The Portuguese tax authorities have formalised a change in the capital gains tax (CGT) legislation for non-residents selling real estate, writes Jason Porter, business development director at Blevins Franks.
Gains on the sale of property had been taxed differently, depending upon if the property was owned by a resident or a non-resident.
For residents of Portugal, only 50% of the gain is taxable, with relief for inflation where a property has been owned for more than two years. The taxable amount is then added to other income arising in the Portuguese tax year in which the disposal occurred and is taxed at the scale rates of tax.
Where the owner is a non-resident, 100% of the gain was taxable at a flat rate of tax of 28%, if the non-resident resided in the EU or EEA they could have elect for the scale rates to apply, however, this was only likely to have ever been useful in a small number of cases, where the individual had a very low income.
While there had been a decision in the Portuguese Constitutional Court, confirming the differing treatment of residents and non-residents was discriminatory, which had in turn been upheld by the Court of Justice of the European Union, the Portuguese government had not officially changed the law.
The finanças had already been treating residents and non-residents in the same way, bearing in mind the law was clearly discriminatory and in breach of EU fundamental freedoms, even though nothing required them to do so. Meanwhile, these rules have now been amended in the State Budget laws for 2022 and 2023, as applying for 2023 onwards.
The Portuguese tax authority’s Circular Letter No. 20255, of 14 April 2023, sets out the changes:
- Prior to 31 December 2022, net real estate capital gains are considered at only 50% of their value and are taxable at a special rate of 28%; and
- From 1 January 2023, real estate capital gains will have to be aggregated (at 50% of their value) with any other income the non-resident has and is subject to the progressive scale rates of tax.
This article was written for International Adviser by Jason Porter, business development director at Blevins Franks.
