Finally, the Portuguese tax authorities have taken action in response to rulings made by the Portuguese Constitutional Court and the European Court of Justice over the unfair treatment of the capital gains tax (CGT) calculation for non-residents vs residents under EU law. Court cases that had been pending for a long time.

When a non-resident had to report a capital gain they used to be taxed, after an inflation correction and some deductible items, at a flat rate of 28% over 100% of the gain. From 2023 non-residents can report the same way as residents which lowers the tax burden. Residents pay CGT over 50% of the gain, the other 50% is exempt. The gain is added to their global income and taxed at progressive rates (see chart). Even at the highest rate of 48% it works out to cost less. For instance on a Euro 100.000 gain you paid Euro 28.000 in CGT before, under the new rules you effectively pay 24%, a Euro 4000 difference.

IRS Income tax brackets

If you sell your property in 2023 as a non-resident, you need to file an IRS tax return in 2024 and include your income from abroad. You will not be taxed again over your earnings from overseas, the information is merely needed to determine in which income bracket your capital gain will be taxed at in Portugal.

If you previously sold a property, will you be able to file a reclaim with AT (Tax department) for the amount you overpaid? There is conflicting information about this, as some accountants believe you can go back 4 years in time when the tax was paid, e.g. till 2018. This is called a Pedido de Revisao Oficiosa. Then there are other accountants who believe it will be a useless exercise. In the meantime there are also lawyers offering to assist for a fixed fee, and a percentage of the reclaimed value once refunded by AT. What you need to be aware of is that a potential refund will not be automatic, you have to take action.

Whether or not it makes financial sense to file a claim depends on the amount of money you think you are entitled to, the additional costs in case you need to hire someone to do the work for you and the time it will take. Imagine your claim is denied by AT, you can still go to court to secure a refund.

Below you find an overview of the inflation coefficient you can apply over the purchase price in the year you bought it. The official list is longer, but for residents who bought before 1989 they are exempt of CGT anyway:

1989 . . . . . . . 2,60
1990 . . . . . . . 2,33
1991 . . . . . . . 2,06
1992 . . . . . . . 1,89
1993 . . . . . . . 1,75
1994 . . . . . . . 1,67
1995 . . . . . . . 1,60
1996 . . . . . . . 1,56
1997 . . . . . . . 1,54
1998 . . . . . . . 1,49
1999 . . . . . . . 1,47
2000 . . . . . . . 1,44
2001 . . . . . . . 1,35
2002 . . . . . . . 1,30
2003 . . . . . . . 1,26
2004 . . . . . . . 1,24
2005 . . . . . . . 1,21
2006 . . . . . . . 1,17
2007 . . . . . . . 1,15
2008 . . . . . . . 1,11
2009 . . . . . . . 1,13
2010 . . . . . . . 1,11
2011 . . . . . . . 1,07
2012-2015 . .  1,04
2016 . . . . . . . 1,03
2017 . . . . . . . 1,02
2018-2020 . . .1,01
2021 . . . . . . . 1,00

How does this work? Imagine you bought your house in 2001 for Euro 350.000 and sold it in 2022. You can apply 1.35% inflation coefficient. Due to this inflation adjustment the value to use in your CGT calculation moves up to Euro 472.500.

Residents who sell their main residence and reinvest part of the proceeds in another property within the Eurozone are exempt from CGT for the part that is reinvested. However, they may invest the balance or part thereof into an AT approved investment vehicle to avoid paying CGT over this part.  This can be:

1.)   A life insurance financial insurance contract

2.)   An individual membership of an open pension fund

3.)   A contribution to the public capitalization system

When deciding to invest in one of the above mentioned options, it is important to familiarize yourself with the product and the expected return, annual (hidden) cost etc.

If you are interested in selling your property and would like to know in advance what your CGT exposure might be, contact us for an appointment.

Robert Bijker
Director