Archive for October, 2019

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Portugal: Tax Authorities Change NHR Activity Control Mechanisms

In on October 14, 2019 by NEWCO

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After having recently published a new list of “high value added activities” applicable to non-habitual residents (NHR) that register as of 2020, the Portuguese Tax Authorities have now decided to change the manner in which they control how these activities are performed.

The changes were communicated in a circular issued on 8 October by the Taxations and Customs Authority (AT).

Previous procedure:

Up until today, the AT had adopted an administrative procedure involving prior recognition that took place simultaneously with the request for registration as a non-habitual resident. This procedure, however, was very lengthy and did not rule out a subsequent control by the AT with respect to compliance with the underlying pre-requisites for such an authorization.

New procedure:

From now on, any NHR who wishes to benefit from the personal income tax regime applicable to the activities recognized as being of high added value need only refer to the respective framework in the duly filled out annual income declaration, without any need to obtain prior recognition by the AT for the invoked activity.

This new procedure shall not prevent the AT from subsequently requiring the non-habitual resident to prove that he or she actually exercises the activity in question. It allows for the worker to be called to submit proof that he or she actually performs the activity, namely an employment or supply of services contract, proof of registration in a Professional Association, document proving that he or she has an administrative position, declaration attesting to the beginning of the activity, in the case of independent workers, or other official documents that serve as proof that he or she exercises the invoked activity.

Special tax regime for NHR

The non-habitual resident tax regime was created in 2009 in order to attract qualified professionals to Portugal with respect to high value added activities and intellectual property, industrial or know-how activities, as well beneficiaries of pensions obtained abroad.

Among other things, this regime allows net revenue from categories A and B earned by non-habitual residents in Portuguese territory in high value added activities to be taxed at a special rate of 20%, as well as allowing category B revenue obtained from abroad from those same activities to be exempt from taxation in Portugal, as long as certain requirements have been met.

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Portugal: Changes to various tax codes

In on October 8, 2019 by NEWCO

Calendario fiscal Portugal

The law 119/2019 has introduced changes to various tax codes in Portugal. Here are some of the most relevant changes for Portuguese companies with international activity.

Personal Income Tax

Income from previous years – Corrected return

Whenever it is possible to carry over income from previous years the taxpayer may alternatively submit corrected returns pertaining to the years in question, the limit being the fifth year immediately prior to the year of the payment or the year when the income was made available.

This option shall not apply to income that depends on a court decision in order to be paid or made available.

When counting the expiry deadline, the taxation fact shall be considered verified during the year when the payment was made or when the income was made available.

Payments to non-residents

In order to avoid the obligation to pay withholding tax on personal income (e.g. income from work, return on capital, or pensions), if a taxpayer’s fiscal residence is in a country with which Portugal has signed a convention to prevent double taxation, the beneficiary of the income must submit an official form accompanied by a document issued by the relevant authorities of the respective country of residence, attesting to his or her fiscal residence during the period in question and his or her requirement to pay income tax in that country.

Corporate Income Tax:

Income and gains: Bonds and other subordinated debentures

The amount of the reduction, total or partial, of the value of the outstanding principal from subordinated bonds or other subordinated debentures shall be considered issuer income as long as the holder is not entitled to receive dividends or voting rights at general shareholder meetings and the securities cannot be converted into shares.

Payments to non-residents

In order for non-residents to be exempt from or reimbursed for withholding tax on their income, it shall be necessary to submit an official form accompanied by a document issued by the relevant authorities of the respective country of residence, attesting to the taxpayer’s fiscal residence during the period in question and his or her requirement to pay income tax in that country.

Taxation documentation process: Major Taxpayers

Taxpayers whose tax situation must be followed up on by the Major Taxpayers Unit shall be obliged to follow a taxation documentation process and submit documentation pertaining to the transfer price policies they have adopted, no later than 15 July.

Transfer Prices

Corporate restructuring or reorganization operations are now explicitly included in the definition of operations that are subject to transfer price rules if they are conducted with related entities.

The taxpayer may adopt other analysis methods or techniques whenever the transfer price methods cannot be used because of the unique or singular characteristic of the operations or the lack or scarcity of reliable comparable information and data.

Prior agreements on transfer prices have changed from three to four years in terms of maximum validity period.

Concept of Turnover

The concept of “turnover” is defined as being the amount of sales and services rendered, including rent from investment properties. This definition is valid for the purposes of the Corporate Income Tax Code and legislation pertaining to any other taxes that directly or indirectly apply to pro

VAT:

Payment

Taxpayers are now obliged to make VAT payments no later than the 15th day of the second subsequent month (monthly regime) or no later than the 20th day of the second subsequent month (quarterly regime), while the time periods for submitting periodical returns remain the same.

Decree -Law no. 198/2012:

The deadline for submitting invoices and supporting documents involving delivery of goods and rendering of services is now the 12th day of the month that follows the month in which the invoice was issued.

Information that is communicated regarding invoices shall be kept until the end of the fifteenth year subsequent to the year to which the invoices pertain and must be destroyed within a period of six months after this period has elapsed.

Tax Courts:

An arbitration ruling can now be appealed to the Supreme Administrative Court when it opposes another arbitration ruling regarding the same fundamental question of law (in addition to a decision rendered by the Central Administrative Court or by the Supreme Administrative Court).

Failure to submit the document pertaining to the adopted price transfer policy, along with failure to submit a communication, within the legal time period, of the identification of the declarant entity or the financial declaration and tax return on a country-by-country basis regarding the entities of a multi-national group shall be subject to a fine of €500 to €10,000, accrued by 5% per day of delay in complying with the obligation.

Check the main relevant dates for fiscal obligations in Portugal in our updated  Tax Calendar.

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