Bearing in mind that the current Portuguese Government is running its final year in office and 2019 will be an election year, one could consider that the Government would favor tax reductions in its budget. However, the presented budget by the Portuguese Government results in the consolidation of a very high tax burden on families and companies.
The only good tax related news are linked to the interiority factor (per example, increasing the ceiling on deduction of retained and reinvested profits) and forest resources.
With regards to property taxes, the expected change in the taxation of real estate is not yet confirmed. However, there is a possibility of the Municipal Tax (IMI) to buildings that are vacant and located in urban pressure areas to be increased.
In terms of Personal Income Tax (IRS) the end of the increase of the number of stages and the reduction of the current hyper-progressivity is not confirmed and probably will not happen.
From companies’ point of view the good news come from the increase of the regime related with the investment support and the profit withholding. For companies based in Portugal, there is a possibility for the corporate income tax (IRC) to be reduced, since it will be allowed for such companies to deduct 20% of the wages, subject to the approval of the European Commission.
The budget also includes an increase to the autonomous taxation on car charges.
The effective corporation income tax rate will also rise due to new limitations on the deduction of impairment charges for doubtful accounts. In 2019 no more than 10% deductions will be deductible on credits held on "sister" or "premium" companies held by the same partner, directly or indirectly, and the depreciation of intangible assets acquired from parties related issues. On the other hand, the sectoral, selective and discriminatory contributions remain, whose acceptance has been based on their alleged transience, and there are two new special contributions: one for the conservation of forest resources and another (municipal) for civil protection.
Finally, the expected changes to the transfer pricing rules and the transposition of the Community directive to limit tax avoidance are not confirmed.
Regarding the families there will be an implicit raise of the Personal Income Tax, through the non-update of the grades and deductions.
The portion of family income paid to the Government through taxes will also be elevated, as the budget includes numerous increases to multiplicity taxes: autonomous taxation under the cars, plastic bags, sugar drinks (with exception of the one with a lower sugar level), consumer credit, taxation under the cards and fuel, beyond the common taxes under the tabaco and alcoholic drinks.
The budget includes a 50% discount for five years on the Personal Income Tax for Portuguese living abroad who decide to repatriate, starting from the year of relocation. This is applicable to A and B categories income and to Portuguese that were tax residents in Portugal before 31 December 2015.
Finally, the deadline for submitting personal income tax declarations will be postponed to June. It is worth considering that choosing this option will also result in delays of any tax refunds.
The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.
Marina Andrade is based in Portugal and has been a member of the Portuguese BAR Association since 2009. Marina Andrade has over 12 years of experience specializing in international issues as Immigration Law and Non Habitual Tax Residence Regime in Portugal. She has written articles in the Portuguese News Papers, as well as in international papers as Multilaw. Marina Andrade gained experience through volunteering, having helped institutions as JA Worldwide.
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