There have been changes in the taxation of capital gains arising from the sale of real estate to emigrants or non-residents in Portugal since January. After a change introduced in the State Budget for 2023 (OE2023), capital gains from real estate are now taxed at 50% and are then included in the remaining income, with progressive IRS rates being applied to them, as it already happens with the residents of the country. The Tax Authorities have now come to explain how everything will proceed.

In order to standardize the taxation of real estate capital gains, in terms of IRS, between residents and non-residents, the Government changed the rules on this matter in the OE2023. Motivating this change in the IRS Code were several tax cases, in which the Treasury was defeated and accused of discriminating against non-resident citizens in this matter.

Previously, non-residents in Portugal - foreigners or Portuguese emigrants - who obtained capital gains from real estate would have to tax the gains arising from the sale of real estate in full and at an autonomous rate of 28% with IRS. The real estate capital gains of residents in the country were – and continue to be – taxed at 50%, the amount in question being included in the remaining income and subject to the general rates of the IRS levels.

Now, the rule is the same for both residents and non-residents: real estate capital gains are taxed at 50% of the total and must be included with the remaining income, subject to progressive IRS rates.

How will the taxation of the real estate capital gains regime for non-residents work?

With a view to “harmonizing procedures”, the Tax Authorities came to explain how the taxation regime for real estate capital gains earned by non-resident taxpayers is applied, reads in the official letter published on the Finance Portal.

From the outset, it indicates that in the case of non-resident citizens in Portugal, income taxation is not included, with the exception of:

• capital gains arising from the “onerous disposal of real rights over immovable property”;
• the “onerous assignment of contractual positions or other rights inherent in contracts relating to immovable property”.

Afterwards, it clarifies that “whenever the law imposes the aggregation of income earned by taxable persons not residing in Portuguese territory, all income earned, including those obtained outside this territory, in the same conditions that apply to residents”. Namely, they apply to income earned from 1 January 2023. The idea is not that the amounts are subject to taxation in Portugal, but rather that they are used to determine which rate to apply.

Therefore, “income earned in the national territory by non-resident taxpayers, referring to capital gains resulting from the onerous disposal of real rights over real estate or the onerous assignment of contractual positions or other rights inherent in contracts relating to real estate, from 01/01/2023”, will be subject to the following taxation regime:

• determination of the value of income qualified as capital gains;
• mandatory inclusion of calculated income;
• “application of the general rates of the IRS Code to aggregated income earned in the national territory, considering, only for the determination of this rate, all income earned, including those obtained outside Portuguese territory, under the same conditions that are applicable to residents”, explains further.

As for income from real estate capital gains earned by non-residents, until the last day of December 2022, whose settlements have been or will be the subject of a tax procedure or process, “the understanding remains in force regarding the application of the provisions of paragraph 2 of article 43 of the CIRS to non-resident taxable persons, considering the balance of real estate capital gains at only 50% of its value, subject to autonomous taxation at the special rate of 28%”, they conclude.

According to lawyers and tax experts, this capital gains tax measure for non-residents is “fairer” and “less discriminatory”. But they consider that completing model 3 could be more “complicated and costly” and there may still be difficulties in controlling its completion, cites Jornal de Negócios.

Source: Idealista