Completing a tax return in Portugal can be a daunting task, especially for expats who are not familiar with the country’s tax system. However, it is a legal requirement and must be done accurately to avoid any penalties or fines.
In this guide, we will provide you with some tips and tricks to make the process of filing your tax return in Portugal a little easier.
Understanding the Portuguese Tax System
Before diving into the specifics of completing a tax return in Portugal, it is important to have a basic understanding of how the country’s tax system works. The Portuguese tax year runs from January 1st to December 31st and individuals are taxed on their worldwide income if they are considered tax residents.
This means that even if you have income from other countries, it must be declared and taxed in Portugal.
In order to complete your tax return in Portugal, you will need to gather various documents such as proof of worldwide income, household composition, invoices created within the tax year and more.
It is important to keep these documents organised and readily available to ensure a smooth process when filing your tax return. Additionally, non-Portuguese speakers may need to have these documents translated into Portuguese.
Proof of Tax Residency
When you change the address on your Portuguese NIF (Número de Identificação Fiscal) to that of Portugal, ensure to keep the proof document received. This official document serves as evidence of when you officially became a tax resident in the country.
This can be particularly useful for any split-year tax returns where you need to prove when you began owing taxes in Portugal. The Portuguese tax authorities might require this information to determine the period for which you owe Portuguese taxes. Hence, it is vital to keep this document in a safe place.
Maintaining Records of Income
It is crucial to keep hold of any statements relating to different types of income – this includes pay slips, evidence of rental income, dividend vouchers, and any other relevant documentation
These records effectively serve as verifiable proof of your earnings, and are instrumental in calculating the amount of tax you owe.
Additionally, maintaining a thorough record of these documents can help prevent potential disputes or complications with the tax authorities. Therefore, it is advisable to establish a well-organised system for storing these important financial documents.
Keeping Track of Self-Employment Expenses
If you are self-employed, it is not only important to maintain a record of income, but also essential to keep track of all business-related expenses. This includes costs for equipment, office rent, utilities, and even certain types of insurance.
These expenses can be deducted from your taxable income, potentially reducing your overall tax liability. Ensure to keep receipts, invoices, and other evidentiary documents that prove these expenses, as they might be requested by the tax authorities during an audit.
Developing a routine of noting down and filing these expense records regularly can simplify your tax filing process and help provide a clearer picture of your financial standing.
Understanding Tax Deductions and Benefits
One of the key aspects of completing a tax return in Portugal is understanding the various deductions you may be eligible for. These deductions can significantly reduce your taxable income and ultimately lower your tax bill.
Some common deductions include education expenses, healthcare costs, and charitable donations. Additionally, if you are a non-habitual resident (NHR) in Portugal, you may be eligible for tax benefits such as a reduced income tax rate or exemption on certain types of income.
It is important to familiarise yourself with these deductions and benefits to maximise your tax savings.
Moveable Assets and FIFO System
If you have any moveable assets, such as stocks or bonds, you need to be aware of any gains or losses that may affect your tax return. In Portugal, the FIFO (first in, first out) system is used to determine the cost basis of these assets.
This means that the first asset you sell will be considered the first one purchased and its cost will be used to calculate any gains or losses. It is important to keep track of your assets and their purchase dates to accurately report them in your tax return.
Double Taxation Agreements
If you have been a tax resident in another country or are still expected to pay taxes in another country, it is important to inform the Portuguese tax authorities. This is because Portugal has double taxation agreements with many countries, which aim to prevent individuals from being taxed on the same income in both countries.
By declaring your worldwide income, you can avoid any potential double taxation and ensure that you are only paying taxes in one country.
Completing a tax return in Portugal can be a daunting task, but with the right preparation and knowledge, it can be made easier. Make sure to keep all necessary documents organised, understand the deductions and benefits available to you, and stay informed about any changes in tax laws.
Seeking Professional Help
It may also be beneficial to seek advice from a tax professional – such as RHJ Accountants. By following these tips, you can ensure a smooth and accurate tax filing process in Portugal. So don’t stress too much – just make sure to follow these guidelines to make your life easier!
If you are unsure about how to complete your tax return in Portugal or if you have a complex financial situation, it is highly recommended to get in touch with our expert team. They can provide valuable guidance and ensure that all necessary documents and forms are correctly filled out – and your tax return is filed on time.