In a previous article, we recalled non-residents’ obligation to report the balance of property capital gains and losses arising from a sale in Portugal. However, the tax regime has changed in response to European case law, creating uncertainty for non-resident taxpayers. The State Budget for 2023 therefore changed the taxation of property capital gains under personal income tax (IRS), to bring the Portuguese rules for non-residents into line with European law. Under Article 280(7) of Law no. 12/2022 of 27 June, the amendments to the IRS Code apply to income received from 1 January 2023.
Our aim is to explain how capital gains are taxed for individuals who are not tax-resident in Portugal, such as French or Portuguese nationals living in France who wish to sell a property acquired in Portugal. Following the legislative change, the Autoridade Tributária e Aduaneira issued a circular to ensure uniform application of the regime across its offices. It recalls that only 50% of the balance of property capital gains and losses received by non-residents is now taxable. That balance is subject to income aggregation and the general progressive IRS rates, as for residents.
Under the legislation in force, income received by taxpayers not resident in Portugal is excluded from aggregation for tax purposes, except for capital gains from transfers for consideration of rights in immovable property and contractual positions or other rights arising from property contracts that are not attributable to a permanent establishment in Portugal, without prejudice to the option provided for in Article 72(13) and (14) of the CIRS. Paragraph 10 of the same article, added by Law 24-D/2022 of 30 December, provides that whenever the law requires non-residents’ income to be aggregated, all income received, including income from outside Portugal, is taken into account to determine the applicable rate under the table in Article 68(1) of the CIRS.
Together, these provisions mean that capital gains received in Portugal by non-residents from 01/01/2023, arising from transfers for consideration of rights in immovable property, contractual positions or other rights associated with property contracts, are subject to the regime described in the circular:
- Income qualifying as capital gains must be calculated for transfers covered by Article 10(1)(a) and (d), under Article 43(2) of the IRS Code;
- Aggregation of the income calculated becomes mandatory under Article 22(3)(a) of the IRS Code;
- The general rates in the table in Article 68(1) of the IRS Code apply to aggregated income received in Portugal. Solely to determine that rate, all income, including income from outside Portugal, is taken into account on the same basis as for residents;
For property capital gains received by non-residents up to 31/12/2022 whose assessments have been or become subject to tax proceedings, the interpretation applying Article 43(2) of the CIRS to non-residents remains in force: only 50% of the balance of property gains is considered, subject to separate taxation at the special rate of 28%. Anyone who did not benefit from taxation limited to 50% of the property gain can therefore claim a refund of the tax wrongly paid from the tax authorities within the applicable deadline. It must be emphasised that this regime for individuals does not apply to property sales by legal entities without a permanent establishment in Portugal. That regime will be explained in the next article.
It should also be noted that, despite the principle in Article 14 of the 1971 France–Portugal tax treaty that capital gains are taxed in the country where the property is situated, French tax residents must report gains received in Portugal on their French tax return, to determine the effective rate applicable to their overall French income. In conclusion, given the considerable complexity of this subject, taxpayers have every interest in seeking assistance from a professional with international tax expertise when preparing returns in both countries.
Dr. Pedro Emanuel de OLIVEIRA
Lawyer