FINANCE

QUESTIONS & ANSWERS

Each month, Ricardo Chaves of All Finance Matters gives an insight into the legalities governing tax and general financial matters

Each month we receive different questions from our readers, although some of these questions are related to specific situations, sometimes the answer may help you to better understand the tax system in Portugal and answer the queries from other readers. If you also have some questions regarding tax in Portugal, please feel free to send it to us.

Q I am a French citizen with a Portuguese NIF (Tax number) and I currently live in Switzerland. I own a property in Tavira, which I rent for tourists. What are the tax implications? I heard that I only pay tax after a certain level of income, is this correct? What about the VAT?

If you rent your property to tourists, you need to have a rental license. For this, is necessary that you are registered at the tax office as a sole trader. The effective tax rate as sole trader, in the simplified regime, for a non-resident Property Owner will be 8.75%, for apartments and villas and 3.75% for hostels, etc. As a non-resident there is no threshold for this tax (IRS), so you will pay 8.75% of your gross income, even if you only have 1.000¤ of rentals. The only threshold that exists is for VAT. If you are registered as a sole trader, the threshold for VAT for 2020 is 11.000¤ and this will increase to 12.500¤ in 2021. See below how the VAT threshold works: - If you were a sole trader registered before 01-01-2020 and VAT exempt in January 2020, you will have a VAT threshold of 12.500 in 2020 - If however you are registering now you will have a threshold in 2020 of 11.000¤, which will be calculated pro-rata considering the number of months (if registered in July, the threshold will be 11.000/12 months X 6 months = 5.500).

Q I am a Non-Habitual Resident since 2017 and recently I read that the NHR pensions will start to be taxed since 01-04-2020. Does this mean that my pension will start to be taxed in Portugal from now on?

No, your pension will carry on being tax exempt. There was a change in the Non-Habitual Residency scheme, but this only affects the pensions of those that obtained residency after the 1st of April 2020. Please note that if you are reading this and became resident prior to 01-04-2020, you can still apply for the NHR scheme, under the old rules. The same applies to those that bought or rented a property in Portugal before the 1st of April and are not yet Residents, as it may be possible to backdate your NHR application, to avoid the new 10% tax on pension.

Portugal. This was my primary habitation and I sold it for the value of 300,000 euros. This house was purchased in 2014 for 220,000 euros and I had a mortgage to buy it. The debt to the bank at time of sale was 30,000 euros. How much do I need to reinvest, to avoid paying taxes in Portugal.

First in order to make sure that this was your primary habitation, you need to check if the address of the house is the address registered at the Portuguese tax office. If this is not the case, you should change it at least 6 months prior to the sale. If you noticed this to late, please be aware that the change of address in some cases can be done retrospectively. In terms of the amount to reinvest, it works like this: 300.000¤ - 30.000¤ = 270.000¤ So, it’s the proceedings of the sale, minus the mortgage redeemed at the time of deed. The mortgage is only considered if taken prior to 2015 and for the purpose of purchasing the asset.

Q I am currently moving from Sweden to Portugal and would like to become Non-Habitual Resident. Can you please let me know what will be the taxation on my salary, as I will need continue working in Sweden as a public teacher?

Salaries and other income arising from governmental employment shall be taxed only in the country of origin. This means that as a Non-Habitual Resident, you will have to declare this income in Portugal, but will not be liable for any tax; the tax should only be paid in Sweden.

Q For many years I rented my property in Albufeira for tourists. Last year I decided to move to Portugal and sold that property to buy a bigger one. My accountant has informed me that because the property was on Local Lodging, I cannot use the new property as reinvestment. Can you help?

In fact, when the activity is registered at the tax office, the property is assumed to have been transferred to your Alojamento Local Business. This is a rule and means that although the property is still in your name, it is not on the personal sphere, but on the business sphere. So, if the sale occurs when the property is in the business, there is no possibility of reinvestment, as this is only allowed if the property is the permanent address of the taxpayer. However, there are two issues to be considered in this case: Provided that the assumptions referred to in article 34 of the VAT Code are met, a taxpayer may cease his activity retrospectively, by submitting a declaration of termination which, due to being delivered after the deadline provided for in article 33 of the same code, will be subject to the respective fine. The IRS Code does not (yet) determine the number of

months / years in which a taxpayer must hold a dwelling as permanent, for the purpose of reinvestment. In effect, what determines is that, on the date of the sale, the property whose realization value is intended to be reinvested, is the taxpayer’s own and permanent address. In view of the above one of the options to consider is to stop the activity with a retrospective date, change the previous year IRS declaration and treat the sale that occurred in 2019 as the sale of the permanent habitation, allowing the reinvestment. Please note that this situation may require further study as it also depends on the value considered on the virtual transaction from the personal sphere to the business sphere.

Please feel free to send us the questions you may have to ricardo@allfinance.pt. We will select some of these to be published.

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SPORTS NEWS Brought to you by Chris Wright

THE ‘LE MANS’ SPIRIT ON TOUR

One of the main endurance motor racing competitions, European Le Mans Series (ELMS) returns once again to the Autódromo Internacional do Algarve, from 30th October to 1st November. The ELMS calendar features 4-hour races, inspired by the 24 Hours of Le Mans classics, which got under way at Le Castellet (France) on the 19th July with the Autódromo Internacional do Algarve hosting the fifth and final stage after Barcelona (29thAugust) and Monza (11th October).

JACK CHARLTON; AN IRISH LEGEND WHO WON THE WORLD CUP

Jack Charlton, a central part of the England team that lifted the World Cup and who would later go on to transform Ireland’s national team, died last month, he was 85, at his home in Northumberland. Three days after my 21st birthday I was at Wembley as England played France in the group stages of the 1966 World Cup Final. France was the better side in the early stages but seven minutes before the interval, following a corner-kick, Nobby Stiles crossed deep towards the far post, where an unmarked Jack Charlton saw his header rebound off the woodwork only for Roger Hunt to fire home from point-blank range. Being a defensive player myself I was in awe of the ‘Big Man’ and ecstatic as England went on to win 2-0. Incidentally centre-half Jack was encouraged to make forays into the opponents penalty areas as can be witnessed by the 96 goals he scored in 773 games for Leeds United, his only professional club. In the World Cup semi-final, against Portugal, it was Jack’s brother Bobby who gave England a 2-0 lead before the big centre-half handled on the line and Eusébio despatched the

spot-kick to make it 2-1. These days Jack Charlton would have been sent-off, would have missed the final and who knows what might have happened in the final eight minutes. He was Republic of Ireland manager for ten years (1986- 1996) during which time he led the country to the European Championship finals 1988, the quarter-finals of the World Cup in 1990 and became a national treasure. Many years later I met Jack at a business lunch at Old Trafford where he was the guest speaker. It is widely believed that he regularly bought ‘rounds of drinks’ and always paid by cheque; most of which were never cashed but framed to hang proudly behind the pub bar. On this occasion he had just returned from a fishing trip in Ireland and on his way back to Dublin airport had stopped at a garage in a small town to get petrol. On seeing Jack Charlton the garage owner remarked that his brother worshipped the ground Jack walked on and would the ‘Big Man’ be able to spare a few minutes to say hello as he was only over the road in the local pub. Jack, always willing to oblige, duly accompanied the garage owner to the pub where they found his brother in a coffin – it was his wake. Jack remarked that he left two days later! The jovial giant always said that he wasn’t much good at playing football but was pretty good at stopping others playing the game. Jack Charlton was appointed an OBE by the Queen in 1974 and across the Irish Sea he was made a Freeman of the City of Dublin in 1994. Two years later he was awarded honorary Irish citizenship which is the highest honour the Irish state gives and is rarely granted. Jack will be sadly missed and Leeds United promotion to the Premier League is a fitting tribute to a great man who spent his entire playing career at the club.

BACK AT BENFICA!

After weeks of speculation, including an attempt to lure former Tottenham Hotspur manager Mauricio Pochettino to the Estadío da Luz, the man charged with resurrecting Benfica’s fortunes is former boss Jorge Jesus. He had recently signed a new contract with Brazilian club Flamengo where he had won five major trophies in an incredible season. The 66 year-old manager, much to the consternation of the Benfica fans, moved across Lisbon five years ago when he left the Eagles to take on the mantle at Sporting. Will those fans now welcome him back? It all depends as to whether he can bring instant success to a club that is suffering the pain of losing their Primeira Liga crown to bitter rivals FC Porto. The Eagles have had disastrous season, six points clear at the start of the year but ending the campaign some eight points behind the Dragons. To add to the club’s troubles 71 year-old Luís Filipe Vieira, whose presidency is up for election in October, club administrator Domingos Soares de Oliveira and two companies that manage the club and own the stadium are suspected of having defrauded the taxman of 600,000 euros in 2016-17. The ongoing enquiries continue to plaque the club.

ALGARVE TO STAGE F1 GRAND PRIX

The Autódromo Internacional do Algarve will host its first ever F1 Grand Prix on 25th October. It will be the first Portuguese Grand Prix held in the country since Estoril in 1996. The Portimão circuit was awarded an FIA Grade 1 license earlier this year. Due to COVID-19 races have been cancelled in Brazil, USA, Canada and Mexico alternate venues in safe locations were the order of the day. Germany’s Nürburgring stages its first Grand Prix since 2013 on the 11th October whilst the San Marino Grand Prix at Imola, which is synonymous with the death of triple world champion Ayrton Senna in 1994, will stage its first F1 race since 2006 on the 1st November. Chase Carey, Chairman and CEO of Formula 1, said: ‘We are pleased that we continue to make strong progress in finalising our plans for the 2020 season and are excited to welcome Nürburgring, Portimão and Imola to the revised calendar. We want to thank the promoters, the teams, and the FIA for their full support in our efforts to bring our fans exciting racing this season during an unprecedented time.’ Initially, at least, spectators won’t be allowed into circuits but a big boost for

F1 fans in the Algarve is that it is hoped that the Portimão race will be open to spectators.

RONALDO MAKES IT THREE HALF-CENTURIES

Is there no stopping the 34 year-old goal-scoring machine? Cristiano Ronaldo became the first player to score fifty goals in three major leagues - Serie A (Italy), La Liga (Spain) and the Premier League (England) - with his double strike against Lazio in mid-July. Ronaldo’s goal scoring record reads:- Premier League (Manchester United) 84 goals in 196 appearances; La Liga (Real Madrid) 311 goals in 292 apps; Serie A (Juventus) 51 goals in 61 apps (as of 22nd July). Ronaldo is only the third Juve player ever to score thirty goals in a season and the fastest to score fifty goals in Serie A this century, in just 61 appearances.