Former tax residents' regime: clarifications issued
SÉRVULO PUBLICATIONS 28 Feb 2019
On 28 February 2019, the tax authorities (Autoridade Tributária e Aduaneira) issued Circular Letter No. 20206 (the circular) clarifying the former tax residents' regime (the regime) introduced by Law No. 71/2018.
Under the regime, 50% of employment, business and professional income earned by former tax residents is excluded from taxation in Portugal, provided that they will be tax residents of Portugal (again) in 2019 or 2020 (subject to certain conditions; see also below). The circular aims to clarify some aspects of the regime, noting that:
- the application of the regime is automatic if the necessary conditions are met (i.e. no recognition by the tax authorities is needed); and
- to benefit from this regime, all conditions stated in article 12-A (1) and (2) of the Personal Income Tax Code must be met, namely:
- the taxpayer was a tax resident before 31 December 2015;
- the taxpayer was not a tax resident in 2016, 2017 or 2018;
- the taxpayer will be a tax resident (again) in 2019 or 2020;
- the taxpayer has not applied for the non-habitual residence status; and
- the taxpayer's tax situation is regularized in the years during which the regime is applicable.
Furthermore, in order for taxpayers to prove that they qualify for the regime, they are required to:
- with respect to employment income, present a declaration to their employer stating that the regime applies, so that the latter is able to withhold tax only on the portion of income that is subject to withholding tax (50%); and
- with respect to business and professional income, present to the withholding agent a declaration stating that the regime applies, which means that only 50% of the income should be subject to withholding tax.
The regime entered into force, and generally took effect, as from 1 January 2019.
Rita Botelho Moniz
© 2019 IBFD. Originally published as Former tax residents' regime: clarifications issued (13 March 2019), News IBFD. Reproduced by permission.
