New rules on taxation of non-residents in respect of capital gains from real estate

Since January, Portugal has introduced changes to the taxation of capital gains from the sale of real estate for emigrants or non-residents. As a result of the changes made in the State Budget 2023 (OE2023), capital gains from real estate are taxable at 50% and then included in total income and subject to progressive personal income tax (IRS) rates, as is already the case for residents. The IRS has now explained how all procedures will be handled.

In order to harmonize the taxation of capital gains from real estate under the personal income tax between residents and nonresidents, the government changed the rules in this area in OE2023. Insertion''s changes to the IRS Tax Code were motivated by several cases in which the tax office lost and was accused of discriminating against non-residents in this area.

In the past, non-residents in Portugal - foreigners or Portuguese emigrants - who received capital gains from the sale of real estate were to be subject to personal income tax (IRS) for the amount received under the autonomous tax rate of 28%. At the same time, capital gains from real estate of residents in the country were and continue to be taxed at 50%, with this amount included in total income and subject to general IRS rates.

The rule is now the same for residents and non-residents: capital gains from real estate are taxed'.

How will capital gains from real estate be taxed for non-residents?

In order to "harmonize procedures", the tax department has explained how taxation of capital gains from real estate received by non-residents is to be applied, according to an official document published on the finance portal.

It is first stated that in the case of non-residents in Portugal, income taxation does not include pooling, except in the following cases:

• capital income derived from the "paid sale of real rights to real estate";
• 'paid''assignments of contractual provisions or other rights relating to real estate contracts'.

It is then explained that "where the law requires the inclusion of income earned by non-residents in Portuguese territory for the purpose of determining the applicable rate, all income, including income earned outside that territory, shall be treated under the same conditions applicable to residents." This applies to income received from January 1, 2023. The purpose is not to tax the amounts in Portugal, but to use them to determine the applicable rate.

Therefore, 'income derived in Portugal by non-residents relating to capital gains derived from the sale of reality rights on immovable property or''paid assignments of contractual provisions or other rights relating to real estate contracts, effective 01/01/2023' are subject to the following tax treatment:

• determination of the amount of income qualified as capital income;
• compulsory inclusion of income received;
• "the application of the general rates of the IRS Tax Code to pooled income received in Portuguese territory, with all income, including income received outside Portuguese territory, treated under the same conditions applicable to residents" is also explained.

What concerns capital gains from real estate received by non-residents before the last day of 2022, the accounts of which have been or will be subject to''tax procedure or tax process, "the understanding that applies, under Article 43(2) of the IRS Tax Code, to non-residents, only 50% of their amount of capital gains subject to autonomous taxation at a special rate of 28% remains in effect," conclude experts and financial advisors.

The advocates and financial experts agree that this tax on capital gains for non-residents under the personal income tax (PIT) is "fairer" and "less discriminatory". However, they believe that completing Model 3 can be "complex and costly" and there may be difficulties in controlling the process, cites Jornal de Negócios.