Exit Taxes
| Author | Manuel Pires |
| Pages | 1-16 |
Page 1
Portugal includes in the taxation of income - besides the taxation on property and purchases - a natural person's income tax (IRS) and a corporate income tax (IRC).1
On income tax, the difference is established, as usual around the world, between residents and non-residents taxpayers. Therefore, residents taxpayers are subject to taxation on the total amount of their income, including the ones obtained abroad ("obrigação ilimitada" - unlimited liability - articles 15.º no. 1º of the IRS Code and 4.º no. 1 of the IRC Code), while, relatively to the non-residents, their subjection only includes the income obtained in Portuguese territory ("obrigação limitada" - limited liability - articles 15.º no. 2 of the IRS Code and 4.º no. 2 of the IRC Code). In order to be considered a natural person resident in Portuguese territory, by force of article 16.º no. 1 of the IRS Code, for the taxation year the income refers to, the following are required:
- that the person has remained in such territory for more than 183 days, consecutive or not;
- that, having remained for less than 183 days, the person has, by December 31st of that year, a place of abode from which his or her intention to maintain and occupy it as a regular residence may be posited; Page 2
- that in December 31st, such person is a crew member of a vessel or aircraft, as long such entities pertain to companies with residence, seat or head office in this territory of Portugal;
- that he or she executes abroad public functions or commissions, in the service of the Portuguese State.
As regards the income realized in Portuguese territory, the criteria adopted were financial - residence of the taxpayer - and/or economic - location of the asset or of the activity from which the income derives (article 18.º of the IRS Code).
Regarding the IRC, taxpayers - including, besides corporations, entities without juridical personality status, e. g., vacant succession, corporate bodies whose incorporation has been declared invalid, associations and companies without legal personality, companies incorporated as commercial entities, before the final registration procedures are completed (article 2.º no. 1, line b, and no. 2) - are considered as residents when their seat (administrative headquarters) or head office (global administration of the company), respectively, are in Portuguese territory (article 2.º nº 3 of IRC Code). As to the criteria regarding the production of income in Portuguese territory, the same apply with reference to IRS: financial and/or economic criteria (article 4.º no. 3 of IRC Code).
2.1. Relatively to the transfer abroad, the IRS Code does not establish any taxation at the time of such exit, only a fictitious (!) maintenance of the status of resident in Portuguese territory.
Therefore, "people belonging to a household are always considered as residents in Portuguese territory, as long as one member of the household responsible for its management resides in the territory (article 16.º no. 2 of the IRS Code). However, due to difficulties created by such provision, specially concerning emigrants, an exception was introduced (article 16.º Page 3 no. 3 of the IRS Code) and, now, that early provision may not be applied, in case of
- people who did not reside in Portuguese territory for more than 183 days, consecutive or not - in which case they are subject to taxation -, in the year which the income refers to,
- people prove that there is no link between the majority of their economic activities and the Portuguese territory.
In this case taxpayers will be considered taxable non residents, with respect to their income, which is considered as realised in Portuguese territory, in compliance of IRS Code.
After having ascertained the presence of said requirements, and by force of article 16.º no. 4 of the IRS Code, the spouse resident in Portuguese territory files a (single) income statement, comprising his/her personal income, his/her portion of joint income and the portion of income of dependents, according to the regime applicable to married people in the situation of "de facto separation".
It is also relevant to mention the legal fiction established on article 16.º no. 5 of the IRS Code that considers as still residing in Portuguese territory Portuguese nationals who transfer their residence in a country, territory or region, subject to a more favorable tax regime, according to the list provided by the "Portaria" of the Ministry of Finance, unless they prove that such transfer is justified by valid reasons, such as the performance of temporary activities in the other territory for a Portuguese employer, as indicated as an example in the provision.
It important to note that the given example is quite inadequate, since it not understandable why the provision does not also include temporary activities if the mentioned entity is not resident in Portuguese territory.
And what if the residence transfer is not temporary? It would have been better for the provision not to present a specific example.
The above-mentioned list includes the countries usually referred to as tax haven or as law taxation zones, such as for example Andorra, Netherlands Antilles, Aruba, Bahamas, Bermuda Islands, Bolivia, Channel Islands Page 4 (Alderney, Guernsey, Jersey, Great Stark, Herm, Little Stark, Brechou, Jethou and Lihou), Cayman Islands, Cyprus, Costa Rica, Arab Emirates, Fiji Islands, Gibraltar, Honduras, Hong Kong, Jamaica, Jordan, Kuwait, Lebanon, Liberia, Liechtenstein, the Maldives, Isle of Man, Nauru, Panama, French Polynesia, Puerto Rico, Saint-Lucia, Seychelles, Swaziland, Tonga, Trinidad and Tobago, etc. (Portaria of Ministry of Finance no. 150/2004, of February 13th).
3.1.1. On January 1st, 2006, a subsection was added to the IRC Code - subsection V-A under the title Transfer of a company's residence abroad and cessation of activity of non-resident entities -, to which a provision was also added, coming into force on 1st January 2007 (article 76.º-A of the IRC Code2.
The provision regarding the transfer of residence includes
- obviously, resident entities, whose seat or head office are in Portuguese territory;
- the European Company and the European Cooperative Company.
The relevant fact is that
- the seat or head office are no longer in Portuguese territory, in other words, the residents are no longer residents.
In the provision
- the positive or negative components for the determination of the taxable income for the fiscal year when the cessation of activity has taken place are the differences between the tax relevant market and accounting value of the assets on the date of such cessation.
However, such provision has an exception and an extension. Page 5
3.1.2. Exception (article 76.º-A no. 2): it does not apply to the transferred assets
- which remain of pertinence of a permanent establishment of the same transferring entity, and which is situated in Portuguese territory; and
- contribute to the respective taxable income.
This as long as
- the transferred assets are registered in the respective accounting with the same values they had in the accounts of the...
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