By: DENNIS SWING GREENE
International Fiscal Consultant for euroFINESCO
eurofinesco@portugalresident.com
SINCE NON-RESIDENTS are not eligible for the Simplified Regime, how do you best declare your rental income? The simplest way is under Category F, Rental Income, in the IRS individual income tax return.
The procedures here are identical to residents as described above. Since 2005, non-residents benefit from a special tax rate of 15 per cent for this type of income.
Whatever tax is paid in Portugal should be eligible for a foreign tax credit in the home jurisdiction. Compliance costs or mortgage interest should qualify as tax deductions. In other words, we are talking about a “nil” expense (unless you are trying to cheat both tax authorities). All the more reason to go by the book.
Minimising rental income tax
If the various one or more properties are held via a commercial Property Administration Company, this Portuguese “Limitada” can manage the property lets under the Simplified Regime with only a five per cent net tax liability. Since the company is a resident entity, there are no international double taxation worries.
In the future, this company could also provide a flexible yet tax-efficient tool for on-going property investments that could help to defer, reduce or even eventually avoid altogether numerous forms of taxation both in Portugal and abroad.
Fiscal Representation
Fiscal Representation should be, in fact, a simple and straightforward matter. However, while relatively easy and painless, it could easily turn into a high risk area if left neglected. Here are three sound reasons why you need to have a qualified Fiscal Representative.
1) Legislation
Having a Fiscal Representative is a matter of law. The Fiscal Authorities (Finanças) require a resident representative to meet all accessory tax compliance obligations for the non-resident taxpayer with property or income arising in Portugal. You should demand someone who does more than forward “rates” bills to you. You want a Fiscal Representative to defend you and your interests, someone with broad experience as well as an excellent rapport with local, regional and national Finanças offices to help sort out any problems that may arise.
2) Nil cost
All taxes paid in Portugal as well as necessary expenses for Fiscal Representation will serve as either tax credits or deductions in the home jurisdiction. As a result, these fees and costs should be a nil expense at the end of the day. Likewise, it is important to understand that with property, the principle of Situs is almost universal. Each country sees itself as sovereign and wants to have the final say when you own a piece of that country.
3) Access to information
Portugal is a difficult country to find sources of reliable, accurate information. Your Fiscal Representative should be your link to sound information, not only about tax and legal matters but also about how things work in general in a strange country in plain English.
Without a qualified Fiscal Representative, you may be placing your valuable investment needlessly in jeopardy and, at the same time, miss out on an invaluable ally to make the most of your investment in Portugal.
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