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.

Cyprus

New Double Taxation Treaty: Cyprus and The Netherlands

Cyprus and The Netherlands Double Tax Treaty

For the first time in the history of the Republic of Cyprus and The Kingdom of The Netherlands, a Double Tax Treaty came into force on 30th June 2023 and its provisions are applicable as from 1 January 2024 onwards.

This article updates our note issued in June 2021, with regards to the execution of a Double Tax Treaty, on 1st June 2021.

Main provisions of the Double Tax Treaty

The Treaty is based on the OECD Model Convention for the Elimination of Double Taxation on Income and on Capital and incorporates all the minimum standards of the Actions against Base Erosion and Profit Shifting (BEPS) concerning bilateral agreements.  

Withholding Tax Rates

Dividends – 0%

There is no withholding tax (WHT) on dividends if the recipient/beneficial owner is:

  • a company that holds at least 5% of the capital of the company paying the dividends throughout a 365 day period or
  • a recognized pension fund which is generally exempt under the corporate income tax law of Cyprus

The WHT in all other cases shall not exceed 15% of the gross amount of dividends.

Interest – 0%

There is no withholding tax on payments of interest provided that the recipient is the beneficial owner of the income.

Royalties – 0%

There is no withholding tax on payments of royalties provided that the recipient is the beneficial owner of the income.

Capital Gains

Capital gains arising from the disposal of shares are taxed exclusively in the country of residence of the alienator.

Certain exemptions apply.

The below exemptions apply:

  1. Capital gains arising from the disposal of shares or comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other Contracting State, may be taxed in that other State.
  2. Capital gains arising from the disposal of shares or comparable interests deriving more than 50% of their value directly or indirectly from certain offshore right/property relating to exploration of the seabed or subsoil or their natural resources located in the other Contracting State, may be taxed in that other State.

Principal Purpose Test (PPT)

The DTT incorporates the OECD/G20 Base Erosion and Profit Shifting (BEPS) project Action 6

PPT, which is a minimum standard under the BEPS project. The PPT provides that a DTT benefit shall not be granted, under conditions, if obtaining that benefit was one of the principal purposes of an arrangement or transaction.

Additional Information

If you require further information as to how the DTT between Cyprus and the Netherlands could be of benefit please contact the Dixcart office in Cyprus: advice.cyprus@dixcart.com or your usual Dixcart contact.

Importance of having a will

Unveiling the UK’s Autumn Budget 2023: A Comprehensive Overview

Introduction:

In a highly anticipated announcement, Chancellor Jeremy Hunt presented the Autumn Budget 2023 in the House of Commons on 22 November 2023, revealing a set of measures aimed at fostering economic growth and stimulating business investment.

The budget, comprising “110 growth measures,” outlines a strategic plan to boost the UK economy by £20 billion annually. This article provides a comprehensive summary of the key tax and related measures introduced in the Autumn Budget.

Tax Measures:

1. Class 1 Employees NI Reduction (From January 2024):

  • A significant move to stimulate income, the budget proposes a 2% reduction in Class 1 employees’ National Insurance contributions, effective from January 2024.

2. Self-Employed and Class 4 NI Adjustments (From April 2024):

  • The Autumn Budget abolishes Class 2 National Insurance for the self-employed and implements a 1% reduction in Class 4 National Insurance from April 2024, providing relief for independent workers.

3. National Living Wage Increase (From April 2024):

  • In a commitment to improving workers’ livelihoods, the National Living Wage is set to increase by a substantial 9.8%, reaching £11.44 per hour from April 2024.

4. Capital Allowances Full Expensing Permanent:

  • A boost for businesses, the budget makes the full expensing of Capital Allowances permanent, allowing companies to deduct expenditure on new equipment and machinery from profits.

5. R&D Tax Credit Schemes Merger (From April 2024):

  • The Research and Development (R&D) tax credit schemes are set to merge, with a reduction in the rate for loss-making businesses to 19%, and a lowered intensity threshold for loss-making SMEs to 30%.

6. Extension of Investment Zones and Freeports Incentives:

  • To encourage investment, the budget extends incentives for Investment Zones and Freeports, fostering economic activity in designated areas.

7. Pensions Triple Lock (From April 2024):

  • A significant commitment to pensioners, the basic state pension will increase by 8.5% to £221.20 per week from April 2024.

8. Business Rate Discount Extension:

  • The 75% discount on business rates for retail, hospitality, and leisure companies is extended for another year, providing crucial support to sectors impacted by the economic challenges.

9. Freeze on Small Businesses Rates Multiplier:

  • Recognising the challenges faced by small businesses, the budget freezes the small business rates multiplier for a year.

10. Universal Credit and Benefit Increase (From April 2024):

  • A boost for individuals and families, Universal Credit and other benefits are set to increase by 6.7% from April 2024.

11. Alcohol Duty Freeze (Until August 2024):

  • In a move to support consumers and businesses in the alcohol industry, the budget freezes alcohol duty until 1 August 2024.

12. Making Tax Digital (MTD) Simplification:

  • The budget introduces changes to simplify the design of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA), aiming to streamline tax processes for businesses.

Conclusion:

As the United Kingdom stands at the threshold of a new economic era, the Autumn Budget 2023 emerges as a blueprint for resilience and growth. Chancellor Jeremy Hunt’s unveiling of “110 growth measures” signifies a commitment to rejuvenating the economy and bolstering business confidence.

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

A Comprehensive Guide to Company Re-domiciliation: Exploring the Legal Framework and Benefits in Cyprus

Introduction

In today’s globalised economy, businesses often seek favourable environments to expand their operations and optimise their corporate structures. Cyprus, known for its strategic geographical location and business-friendly regulations, has emerged as an attractive destination for company re-domiciliation. Through its accommodating legal framework and a host of advantageous provisions, Cyprus has positioned itself as a preferred jurisdiction for businesses aiming to relocate.

This article examines the intricacies of the re-domiciliation process in Cyprus, highlighting the key legal considerations and eligibility criteria. In addition, it sheds light on the array of benefits that await companies opting to make Cyprus their new home, including: its favourable tax regime, extensive network of Double Tax Treaties, and robust infrastructure of support services.

Legal Framework

The Republic of Cyprus is included in the list of jurisdictions that allow the re-domiciliation process including, the transfer of legal ‘seat’ of foreign companies in and out of Cyprus, according to the Companies Law, Cap. 113.

The re-domiciliation process does not involve the company’s dissolution but instead the company remains and is considered to be the same legal entity, albeit governed by the laws of the new jurisdiction.

Re-domiciliation into Cyprus

Eligibility

  • The Laws of the country in which the foreign company is registered must permit the re-domiciliation process and allow the foreign company to exist as a company registered in Cyprus;
  • The documents of incorporation of the foreign company (Articles or Memorandum of Association) must contain a continuation provision that allows the foreign company to exist under the legal regime of another jurisdiction. If no such provision of re-domiciliation exists, then the M&AA Memorandum and Articles of Association must be amended to include such provision;
  • If the foreign company carries out a licensed activity in the foreign jurisdiction, it will need to produce evidence of the license and satisfy the local licensing criteria for the relevant activity in Cyprus;
  • Cyprus Law does not recognise bearer shares, therefore the authorised share capital of the foreign company, after it’s transfer-in to Cyprus, will have to be registered shares;
  • The name of the foreign company under which it will continue in Cyprus, needs to end with the word ‘’Limited’’. Therefore, possible names will need to be chosen with which the foreign company will be able to continue to exist once re-domiciled to Cyprus. An application needs to be made, in advance, to the Cyprus Registrar of Companies to obtain approval of the proposed name/s. The approval will be valid for 6 months from  issue.

Benefits

  • Cyprus has a corporate tax rate of 12.5%
  • Simple tax regime that is fully EU and OECD compliant
  • The following sources of income (subject to conditions) are exempt from corporate income tax:
    • Dividend Income        
    • Interest income, excluding income arising in the ordinary course of business, which is taxed under corporation tax.          
    • Foreign Exchange (FX) gains, with the exception of FX gains arising from trading in foreign currencies and related derivatives.
    • Gains arising from the disposal of securities.            
  • Additional tax incentives for equity financing/debt restructuring and IP qualifying profits that can reduce corporation tax up to 80%
  • Well drafted laws on Corporate and Commercial matters
  • Cyprus has concluded more than 65 Double Tax Treaties with other countries.
  • Excellent advanced infrastructure of services with highly skilled professional support such as, legal and accounting services.

Additional Information

For further information about the attractive tax regime for individuals in Cyprus, please contact Charalambos Pittas or Katrien de Poorter at the Dixcart office in Cyprus: advice.cyprus@dixcart.com.

Amendments to the Personal Income Tax Law: First Time Employment in Cyprus

As part of the action plan, launched by the Cyprus government to attract foreign businesses to establish or expand their activities in Cyprus, there have been new amendments in 2023 to the Cyprus Income Tax Law, regarding the 50% and the 20% tax exemptions for first time employment in Cyprus.

This article outlines the amended income tax exemptions.

What are the Amended Income Exemptions for Cyprus Tax Residents?

  • 50% income tax exemption

This applies for first time employment in Cyprus, which commenced on or after 1st of January 2022, with remuneration exceeding EUR 55,000 per annum.

Individuals must not have been a resident of Cyprus, for a period of at least 15 consecutive tax years, immediately prior to the commencement of their employment in Cyprus. For each individual, the exemption will apply once in their lifetime for a period of 17 years.

Subject to certain conditions, individuals whose employment commenced prior to 1 January 2022 may also be eligible to transition into the amended 50% exemption.

  • 20% income tax exemption

This applies for first time employment in Cyprus, which commenced on or after the 26 July 2022, and relates to remuneration up to a maximum exemption of EUR 8,550 per annum.

Individuals, immediately prior to the commencement of employment in Cyprus must not have been a resident of Cyprus for a period of at least three consecutive tax years and must have been employed outside Cyprus by a non-resident employer. The exemption applies for a period of seven years, starting from the tax year following the tax year of commencement of employment.

Individuals granted the 50% exemption detailed above will not be eligible for this exemption.

  • Previous 50% or 20% exemptions

Individuals that do not meet the conditions to transition to the new 50% exemption, but who were eligible to benefit under the previous 50% or 20% exemptions, may continue to benefit from the previous exemptions, for the remaining period of their entitlement.

The previous exemptions were available for ten years (50% exemption), or five years (20% exemption), respectively, for each individual.

Get in Touch To find out more in income exemptions get in touch with our experts at Dixcart Cyprus advice.cyprus@dixcart.com

Russia suspends DTT with Cyprus

As a response to the sanctions placed on Russia, Russia signed, on the 8th of August 2023, a decree suspending (not abolishing) the double tax treaties with multiple ‘unfriendly’ countries including Cyprus.

According to the official decree, the suspension of DTT’s is justified by Russia’s need to respond to ‘unfriendly actions’ taken by these nations against the Russian Federation, its citizens, and legal entities, in connection with the war in Ukraine.

What does this mean for International Taxation?

The suspension of such agreements in full or in part will inevitably entail not only an increase in the tax burden due to double taxation of the same income, but will also have a major impact on reporting.

The decree halts the application of key provisions in approximately half of Russia’s DTT’s.

The suspension pertains to the following provisions:

  • Taxation of dividends, interest, royalties, income from permanent establishments, capital gains, employment earnings, and miscellaneous income.
  • Provisions related to property taxation.
  • Non-discrimination clauses.
  • Limitation of benefits provisions stipulated in several treaties, namely: Sweden, Luxembourg, UK, Switzerland, Cyprus, Lithuania, Austria, and Malta.
  • Provisions involving mutual assistance in tax collection for agreements with Belgium, Norway, Cyprus, Austria, and Japan.

From a Cyprus perspective

Cyprus Minister of Finance will continue to honour the Tax Treaty with Russia until further notice.

The suspension of the treaty from Russia’s side will have some tax implications for Cyprus registered companies that receive income from Russian entities. The tax applied on interest, which is deducted at source, will increase from 15% to 20%. As for royalty income, tax applied will rise from 0% to 20%, whereas the tax deducted at source for dividend income, will remain at 15%, as it was before.

However, as announced by the Minister of Finance, the non-application of the Double Taxation Avoidance Agreement’s provisions, might not have further significant consequences for Cyprus, as the existing sanctions and restrictions have already impacted significantly on the economic relations between the two countries.

For additional information, please contact: Katrien De Poorter at the Dixcart office in Cyprus: advice.cyprus@dixcart.com.

The data contained within this Information Note is for general information only. No responsibility can be accepted for inaccuracies. 

Malta: Hollywood in the Mediterranean

Foreign Films Being Shot in Malta

Malta has established itself as a top film location in the Mediterranean and is gaining a strong global reputation that is managing to attract a large volume of foreign films and series over recent years.

Such films include; the movie Entebbe, Game of Thrones and the Netflix series Sense 8, as well as box offices movies such as Jurassic World Dominion and Gladiator 2 which is set to start production in the next half of the 2023. There has  been an increase in crews from Hollywood and Bollywood as well as marketing agencies and production companies frequently visiting the island to take advantage of the benefits available to them.

In this article we will discuss the specific  reasons as to why the film industry is continuing to grow in Malta and why it has attracted so much interest. In addition to; Malta’s versatile location, the film servicing facilities and infrastructure as well as English being the first language, a significant bonus is the fiscal incentives offered by the Government.

Fiscal Incentives

Currently there are  several tax incentives in Malta, that can be enjoyed by both local and international film productions.

  1. Cash Rebate – A cash rebate of up to 40% of the eligible expenditure incurred in Malta on film production, including; pre-production, production, and post-production costs. The minimum expenditure threshold is €60,000 for feature films, documentaries, and TV drama series, and €100,000 for TV commercials, animation, and other productions.
  2. VAT Refund – A refund of up to 25% of the VAT paid on eligible expenditure incurred in Malta on film production.
  3. Tax Credit – A tax credit of up to 25% of the eligible expenditure incurred in Malta on film production. The credit can be used to offset tax payable on income earned in Malta.
  4. Co-Production Fund – A fund that provides up to 25% of the eligible expenditure incurred in Malta on co-productions. The fund is available to international co-productions that involve a Maltese production company as a partner.
  5. Malta Enterprise Investment Aid – A scheme that provides financial assistance to companies that invest in film production facilities in Malta. The assistance is in the form of a cash grant of up to 35% of the eligible costs of the project.

Geographics

Malta has an ability to ‘double-up’ to become multiple locations, which gives it a great advantage over many other jurisdictions. Over the years the island has been transformed into; North Africa, ancient Rome, the South of France and Tel Aviv. Producers are attracted by the island’s natural beauty and the diverse architecture of Malta’s towns and villages, castles, palazzos, towers and farmhouses. Mother Nature also plays her role; with 300 days of sunshine a year, directors are re-assured that filming is far less likely to be unexpectedly interrupted.

Local Production Support in Malta

Filmmakers are also given a warm welcome by the Malta Film Commission (MFC), which is responsible for the promotion and development of the industry. It offers assistance and guidance and is usually the first point of contact for any filmmaker considering Malta as a location.

The MFC runs an incentive scheme, which offers up to a 40% rebate of costs, in relation to; accommodation, transport and location hire.  

Screen tourism is a growing phenomenon worldwide, and Malta‘s film and tourism sectors have responded to this trend by offering dedicated tours that take visitors to the sites where movies were filmed.

Malta Film Studios

Malta is also home to the Malta Film Studios which offer shallow water tanks to allow the shooting of water scenes in a controlled environment with an unlimited ocean backdrop.

The island is currently sharpening its focus on developing further film infrastructure. The Government is currently looking for a strategic partner to redevelop, renovate and operate the film studios, and world-renowned companies have expressed their interest in the project. There are plans for the building of one or two sound-stages to allow producers to work in a fully controlled environment, so that filming can flourish 365 days a year.

How Can Dixcart Malta Help? 

The Dixcart office in Malta has a wealth of experience in assisting companies in Malta and detailed knowledge of the benefits and financial incentives that are available to film production companies and how to claim these.

We also offer legal and regulatory compliance insights to meet specific needs and to ensure that all necessary legal requirements have been met. In addition our team of qualified Accountants and Lawyers are available to set up structures and to manage them efficiently if you decide to incorporate a new company or redomicile an existing structure.

To Contact Us

Please do not hesitate to contact the Dixcart office in Malta and we will be delighted to assist you: advice.malta@dixcart.com.

Property Taxes in Portugal – The Importance of Getting it Right

Popularity of Portuguese Property

Property has recorded double digit percentage growth in various sectors listed by numerous real estate service companies in recent years and the expectation is that this will continue – with an increased demand and reduced supply than previously seen.

What is an interesting misconception is that property prices are driven predominantly by the Golden Visa program – in actual fact, the Portuguese Golden Visa accounts for an insignificant portion of property purchases, when considered in comparison to total property purchases in Portugal.

This reflects that there are various factors in Portugal influencing properties prices, including: the fact that Portugal is the new acclaimed California, the new European Silicon Valley, it is ranked one of the best places to live and work in the world, it is an attraction magnet for digital nomads, as well as offering a 10-year tax holiday for the affluent, and there is more.

Property has always been a favourable investment class for many – and that is no different now. This raises the importance of understanding the related tax consequences of holding property in Portugal.

Dixcart have summarised below some of the tax implications applicable in Portugal.

Taxation Implications to Consider

  • What are the Tax Consequences for My Rental Income?

Rental income, for individuals is taxed at a flat rate of 28% – for both resident and non-resident Portuguese holders of property.

Qualifying expenses may be used to reduce the taxable income due – provided it forms part of the income producing activity.

Corporate tax rates for rental income depend on residency status: non-resident entities may be subject to 21% tax, whereas local Portuguese companies will be subject to tax at rates between 19% to 21% in mainland Portugal and 11.9% to 14.7% for properties located in the autonomous region of Madeira.

  • When is Stamp Duty Applicable?

Stamp duty is applicable on a variety of transactions in Portugal – this may occur when a property is inherited or when a property is purchased. Please refer below for more details.

  • What Inheritance Tax Implications Exist for Property (or is it Stamp Duty that Applies)?

Although inheritance tax is not applicable in Portugal, stamp duty does apply.

For the purposes of stamp duty, inheritance or gifts may fall into one of two categories – those which are exempt, and those taxed at a flat rate of 10%. Inheritances by close relatives, such as parents, children and spouses, are exempt from stamp duty. All other inheritances and gifts are taxed at a flat stamp duty rate of 10%.

Stamp duty is payable for the respective property, even if the recipient does not live in Portugal.

If you are a UK domicile, your Portugal property will form part of your UK estate for UK inheritance tax purposes.

  • Stamp Duty on the Purchase of a Property

Stamp duty on the purchase of a property is charged at a rate of 0.8% on the higher of the purchase price or VPT (the rateable value, attributed by the tax authorities). The VPT in most cases is much lower than the actual purchase price of the property.

The purchaser must pay this duty, prior to signing the final deed, and proof of payment will need to be provided to the notary.

VAT may be applicable on the purchase of new builds, in particular situations.

  • Property Transfer Tax

Property transfer tax, namely IMT (Imposto Municipal sobre Transmissões Onerosas de Imóveis), is applicable each time ownership is transferred. The tax is required to be paid by the purchaser prior to the final deed of sale being signed (as the original copy of proof of payment needs to be shown to the notary at the time of the property exchange).

The tax paid, is calculated on the higher of the purchase price or the VPT.

The property transfer tax rate is largely dependent on the ultimate use of the property and whether it is your first or second home, with the rates varying between 0% and 6%.

Companies, which have as their principal activity the purchase and sale of properties, enjoy an exemption from property transfer tax, if they can prove that they have sold other properties in the previous 2 years.

  • Annual Municipal Property Tax (IMI)

Annual municipal property tax, or IMI (Imposto Municipal sobre Imóveis), is payable by the person who is the property owner as at 31 December of the previous year, and is based on the VPT. The rate applied ranges from 0.3% to 0.8%, and is dependent on whether the property type is classified as urban or rural (classified by the Portuguese tax authorities and based on the location of the property). Note that any investor or company located in a blacklisted tax jurisdiction, in accordance with the Portuguese tax authority, will be subject to a flat rate of 7.5% IMI.

An additional annual municipal property tax, namely AIMI (Adicional ao IMI), is chargeable for any VPT value exceeding €600,000, for all residential properties and construction plots. The rate will vary between 0.4% and 1.5% depending on if you are taxed as a single person, or as couple, or as a company.

Please note that AIMI is not only considered for a single property but is taken into account per owner. If more than one property is therefore held, the cumulative VPT needs to be considered. If the cumulative VPT value for all properties held by a single owner exceeds €600,000, AIMI will be applicable on the value of the properties held, exceeding this threshold.

If the property is being used to promote an activity, such as extending local, affordable accommodation, there will be no AIMI.

  • What Tax Consequences are Applicable Upon the Sale of a Property?

Capital gains tax is applicable on the sale of a property, unless purchased before 1989.

The tax consequences vary dependent on whether you are resident or non-resident. In addition, the use of the property and the way that the proceeds from the sale are utilised are paramount, as this may have a significant impact on the related tax consequences applicable.

The tax is calculated on the difference between the selling price and the acquisition value (adjusted for inflation rates, net of documented costs incurred when the property was acquired, coupled with any capital improvements within the last 12 preceding years of the sale).

As a Portuguese tax resident, 50% of the gain is liable to tax. If the property was held for a period of two years or more, inflation relief may also be applicable. Capital gains, on your property, are added to your other annual income and are taxed at marginal tax rates of up to 48%.

It is worth noting that gains resulting from the sale of a primary residence are exempt for residents, if you reinvest all of the proceeds (net of any mortgage on the property), in another main home in Portugal or the EU/EEA, before the property is sold (a window of up to 24 months), or within 36 months of the disposal of the property, provided you live in the new property, within 6 months of the purchase.

Since 1st January 2023, capital gains tax for a non-resident, applies to 50% of the gain. The actual rate of tax will depend on the amount of other income earned across the world, by the non-resident.

Rates of capital gains tax are progressive, with the maximum rate being 48%.

The capital gains tax rate for non-residents companies is either 21% or 14.7%, depending on where the property is located.

Other Considerations

However, the tax consequences in Portugal are not the only considerations to take into account. The specifics of the relevant double taxation treaty needs to be examined, as well as the local laws and regulations applicable in the country of tax residence.

A typical example of this for a UK resident, is the fact that UK tax residents also pay tax on the gain from the Portuguese property in the UK, however, under the double taxation treaty, any tax paid in Portugal may be credited against the tax due in the UK.

Is there a Preferred Structure to Hold Property in Portugal?

A topical query – what is the most preferred and tax efficient structure to hold property in Portugal?

  • The answer may vary depending on the objectives and circumstances of each individual investor, as well as the proposed usage of such properties. It is however worth noting, that for a non-tax resident investor wishing to invest in property to earn rental income, holding such a structure through a Portuguese (resident) company may be beneficial, with tax rates varying between 17% to 21% for properties located on the Portuguese mainland and 11.9% to 14.7% for properties located in the autonomous region of Madeira, in comparison to the flat rate of 21% for non-resident entities.
  • For residents, holding a primary residence in their personal capacity, may be more beneficial from a capital gain point of view. Thus, each situation needs to be considered on a case-by-case basis.
  • Other considerations, however, need to be taken into account, such as the operational costs for running a company and ensuring appropriate substance exists. The cost of holding a property through a corporate structure may thus not exceed the benefit in all circumstances.
  • Alternative qualitative benefits may include the fact that corporate structures provide an extra layer of asset protection, which may be considered invaluable for many individuals located in jurisdictions exposed to considerable financial and other types of risk.

Summary of Property Tax Consequences

To summarise the tax and costs applicable for purchasers, owners, sellers and others, as discussed above, please refer below:

Purchaser:Owner:
– IMT (Property Transfer Tax)
– Stamp Duty Notary/Registration Costs
– Legal expenses
– IMI (Annual Municipal Tax)
– AIMI (in addition to IMI)
– Running costs (such as water and electricity)
Seller:Others:
– Capital gains
– Commission to real estate agency
Inheritance tax

The related tax rates may be summarised as follows:

Individuals
 ResidentsNon-Residents
Capital Gains Tax– Primary residence may be subject to exemption
– Second property will be taxed at 50% of the gain at progressive tax rates.
50% of the gain will be taxed at progressive tax rates.
Rental Income– Lower of 28%; or
– Marginal tax rate.
28%
Companies
 ResidentNon-Resident
Capital Gains Tax28%Portugal: 21%
Madeira: 14.7%
Azores: 14.7%
Rental IncomeRespective company tax rates:
– Portugal: 17% to 21%
– Madeira: 11.9% to 14.7%
– Azores: 14.7%
Portugal: 21%
Madeira: 14.7%
Azores: 14.7%

Why is it Important to Engage with Dixcart?

It is not just the Portuguese tax considerations on properties, largely outlined above, but also the impact from where you may be tax resident and/or domiciled, that need to be considered. Although property is typically taxed at source, double taxation treaties and double tax relief need to be considered.

A typical example is the fact that UK residents will also pay tax in the UK and this will be calculated based on UK property tax rules, which may be different to those in Portugal.  They are likely to be able to offset the Portuguese tax actually paid against the UK liability to avoid double taxation, but if the UK tax is higher, further tax will be due in the UK. Dixcart will be able to assist in this regard and to help make sure you are aware of your obligations and filing requirements.

How else may Dixcart Assist?

Dixcart Portugal have a team of experienced professionals who may assist with various aspects regarding your property; efficient tax planning, legal support (for the sale or purchase of a property), accounting and tax support and the incorporation and maintenance of companies.

Further to this, if you would like a deemed tax calculation to be performed, you may reach out to our offices in Portugal and/or Madeira for this information: advice.portugal@dixcart.com

Dixcart have helped many with this service and look forward to assisting you with your next property advice and/or transaction.

How Individuals and International Companies can Benefit from Tax Incentives in Cyprus

How Individuals and International Companies can Benefit from Tax Incentives in Cyprus

As an EU member state, Cyprus offers a pleasant climate, excellent infrastructure, and a convenient geographical location. There are two main airports which provide frequent flights to most European cities as well as several international destinations. Cyprus has positioned itself well as a country of choice for both individuals and corporations, through various tax incentives and benefits.

  • The numerous tax incentives offered has seen a steady flow of EU and non-EU nationals establishing their business operations in Cyprus. In addition, individuals find Cyprus a tax efficient location to structure their personal tax positions by taking advantage of flexible tax resident rules and the non-domicile tax regime.

Cyprus is a common law jurisdiction, and its justice system is based on the ‘adversarial model’. Cypriot law has been modelled on English common law.

Cyprus also has access to all EU directives as well as an extensive network of double tax treaties.

Cyprus Offers a Range of Interesting Tax Incentives for Individuals

Many high-net-worth individuals relocate to Cyprus due to its advantageous non-domicile tax regime, whereby individuals who were not previously tax resident can apply for non-domicile status.

Cypriot non-domiciles benefit from a zero rate of tax on; interest, dividends, and capital gains (apart from capital gains derived from the sale of immovable property in Cyprus), as well as capital sums received from pension, provident and insurance funds.

These zero tax benefits are enjoyed even if the income has a Cyprus source or is remitted to Cyprus. There are several other tax advantages, including a low rate of tax on foreign pensions, and there are no wealth or inheritance taxes in Cyprus.

Options for Relocating: Permanent Residence and Temporary Residence Permits

Individuals wishing to move to Cyprus can apply for a Permanent Residence Permit which is useful as a means to ease travel to EU countries and organise business activities in Europe.

Applicants must make an investment of at least €300,000 in one of the investment categories required under the programme, and prove they have an annual income of at least €50,000 (which can be from pensions, overseas employment, interest on fixed deposits, or rental income from abroad).

If the holder of a Permanent Residence Permit resides in Cyprus, this may make them eligible for Cyprus citizenship by naturalisation.

Alternatively, a temporary residence permit can be obtained by establishing a foreign investment company (FIC). Through this kind of international company, work permits can be obtained for relevant employees, and residence permits for them and family members. Another key advantage is, again, that after residing for seven years in Cyprus, within any ten-calendar year period, third country nationals can apply for Cyprus citizenship.

Moving to Cyprus to take up Employment

It is common for high-net-worth individuals to relocate to Cyprus for employment purposes. If the Permanent Residence Permit is not the right route for you and/or your family, Cyprus offers several alternate ways to live and work in Cyprus:

  • Business Facilitation Unit: visas for highly skilled third country nationals – the Ministry of Finance announced in 2022, that they are introducing the Business Facilitation Unit to assist highly skilled third country employees with a minimum gross salary of €2,500 per month, to gain work permits in Cyprus. These permits will last up to three years.
  • Digital Nomad visa: non-EU nationals who are self-employed, salaried, or on a freelance basis can apply for the right to live and work from Cyprus remotely, for up to one year. The visa can be renewed for another two years.

Why Relocate to Cyprus for Work?

Personal taxation benefits:

  • A tax exemption of 50% of employment income, is available to an individual employed in Cyprus who was resident outside of Cyprus before he/she commenced employment in Cyprus. The exemption applies for a period of seventeen years starting from the first year of employment in Cyprus, provided that employment income exceeds €55,000 per year.
  • Cyprus has more than 65 tax treaties that provide for zero or reduced withholding tax rates on; dividends, interest, royalties, and pensions received from abroad. In addition, lump sums received as a retirement gratuity, are exempt from tax.
  • A Cypriot tax resident receiving pension income from abroad, can choose to be taxed at a flat rate of 5%, on amounts exceeding €3,420 per year.

Starting a Business in Cyprus as a Means of Relocation

The reputation of Cyprus as an international financial centre has grown significantly over recent years. Cyprus is an attractive jurisdiction for trading and holding companies and offers a number of tax incentives.

In order to encourage new businesses to the island, Cyprus offers two temporary visa routes as a means for individuals to live and work in Cyprus:

  • Establishing a Cyprus Foreign Investment Company (FIC): individuals can establish an international company which can employ non-EU nationals in Cyprus. Such a company can obtain work permits for relevant employees and residence permits for them and their family members. A key advantage is that after seven years, third country nationals can apply for Cyprus Citizenship.
  • Establishment of a small and medium sized Innovative Enterprise (Start-up visa): this scheme allows entrepreneurs (individuals or a team), from countries outside the EU and outside the EEA, to enter, reside and work in Cyprus in order to; establish, operate, and develop a start-up business. This visa is available for one year, with the option to renew for another year.

Corporate Tax Benefits

  • Cypriot companies enjoy a 12.5% rate of tax on trading, and a zero rate of capital gains tax. In addition, Cyprus tax resident companies and Cyprus permanent establishments (PEs) of non-Cyprus tax resident companies, are entitled to a Notional Interest Deduction (NID), on the injection of new equity used to generate taxable income.
  • NID is deducted from taxable income. It cannot exceed 80% of the taxable income, as calculated prior to the NID, arising from the new equity. A company could achieve an effective tax rate as low as 2.50% (income tax rate 12.50% x 20%). Please contact the Dixcart office in Cyprus for further information: advice.cyprus@dixcart.com

Additional Information

For further information about the attractive tax regime for individuals in Cyprus, please contact Katrien de Poorter at the Dixcart office in Cyprus: advice.cyprus@dixcart.com

Swiss Annual Returns Explained

The Popularity of Switzerland

Switzerland’s tax system is among the world’s most attractive for both corporations and individuals. Offering one of the lowest tax rates in Europe, Switzerland is popular with leading international companies and their internationally qualified employees.

The Swiss tax system is decentralized, most taxes are administered by the cantonal tax administrations which are responsible for collecting federal, cantonal and any local tax. There are 26 cantons in Switzerland and the cantonal tax administrations are audited by the Federal administration.

The Rule and the Purpose

Each year individuals and companies based in Switzerland, must complete and file a tax return with the relevant authority.

The Swiss tax system is based on taxpayers’ declarations with subsequent assessments being issued by the tax authorities based on the tax returns filed.

The tax return is used to assess the level of tax on income and wealth/capital of the taxpayer.

Who is Required to File a Tax Return in Switzerland ?

  • Swiss Companies

Swiss companies must file annual tax returns and financial statements (balance sheets, profit and loss accounts), with the tax office of the canton that the company is registered in.

Swiss Tax Return as a Company

The tax system for corporate income and capital taxes is based on taxpayers’ declarations, with subsequent assessments being issued by the tax authorities based on the tax returns filed.

Companies are initially assessed on a provisional basis, with final assessments being issued after the tax base was either the subject of a tax audit or declared final by the authorities.

Deadline

The tax return must be filed annually. An exemption exists in the first year of business when an extended business year can apply.

The filing deadlines vary from canton to canton but are usually between six and nine months, after the close of the business year.

Taxable Period

The tax year is the business year. Thus, the basis for corporate taxation is the applicable accounting period, which may end at any date within a calendar year.

Payment of Tax

Unless instalment payments are specifically requested, Swiss taxes are payable on receipt of a demand, based on a provisional or final assessment.

About one month before the due date, a provisional tax bill based on the latest tax return filed, or the assessment of the preceding period, is sent to the taxpayer.

Payment is usually made in three to ten instalments. If the entire amount is paid up front, a discount may be granted.

  • Individuals

Any individual who is over the age of 18 and has permanent or temporary residence or owns a property in Switzerland, is required to file a Swiss tax return, including anyone who is in education or training even if he/she receives little or no income.

Foreign nationals with a resident permit (Permit C), need to declare their income and assets by submitting the same tax return as Swiss citizens. Other foreign nationals are subject to wage tax withholdings on a monthly basis. The wage tax covers federal, cantonal, and municipal taxes.

If a non-resident individual owns property in Switzerland, they have to file a special tax return in the canton where the property is located.

Swiss Tax Return as an Individual

A single, income and assets tax return has to be completed and filed. One tax return is enough to enable the cantonal tax administration to assess the three different levels or types of tax to be paid.

Deadline

Tax returns for individuals have to be filed by 31 March of the following year, in the canton where the taxpayer was resident at the end of the respective tax period. Filing extensions are usually granted until September/November upon request.

Taxable Period

The official financial year in Switzerland begins in January and ends in December.

Tax Audit Process

Every tax return filed is reviewed and assessed by the tax authorities. In the course of this process, the tax authorities may ask for additional information and statements. A formal tax assessment is then issued, and if no legal action is taken, the tax assessment comes into legal force and final tax bills are issued.

Payment of Tax

Two to six months after the filing of the tax application, the taxpayer receives the tax bill including federal, cantonal and municipal taxes.

Cantonal and municipal taxes are usually collected on a provisional basis throughout the respective tax year. Cantonal rules differ but all include federal tax.

Taxes are paid to one single cantonal administration.

Final tax payments or tax refunds are due once the tax return has been finally assessed by the relevant tax authority.

Additional Information

The Dixcart Office in Switzerland can provide a detailed understanding of the Swiss System of Taxation and the obligations that need to be met.

Should you need further information or wish to discuss how to make your tax return, please do get in touch: advice.switzerland@dixcart.com.