You may have heard already that the Portuguese Government now has taken serious measurements to ensure that taxes like I.M.I. (Rates or council tax), Mais-Valía (Capital Gains Tax) and I.M.T. (Transfer tax or Stamp duty) are really paid and collected.
For the non Portuguese property owner, they have now enforced a law that stipulates that every non Portuguese individual or company purchasing, owning or selling a property in Portugal must appoint a Fiscal Representative and this appointment must be registered in the local Tax Department.
Each entity is now starting to insist on the application of the law and soon it will be impossible to do any purchase or sales transaction without the fiscal representative being known to the authorities.
The law insists that a fiscal representative must be a Portuguese national, holder of a Portuguese Residency Permit or a Portuguese company set up for this purpose. It is easy to understand that almost no Portuguese individual, friend, estate-agent, lawyer or solicitor is prepared to put his/her own assets at risk by acting as a Fiscal Representative for a third party foreigner he/she hardly knows.
The Fiscal Representative will receive all correspondence from the Finançes relating to tax on the property and property owner and takes on all responsibility on behalf of the registered property owner for all payments to the D.G.T. (Tax department) of Income tax (I.R.S.), stamp duty (I.M.T.), Corporation tax (I.R.C.), Capital Gains Tax (Mais Valía), Council Tax (I.M.I.), Presumed Rental Income Tax (I.R.S. or I.R.C.) and Value Added Tax (I.V.A).
The F.R. (Fiscal Representative) will be liable for submission of all annual Tax Returns and will be ultimate responsible for ensuring payment of any tax liabilities to the Portuguese authorities that pertain to the property and registered owners of the said property.
Property ownership in Portugal and the legal requirement for fiscal representation
ReAct – Robert M.L. Snapper, enables foreign property owners to comply with the legal requirements now being enforced by the Portuguese government.
The law has stated for many years that any individual owning property in Portugal who is not Portuguese or does not hold Portuguese Residency MUST appoint and register a Fiscal Representative in Portugal. Similarly any property owned in the name of a company (Offshore or Onshore) that is not registered in Portugal MUST appoint and register a Fiscal Representative in Portugal.
Previously the authorities had for the most part turned a “blind eye” to non compliance with the law. However since 2003 there has been a complete turn around in the government’s attitude towards this legislation and collection of taxes related to property ownership.
Starting with companies, the local Fiscal Authorities (Finanças) demanded to be made aware of the Fiscal Representative here in Portugal representing the property owning company. The next step was to be give concentration on properties owned in individual names. Failure to comply can ultimately lead to the sequestration or confiscation of the property concerned.
Most Tax Departments across the country are now demanding to know the name of the Fiscal Representative of the purchaser before allowing a sale to complete.
The Fiscal Representative is only permitted to be a Portuguese Company with statutes to perform this function or a Portuguese citizen or holder of a Portuguese Residency Permit.
The Fiscal Representaive is ultimately responsible on behalf of the property owning individual or company for the filing of the annual tax return (IRS or IRC) , payment of Council Tax (Contribução Autartica) and Capital Gains Tax (Mais Valia) in the event of sale of either the property or the shares of the company owning the property.
The management of ReAct have over 20 years direct experience in the Portuguese Real Estate market throughout the length and breadth of the country. ReAct complies with all the relevant legislation and carries extensive Professional Liability Insurance.
ReAct is happy to talk to individuals or companies interested in protecting their asset in Portugal and ensuring that this is not put in serious jeopardy by non compliance or ignorance of the laws of the land now being rigorously enforced.
The European Court of Justice held, on 5 May 2011, that Portuguese provisions that oblige non-resident taxpayers who receive Portuguese-source income to appoint a Portuguese fiscal representative are in violation of the EC Treaty’s free movement of capital rules, but not those required by the European Economic Area Agreement.
In European Commission v Portugal (C-267/09), the Commission asserted that the provisions under Article 130 of Portugal’s personal income tax code constituted a restriction on the free movement of capital obligations under article 56 of the EC Treaty and article 40 of the EEA Agreement. It argued that the requirement was effectively a new charge on non-residents, who must pay representatives. Portugal argued that the provisions were necessary to ensure the effectiveness of fiscal supervision and the prevention of tax avoidance.
The ECJ held that the obligation to appoint a tax representative was an unjustified restriction on the free movement of capital in some circumstances but not in others. For taxpayers residing in other EU countries who receive Portuguese-source income requiring the submission of a tax return, the obligation to appoint a fiscal representative went beyond what was necessary to prevent tax evasion because the mutual assistance mechanism provided by Directive 77/799 was sufficient for achieving that objective. The Court found that, in such circumstances, the Portuguese provisions constituted an unjustified restriction of article 56 of the EC Treaty on the free movement of capital.
But for taxpayers residing in countries that are within the EEA but not the EU, the obligation to appoint a Portuguese fiscal representative was a justified restriction of article 40 of the EEA Agreement on the free movement of capital because the framework of cooperation between EU member states did not exist between member states and a non-member that had not entered into any undertaking of mutual assistance.
The Court found that the Commission had failed to establish that such agreements actually included sufficient mechanisms for the exchange of information to verify and monitor the returns submitted by taxable persons residing in those countries. It therefore held that, for taxpayers residing in countries that are a party to the EEA Agreement but are not a member of the EU, the obligation to appoint a fiscal representative did not go beyond what was necessary to achieve the objective of ensuring the effectiveness of fiscal supervision and preventing tax avoidance.