Thoughts on The UK Budget 2024

On 6th March 2024 the UK Chancellor of the Exchequer, Jeremy Hunt, delivered his second Spring Budget for the current Conservatve Government.

Contained within the Budget were proposals for a change to the current system of taxation of non-domiciled individuals with effect from 6th April 2025, from the existing regime where UK resident non-domiciled individuals are only taxed on income or capital gains remitted to or originating in the UK, to a regime based on residence whereby all UK residents will pay UK tax on foreign income and gains following four years of residency.

In addition, from 6th April 2025 the protected trust regime will also effectively cease to apply, with the result that income and gains in affected trust structures could become taxable on the settlor(s) from that date.

Mention is also made of the intention to change the inheritance tax laws so that exposure is determined by reference to residence rather than domicile. However, these plans have yet to be detailed and will be subject to consultation.

“Hope for the best and prepare for the worst” T. Norton & T Sackville

Whilst the above is a departure from the Conservative’s previous stance on the status of non-doms it is very much in line with proposals mooted by Labour over the years.

At present, these are only proposals and the legislation (whatever form it may take) is yet to be drafted let alone come into effect. It remains to be seen what form any Conservative legislation would eventually take or whether, should the matter still be in abeyance at the time of the next General Election and Labour come to power. It is likely they would want to put their own stamp on the matter and one would assume that any amendments that Labour introduce would be unlikely to dilute the Conservative proposals.

Therefore it is recommended that existing Non-doms and those considering re-locating to the UK to consider how they may wish to (re-)structure their affairs prior to 6th April 2025 and discuss their options with a qualified tax advisor. As a starting point there are numerous articles freely available discussing the terminology used in the Budget and the effect that the proposed changes may (or may not) have, depending on how they are implemented.

Options that individuals may wish to consider include (but are not limited to):

  • Use of an insurance wrapper or other insurance-based products
  • Use of a Family Investment Company
  • Formation of an excluded property trust now whilst delaying the funding of the trust until clarification on the future inheritance tax regime
  • Accelerating the receipt and realisation of foreign income and gains where possible to crystalise Foreign Income and Gains (FIG) as detailed in the Budget
  • Requesting trust distributions prior to 5 April 2025 to generate foreign income and gains for the same purpose (assuming this is not blocked by the new rules)
  • Where possible amending the terms of existing trusts in order to minimise the impact of the loss of the trust protections (such as the exclusion of the settlor and certain other family members so as to prevent the attribution of income and gains to the settlor)

“If not now, when?” Hillel the Elder

While it is true that “Only death and taxes are certain” there does appear to be some leeway with the second as to the form it may take provided action is taken in a timely manner.

Additional Information

For further information on private wealth structures and their management, please contact John Nelson, Managing Director, Dixcart Trust Corporation Limited, Guernsey: john.nelson@dixcart.com

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.

Malta

Unlocking the Notional Interest Rate Deduction in Malta: Everything You Need to Know for Optimal Tax Planning

Malta, a sunny island nation in the Mediterranean, has been steadily growing its economy and establishing itself as an attractive destination for businesses, as well as being a wonderful place to live. One of the key incentives offered by the local government to promote investment and economic growth is the Notional Interest Rate Deduction (NIRD). This deduction, introduced in 2017, aims to encourage equity financing and stimulate entrepreneurship. In this article, we will explore the intricacies of Malta’s NIRD, its benefits, eligibility criteria, and how it impacts businesses operating in Malta.

Understanding Notional Interest Rate Deduction

The Notional Interest Rate Deduction, often abbreviated as NIRD, allows companies registered in Malta to deduct a notional interest expense from their taxable income. This deduction effectively reduces the company’s tax liability, providing a significant incentive for businesses to invest and expand their operations in Malta.

The concept behind The Notional Interest Rate Deduction is to provide an incentive for companies to finance their operations through equity rather than debt. By doing so, companies can strengthen their balance sheets, reduce financial risk, and promote long-term sustainability.

Unlike traditional interest expenses, which represent actual borrowing costs, the notional interest expense is a theoretical amount calculated based on the company’s equity investment.

Example:

 No Notional Interest ElectionNotional Interest ElectionNotional Interest Election
Chargeable Income100,000100,000100,000
Notional InterestNil20,00060,000
Chargeable Income100,00080,00040,000
Tax thereon at 35%35,00028,00014,000
    
FTA AllocationNil22,000 (20,000 x 110%)66,000 (60,000 x 110%)
MTA Allocation65,00050,000 (80-28-2)20,000 (40-14-6)
    
6/7th Refund30,00023,07779,231
    
Tax Leakage5,0004,9234,769
    

What are the Benefits of Notional Interest Rate Deduction?

The implementation of the NIRD has several benefits for businesses operating in Malta:

Tax Savings: The primary benefit of the NIRD is the reduction of corporate tax liabilities. By deducting a notional interest expense from taxable income, companies can lower their effective tax rate, resulting in significant tax savings.

Encourages Equity Financing: The NIRD encourages businesses to finance their operations through equity rather than debt. This promotes a healthier capital structure, reduces financial risk, and enhances the company’s ability to weather economic downturns.

Stimulates Investment: The availability of the NIRD incentivizes both local and foreign companies to invest in Malta. This influx of investment capital contributes to economic growth, job creation, and the development of key industries.

Supports Entrepreneurship: The NIRD provides a valuable tax incentive for startups and small businesses, making it easier for entrepreneurs to access capital and fuel innovation. This, in turn, fosters a vibrant entrepreneurial ecosystem and drives economic diversification.

What’s the Eligibility Criteria for Notional Interest Rate Deduction?

While the NIRD offers attractive tax benefits, not all companies operating in Malta are eligible to claim this deduction.

To qualify for the NIRD, companies must meet certain criteria:

  • Registered in Malta: The company must be registered and resident in Malta for tax purposes.
  • Equity Financing: The NIRD is available only for companies that finance their operations through equity rather than debt. Companies must maintain a minimum level of equity capital to be eligible for the deduction.
  • Compliance with Substance Requirements: Companies claiming the NIRD must demonstrate substance in Malta, meaning they must have a physical presence, employees, and conduct genuine business activities in the country.
  • Compliance with Transfer Pricing Rules: Companies taking advantage of NIRD must comply with Malta’s transfer pricing rules and maintain proper documentation to support their transactions.

Conclusion:

Malta’s Notional Interest Rate Deduction is a valuable tax incentive that promotes equity financing, stimulates investment, and supports entrepreneurship. By allowing companies to deduct a notional interest expense from their taxable income, the NIRD reduces tax liabilities, enhances competitiveness, and fosters economic growth.

As Malta continues to position itself as a leading business destination, the NIRD plays a crucial role in attracting investment, driving innovation, and building a sustainable economy for the future.

Additional Benefits Enjoyed by Maltese Companies

Malta does not levy withholding taxes on outbound dividends, interest, royalties and liquidation proceeds.

Maltese holding companies also benefit from the application of all EU directives as well as Malta’s extensive network of double taxation agreements.

Dixcart in Malta

The Dixcart office in Malta has a wealth of experience across financial services and offers legal and regulatory compliance insight. Our team of qualified Accountants and Lawyers are available to set up structures and help to manage them efficiently.

Additional Information

For further information about Maltese companies matters please contact Jonathan Vassallo, at the Dixcart office in Malta: advice.malta@dixcart.com. Alternatively, please speak to your usual Dixcart contact.

UK Spring Budget 2024

The UK Spring Budget 2024: Amendments to Taxation for Individuals Outside the UK

Starting from April 6, 2025, the existing non-domicile regime will come to a close, replacing the concept of domicile as a pertinent connecting factor in the current tax structure with one grounded in tax residency.

Currently, individuals residing in the UK but not domiciled can enjoy the remittance basis for their initial 15 years of residency in the UK. This means that they are not obligated to pay UK taxes on income and gains earned outside the UK unless those funds are brought into the UK.

With the forthcoming system, individuals who choose to opt into this new framework will be exempt from UK taxes on any foreign income and gains for their initial 4 years of tax residency, provided they have maintained non-tax residency status for the preceding 10 years.

Who is eligible for new regime?

Individuals will qualify for the new regime if they have been non-UK tax resident for at least 10 consecutive tax years, regardless of their domicile status. The new regime will apply for their first 4 tax years of UK residence, so this will apply to returning UK domiciliaries.

Main summary of changes

Individuals will not pay tax on foreign income and gains (FIG) arising in the first 4 years after becoming UK tax resident, where a claim is made. They will be able to bring these funds to the UK free from any additional charges and there will be no need to segregate or trace funds during this period. They will continue to pay tax on UK income and gains, as is the case for non-domiciled individuals now. The individual will also lose their entitlement to personal allowances and the capital gains tax annual exempt amount.

Individuals who on 6 April 2025 have been tax resident in the UK for less than 4 years (after 10 years of non-UK tax residence) will be able to use the new regime for any tax year of UK residence in the remainder of those 4 years. For example, an individual who became resident in the UK in 2022/23, after a 10 year period of non-residence, will have been resident in the UK for up to 3 tax years on 6 April 2025. They will be able to claim under the new 4 year FIG regime for 2025/26 because this is their fourth year following a period of 10 years non-UK tax residence.

Transitional Provisions

As the new regime will represent a significant change for existing Resident Non-Domiciled individuals, there are a number of transitional arrangements that will be available as follows:

  • Individuals who move from the remittance basis to the arising basis on 6 April 2025 and are not eligible for the new 4 year regime, will for 2025/26 only pay tax on 50% of their foreign income. This applies to foreign income only and does not apply to foreign chargeable gains. For 2026/27 onwards, tax will be due on worldwide income and gains in the normal way.
  • Individuals who have previously claimed the remittance basis of taxation and are neither UK domiciled not deemed domiciled by 6 April 2025, will be able to elect to rebase assets held personally to their value at 5 April 2019, so they will only be taxed on capital gains since that date. This is in respect of disposals which take place on or after 6 April 2025.
  • Individuals who have previously been taxed on the remittance basis will be able to elect to remit foreign income and gains that arose before 6 April 2025 to the UK at a reduced rate of 12%. This is a new Temporary Repatriation Facility that will only be available for the 2025/26 and 2026/27 tax years. This facility will not apply to foreign income and gains generated within trusts and trust structures.

Taxation of assets held in Trust

From 6 April 2025, the protection from taxation on future income and gains that arise within trust structures (wherever established) will be removed for all current non-domiciled and deemed domiciled individuals who do not qualify for the new 4 year FIG regime.

Under the new regime, for as long as an individual qualifies for the new 4 year regime, they will not pay UK tax on the income and gains of the trust as they arise or on receipt of trust distributions.

Once the individual Is no longer eligible for the new 4 year FIG regime, they will be required to pay UK tax on all profits arising within a trust structure which they have established.

Inheritance Tax

Currently, an individual’s liability to Inheritance Tax depends on their domicile status and the location of the asset in question. From 6 April 2025, the government intends to move IHT to a residence-based system and this will be subject to consultation on how this is best achieved.

The timing of any legislation enacting the changes is unclear and the government has suggested that an individual’s worldwide assets would fall with the scope of UK inheritance tax once the individual has been UK resident for 10 years. It is suggested that once the individual is within the scope of UK inheritance tax they will remain as such for 10 years after the individual ceases to be UK resident.

Under the current rules, non-UK assets held in trust structures that were established by Resident Non-Domiciled individuals before they became deemed domiciled in the UK, are outside the scope of UK inheritance tax. The government has confirmed that the treatment of non-UK assets settled onto non-UK trusts before 6 April 2025 will continue to be outside the scope of the UK Inheritance Tax regime.

Conclusion

The announcements in the Spring 2024 Budget represent the biggest change to the way in which non-UK domiciled individuals are taxed in the UK. This is an area which is likely to continue to develop and further details will emerge in the coming months which will hopefully allow individuals time to prepare for the new regime well in advance of its implementation date of 6 April 2025.

If you would like any further information regarding the new measures outlined above, please don’t hesitate to contact your usual Dixcart contact or enquire at advice@dixcart.com

uk-immigration-opportunities

Unveiling the UK’s Spring Budget 2024: The Key Announcements and What you Need to Know

Introduction:

In the budget of 6th March, Chancellor Jeremy Hunt has presented the much-anticipated Spring Budget for 2024. Building upon the foundation laid in the previous year’s ‘Four Pillars’ approach, the Budget outlines strategic measures aimed at further bolstering the nation’s economy.

Please download Dixcart UK’s detailed Budget Summary above for comprehensive details, but the headline measures announced were:

  • National Insurance contributions for employees reduced from 10% to 8% from 6 April 2024
  • National Insurance contributions for self-employed reduced from 9% to 6% from 6 April 2024
  • High Income Child Benefit Charge threshold will go up from £50,000 to £60,000 from 6 April 2024. Further changes expected from 2026
  • VAT Registration threshold increased to £90,000 from current £85,000 effective from 1 April 2024
  • Full expensing extended to cover leased assets in future when affordable
  • Non-dom tax regime reformed from 6 April 2025. A residency based system will arrive in 2025
  • Higher rate of Capital Gains Tax on property reduced from 28% to 24% from 6 April 2024
  • Stamp Duty Land Tax – Multiple Dwellings Relief abolished
  • Fuel Duty – Temporary 5p cut will remain for another year
  • Alcohol Duty frozen for another year
  • Windfall Tax extended until 2029
  • Furnished Holidays Lettings tax regime abolished from April 2025
  • Vape Levy introduced and Tobacco Duty increased
  • Introduction of a new ISA, currently labelled “British ISA”

If you would like any further information regarding the new measures outlined above, please don’t hesitate to contact your usual Dixcart UK contact or enquire at advice.uk@dixcart.com

Case Study: Navigating the UK’s Inheritance Tax Challenges

Introduction

In this scenario, an international private client, let’s call him John, a UK resident in his early 70s and a widower, found himself confronted with a substantial Inheritance Tax (IHT) bill. With a UK property worth £1,500,000 and investments totalling £750,000, John pondered strategies to mitigate the impact on his wealth without seeking professional advice.

The Risky Plan

In an attempt to navigate inheritance tax, John contemplated selling his house to his son, a resident of Guernsey, a jurisdiction with no inheritance tax. The plan involved his son, who recently liquidated a multimillion-pound business, purchasing the property, and John gifting the proceeds back while continuing to reside in the house. The goal was for John to live for another seven years, aiming to avoid hefty inheritance tax charges.

Professional Analysis

However, our team of experts swiftly identified the flaws in this plan. The proposed scheme of “selling” the house to the son, followed by gifting the proceeds, would not align with HM Revenue and Customs. The Gift with Reservation of Benefit (GWR) rules, coupled with the potential application of Pre-Owned Assets Tax (POAT), made the plan ineffective. The value of the property would still be considered part of John’s estate for inheritance tax purposes. Moreover, the son’s residence in Guernsey did not exempt the UK-sited property from UK-based IHT, potentially leading to complexities in the future.

Professional Advice

What if John had sought professional advice from Dixcart UK before embarking on this risky endeavour? Let’s explore.

  • Scenario Planning

Dixcart UK, could have guided John through a comprehensive scenario analysis. Understanding John’s international financial situation, Dixcart professionals could have illustrated potential outcomes, considering international wealth preservation goals and the nuances of various jurisdictions.

  • Strategic International Gifting

Instead of pursuing a convoluted plan, Dixcart could have advised John on straightforward and globally compliant methods of mitigating inheritance tax. This might involve strategic gifting within allowable limits set by relevant jurisdictions or exploring Potentially Exempt Transfers (PETs) for financial assets. A carefully structured gifting plan, considering the time period, could have mitigated the IHT impact effectively.

  • Utilising International Tax Allowances

Dixcart UK could have helped John leverage international tax allowances, considering his global assets. Exploring options like gifting a portion of his investments within these allowances could have been a more tax-efficient and transparent strategy. The utilisation of nil-rate bands, residence nil-rate bands, and other available allowances could have been optimised for international wealth preservation.

  • Long-Term Generational Wealth Planning

Moreover, Dixcart UK could have assisted John in developing a long-term inheritance tax mitigation plan with an international perspective. Understanding John’s financial goals and family situation on an international scale, the professionals could have provided guidance on structuring his estate, ensuring the seamless transfer of assets to the next generation.

Conclusion

John’s case serves as a compelling illustration of the importance of professional advice in navigating complex global financial decisions. Seeking guidance from Dixcart, could have potentially saved John from the complications and financial pitfalls he faced. This case study underscores the significance of consulting professionals in international private client services, ensuring individuals make informed decisions and preserve their wealth across borders.

By exploring the hypothetical scenario where John had come to Dixcart UK first, we emphasise the proactive role professionals can play in securing a sound financial future and mitigating risks associated with international wealth preservation and generational wealth planning. This case study aims to reinforce the value of expert consultation and strategic planning in safeguarding individuals from unforeseen financial consequences.

Get in Touch

If you have any questions regarding the tax implications and international inheritance planning, please get in touch at: advice.uk@dixcart.com

Decoding Portugal’s Crypto Tax Maze: A Simplified Guide

For years, Portugal has held the allure of limited taxation on crypto, attracting digital asset enthusiasts with its sunshine and seemingly lax regulations. However, that era has largely transitioned into a period of measured taxation, with new rules implemented in 2023.

Taxable Territory:

Portuguese tax residents pay tax on world-wide income, which includes world-wide crypto related income. Crypto taxation for individuals typically falls within one of the following three categories:

  • For holdings exceeding 365 days, gains are tax-free. Holdings for a shorter duration incur a flat 28% capital gains tax.
  • Income derived from passive crypto investments, such as capital or regular income from staking, airdrops or lending, is taxed at a flat rate of 28%. This includes investment income received in fiat currencies, from passive crypto investments, not based on crypto transfers.
  • With regards to professional crypto trading profits (including those earned from self-employment income or as a professional crypto trader) several factors need to be taken into consideration, such as the number of platforms used, number of trades, the holding periods, the profit ratio to other sources of income, etc. Profits are then taxed at the standard progressive rates, of between 14.5% and 53%. In addition, the simplified regime, relevant to self-employed individuals and business with income up to €200,000, may be applicable, and result in a number of deductions.

Other Tax Considerations

  • Note that transactions exclusively in cryptocurrencies are tax-free in Portugal.
  • Additionally, individuals who are non-tax resident in Portugal are only taxed on Portuguese sourced crypto income at a flat rate of 25%.
  • Crypto assets may be held under a company’s name, with tax rates ranging from 11.9% in Madeira to 21% in mainland Portugal.

Navigating the Nuances:

  • Ensure clarity: determine your tax residency status and holding period before assuming that you are eligible for a tax-free status read here for more information.
  • Record-keeping: Maintain detailed records of transactions and cost bases for accurate tax calculations.

Beyond Taxes

Gifts and Inheritance:

Stamp duty applies in certain circumstances involving cryptocurrency such as; donations, gifting, or inheritance at a rate of 10%. For more information, please refer to: the Practical Tax Guide to Inheritance and Gifts received in Portugal. In the instance of commissions, a stamp duty charge of 4% is applicable.

Purchasing Property with Crypto:

Property may be purchased exclusively using crypto with the first instance occurring in Braga, north of Portugal, in May 2022. This was made possible with the introduction of changes in Notary Regulations, to permit such transactions. Specific compliance measures are required for such transactions.

Evolving Landscape:

Regulations are constantly evolving, to stay updated on changes we recommend you select a firm of professionals such as Dixcart: advice.portugal@dixcart.com, to keep you fully updated.

Global Considerations:

Investing in foreign crypto projects may entail international tax implications. Stay informed about such considerations to remain compliant.

Remember:

By understanding the basics of crypto taxation in Portugal, you can approach your investments with confidence. Remember, seeking professional guidance is invaluable for navigating the intricacies and ensuring compliance. So, explore the crypto world with a clear head and make informed decisions to enjoy the Portuguese sunshine and your digital assets!

Reach out to advice.portugal@dixcart.com for more information.

This information is not tax advice and is not intended to replace personalized advice from a qualified tax professional. Each individual’s circumstances are unique and their tax obligations may differ from what is presented here. Always consult a qualified professional before making any decisions based on this information.

Important Personal Tax Considerations in Portugal – a Snapshot

Portugal has emerged as a popular destination for expats and retirees, enticing with its sunshine, beaches, and relaxed lifestyle. But before packing your bags, understanding the personal tax landscape is crucial – particularly before making the move to Portugal. This article explores the key personal tax consequences you need to consider when relocating to Portugal.

Resident Versus Non-Resident:

Your tax status significantly impacts on your tax obligations.

Residents, defined as staying in Portugal for over 183 days, or regardless of spending any days maintains a habitual residence in Portugal during any day, are taxed on their worldwide income.

In contrast, non-residents are only taxed on income sourced from Portugal.

Tax Rates:

Residents face progressive tax rates ranging from 14.5% to 48% for 2023 and 2024, depending on their income bracket. Non-residents encounter a flat rate of 25% on most income types and 28% on rental income. However, special regimes such as the Non-Habitual Resident (NHR) programme offer reduced rates for eligible individuals.

Income Categories:

Income in Portugal is categorized, with each category potentially subject to different tax rates. Common categories include:

  • Employment income: Residents are taxed at progressive rates (up to 48%), while non-residents are subject to a flat rate.
  • Business income: Taxation varies depending on business structure and residency status. In addition, international tax planning may be required for income earned outside of Portugal.
  • House Rental income: Generally taxed at 25% for residents and non-residents, with potential reductions for long-term contracts.
    • More than 5 and less than 10 years – taxed at 15%
    • More than 10 and less than 20 – taxed at 10%
    • Over 20 years – taxed at 5%
  • Investment income: Dividends and interest are usually taxed at 28%, but individuals under the NHR programme benefit from personal tax exemptions. Capital gains are taxed at rates ranging from 28% to 35% or other rates depending on the source of the capital gain.
  • Going solo in Portugal – Self-employed individuals may be subject to unique tax assessment Read here for more details.

Deductions and Allowances:

Portugal offers various deductions and allowances to reduce your tax burden. These include expenses related to:

  • Health
  • Education
  • Mortgage interest
  • Pension contributions
  • Charitable donations
  • Other expenses – such as rent, VAT on food, car repairs, etc…

In Portugal, residents rely on their “Número de Identificação Fiscal” (NIF), a unique 9-digit tax identification number assigned to both individuals and companies. This number serves as your key for tax purposes and is often required for financial transactions.

Social Security Contributions:

A frequently overlooked aspect of Portuguese taxes is social security contributions. Both residents and non-residents contribute, with rates varying based on income and employment status. These contributions unlock valuable social benefits, including; healthcare, unemployment benefits, parental leave, and pensions. Understanding your specific contribution requirements and potential benefits is crucial for informed financial planning in Portugal Read here for more details.

Non-Habitual Resident (NHR) Programme:

This attractive programme offers significant tax benefits for qualifying individuals, including flat tax rates of 20% on employment and self-employment income (as long as these services fall under the list of high-value activities) and 10% on pensions. However, the regime mostly ended on 31 December 2023, with some exceptions including a much stricter set of eligibility criteria to qualify than previously Read here for more details.

Seeking Professional Advice

Navigating Portugal’s tax system can be complex. Consulting a qualified professional, familiar with the Portuguese tax system and your specific situation is highly recommended. They can guide you through the intricacies of the system, ensuring compliance and potentially maximizing your tax benefits.

Remember

This article provides a general overview and should not be considered as personalised tax advice. Individual circumstances and specific tax situations may require further analysis by a qualified professional.

By understanding the personal tax consequences in Portugal, you can make informed decisions and approach your move with greater confidence. Remember, proper planning and professional guidance can ensure a smooth transition and help you optimise your tax position in this beautiful country.

Please do reach out to Dixcart Portugal for more information: advice.portugal@dixcart.com.

Self-Employed in Portugal: Mastering Taxes and the Simplified Regime

Portugal’s sunshine and relaxed lifestyle attract many aspiring entrepreneurs. However, before plunging into self-employment, understanding the unique tax landscape is crucial. This article sheds light on personal tax implications and the ‘simplified regime’, helping you to reach the right decision for you.

Tax Fundamentals

  • Residents: Pay progressive income tax on worldwide income (14.5% – 48%).
  • Non-Residents: Pay a flat 25% on Portuguese-source income.
  • Social Security: Contributions 21.4% to 35% based on profession and chosen regime.

Enter the Simplified Regime

This attractive option caters for self-employed individuals with specific conditions:

  • Annual turnover: Under €200,000 of income.
  • Business activities: Listed in the regime’s allowed activities list.

How it Works

  • Tax Rates: Depending on the nature of the activity, the income subject to taxation is reduced. The income subject to taxation for products is 15% and for services is 75%, which is then taxed at 20% (if NHR), or otherwise according to the progressive tax tables. Please note that expenses must be registered on the tax office website and validated, to benefit from the percentages detailed above.
  • Basic example: Product sales of €30,000 received by an NHR Portuguese tax resident. €30,000 @ 15% = €4,500 taxable income. Tax due to the Portuguese tax authorities: €4,500 @ 20% = €900.
  • Reporting:
    • Annual returns are required to be submitted by 30th June of the following year (example: tax year of 1 January to 31 December 2023 is due on 30 June 2024).
    • VAT on a quarterly basis (if applicable)
    • Social Security on a monthly basis (one year exemption)
  • Reduced Burden: Less administrative complexity compared to the regular regime.

Considerations:

  • Not for Everyone: May not be suitable for all professions or high-earning individuals.
  • Record Keeping: Maintain accurate income and expense records for compliance.
  • Deadlines: Adhere to payment deadlines to avoid penalties.
  • Social Security: Contributions remain mandatory under the simplified regime.
  • Seek Advice: Consulting a tax advisor is crucial for eligibility assessment and maximizing benefits.

Beyond Taxes – Other Considerations

  • NIF: Obtain your Tax Identification Number (NIF) for financial transactions and tax purposes.
  • Health Insurance: Explore private health insurance options as social security coverage might not be comprehensive.
  • Accounting Support: Consider professional accounting assistance for managing finances and tax compliance.

Remember

Self-employment in Portugal offers exciting opportunities, but understanding the tax system is essential. Research diligently, stay informed, and seek professional guidance to navigate the simplified regime and optimize your entrepreneurial journey. By planning effectively, you can embrace the sunshine and success with peace of mind.

Additional Information

For further information on the self-employment taxes and the simplified regime in Portugal, please do not hesitate to contact the Dixcart Portugal office: advice.portugal@dixcart.com. Our team is ready to assist you with any questions or concerns regarding this topic.

How to Navigate Social Security Contributions in Portugal for Individuals

Portugal’s welcoming charm attracts many individuals, from expats to retirees, as well as entrepreneurs. While enjoying the sunshine and beaches, understanding Portugal’s social security system and your contribution responsibilities is crucial. This article demystifies social security contributions in Portugal for individuals, helping you navigate the system with confidence.

Who Contributes?

Both employed individuals and self-employed individuals contribute to Portugal’s social security system. The contribution rates and methods differ slightly based on your employment status.

Employee Contributions

  • Rate: Generally, 11% of your gross salary is automatically deducted by your employer (note that your employer contributes 23.75%).
  • Coverage: Provides access to healthcare, unemployment benefits, pensions, and other social benefits.

Self-Employed Contributions

  • Rate: Typically ranges from 21.4% to 35%, depending on your profession and chosen contribution regime.
  • On a quarterly basis a Social Security declaration must be submitted which declares the revenue of the previous quarter. Based on this amount, the Social Security contribution is calculated.
  • Method: Contributions are paid monthly through designated channels such as Multibanco, ATMs or online banking.
  • Coverage: Similar to employee contributions, offering access to various social benefits.

Special Cases

  • Voluntary Social Insurance: Individuals not automatically covered can make voluntary contributions to gain access to social benefits.

Remember and Contact Information

Contribution rates may change annually, based on government regulations.

Work place insurance may be required for occupational accidents, depending on your profession.

Deadlines for self-employed contributions must be adhered to, in order to avoid penalties.

Please reach out to Dixcart Portugal for more information: advice.portugal@dixcart.com.

Practical Tax Guide to Inheritance and Gifts Received in Portugal

Estate planning is necessary, as Benjamin Franklin would agree with his quote ‘Nothing is certain except death and taxes’.

Portugal, unlike some countries, does not have inheritance tax, but makes use of a stamp duty tax named ‘Imposto de Selo’ that applies to the transfer of assets upon death or lifetime gifts.

What Succession Implications Exist in Portugal?

Portugal’s succession law applies forced heirship – implying that a fixed portion of your estate, namely world-wide assets (except for non-Portuguese real estate), will automatically pass to direct family. As a result, your spouse, children (biological and adopted), and direct ascendants (parents and grandparents) receive a portion of your estate unless expressly stated otherwise.

If it is your intention to establish specific arrangements to override this rule, this may be done with the drafting of a will in Portugal.

Note unmarried partners (unless cohabiting for at least two years and having formally notified the Portuguese authorities of the union) and stepchildren (unless legally adopted), are not considered immediate family – and thus will not receive a portion of your estate.

How Does Succession Apply to Foreign Nationals?

According to the EU succession regulation Brussels IV, the law of your habitual residence usually applies to your inheritance by default. However, as a foreign national, you can choose the law of your nationality to apply instead, potentially overriding Portuguese forced heirship rules.

This choice must be explicitly stated in your will or a separate declaration made during your lifetime. While your family cannot directly choose the applicable law after your death, they may be able to challenge the validity of your choice, under certain circumstances.

Who is Subject to Imposto de Selo?

The general tax rate in Portugal is 10%, applicable to inheritance beneficiaries or gift recipients. However, there are certain exemptions for close family members, including:

  • Spouse or civil partner: No tax is payable on inheritance from a spouse or civil partner.
  • Children, grandchildren, and adopted children: No tax is payable on inheritance from parents, grandparents, or adopted parents.
  • Parents and grandparents: No tax is payable on inheritance from children or grandchildren.

Assets Subject to Imposto de Selo

Imposto de Selo applies to the transfer of all assets located in Portugal, regardless of where the deceased resided, or the beneficiary of the gift resides. This includes:

  • Real estate: Properties, including homes, apartments, and land.
  • Movable assets: Personal belongings, vehicles, boats, artwork, and shares.
  • Bank accounts: Savings accounts, checking accounts, and investment accounts.
  • Business interests: Ownership stakes in companies or businesses operating in Portugal.
  • Cryptocurrency
  • Intellectual property

While inheriting an asset can be beneficial, it is important to remember that it may also come with outstanding debt that must be settled.

Calculating Imposto de Selo

To calculate the Imposto de Selo payable, the taxable value of the inheritance or gift is determined. The taxable value is the market value of the assets at the time of the death or gift, or in case of properties based in Portugal, the taxable value is the value of the asset registered for tax purposes. If the property has been inherited/gifted from a spouse or civil partner and has been co-owned during marriage or cohabitation, the taxable value is shared proportionately.

Once the taxable value is established, the 10% tax rate is applied. The final tax liability is calculated based on the net assets received by each beneficiary.

Potential Exemptions and Reliefs

Beyond the exemptions for close family members, there are additional exemptions and reliefs that may reduce or eliminate Imposto de Selo liability.

These include:

  • Bequests to charitable organisations: Donations to recognised charitable institutions are exempt from tax.
  • Transfers to disabled beneficiaries: Inheritances received by dependent or severely disabled individuals may be eligible for tax relief.

Documents, Submissions and Deadlines

In Portugal, even if you receive an exempt gift or inheritance, you still need to make a submission with the tax authorities. The following documents with associated deadlines are applicable:

  • Inheritance: The Model 1 form must be submitted by the end of the third month following death.
  • Gift: The Model 1 form must be submitted within 30 days of the date the gift is accepted.

Payment and Due Date of Stamp Duty

Stamp duty is required to be paid, by the person receiving the inheritance or gift, within two months of the notification of the death and in the case of receipt of a gift, by the end of the following month. Note that the ownership of an asset cannot be transferred until the tax is paid –in addition, you cannot sell the asset to pay the tax.

Tax Guidance

You can have one “worldwide” will to cover your assets in all jurisdictions, but it is not advisable. If you have significant assets in multiple jurisdictions, you should have separate wills to cater for each jurisdiction.

For those who have assets in Portugal, it is advised to have a will in Portugal.

Reach Out Now for More Information

Navigating inheritance tax matters in Portugal can be complex, particularly for non-residents or those with complex inheritance situations.

Seeking professional guidance can provide personalised assistance, an intelligent assessment of the inheritance scenario, and assist to minimise or optimise liabilities.

Reach out to Dixcart Portugal for more information advice.portugal@dixcart.com.