stamp duty on gratuitous transfers of assets under the property tax reform introduced by Decree-Law no. 287/2003 of 12 November. One key feature is territoriality: under the Stamp Duty Code, duty is payable on gifts and inheritances where the assets are situated in Portugal, irrespective of the owner’s nationality or residence.
The stamp duty rate is 10%. Gifts of property or partial rights over property incur an additional 0.8%. Exemptions exist: inheritances of movable and immovable assets between spouses or de facto partners, descendants and ascendants are not subject to the tax. For gifts of property between these people, stamp duty at 0.8% remains payable. Portugal therefore offers an attractive regime, particularly for direct-line inheritances within the same family.
France does not confine territoriality to its own country. Any asset inherited anywhere in the world is taxable for beneficiaries who have lived in France for more than six of the ten years preceding the death, under Article 750 ter(3) of the French General Tax Code. Gifts to French tax residents are also taxed. Heirs living in France, whether French or Portuguese, must therefore include all assets in the deceased’s worldwide estate in their French inheritance declaration. Unless a specific exception applies, it must be filed within six months of death, failing which penalties apply. French taxation is less favourable: in the direct line, despite an allowance of one hundred thousand euros every fifteen years, the scale reaches 45% of the inherited transfer; beyond the fourth degree of relationship, the rate reaches 60%. Portuguese people living in France who inherit Portuguese assets may therefore be taxed in both countries. In principle, tax paid in Portugal can be deducted from French tax. Solutions exist to reduce taxation of these inheritances and gifts, but they must be put in place in advance.
Dr. Pedro Emanuel de OLIVEIRA
Lawyer