Tax evasion and Tax planning

Insights into what is involved in buying, selling & living in Portugal


In another article on this web site I have tried to explain already who is considered by the Portuguese tax authorities to be tax liable in Portugal. Not being a registered resident does not exclude you for not being a possible tax payer in Portugal. Being a Resident however automatically qualifies you as being a tax resident in Portugal also.

However in general it can be said that the tax authorities take a rather passive attitude against an active in many other countries. This means that it is your obligation to file a tax return every year and that you do not have to expect to receive a blue envelope (green here) if you do not declare anything.

People not familiar with this approach sometimes mistakenly assume that therefore everything is OK. It is standard practice that in whatever country you are tax liable this is on your worldwide income, that means if you have income from property in Portugal you should normally spoken have to declare a. that you have purchased a property here and b. that you may receive income from it.

In the reverse situation if you life and/or work in Portugal you are besides liable on your Portuguese income from work or investments also liable to declare your income from abroad like interest from deposit accounts regardless if they are in or outside an offshore jurisdiction.

Till recently however there was not much control on your worldwide income as bank secrecy was very strong in many countries including Portugal and it was hard to get all countries on one line. In particular Belgium, Luxembourg and Austria were not willing to exchange information to the Inland Revenue of foreign citizens having bank accounts in their jurisdiction. These counties felt that they would only consider cooperation if other countries like Switzerland and off-shore tax heavens like Gibraltar, Guernsey, Jersey and the Isle of Man would be prepared to do the same.

Situation end of 2002

At the end of last year K Chancellor Gordon Brown issued a guarantee to fellow EU finance Minsters that the last mentioned would fully participate in a new system of automatic exchange of banking information between countries, as well as outside Europe Cayman Islands, Montseerat, the British Virgin Islands, Anguilla and T&C Islands.

Switzerland however was willing to introduce a 35% withholding tax on saving accounts of non-residents and pass it on to the relevant tax authority-but under no circumstances will it exchange information about its bank customers. At the end of last year (2002) the European Commission said it would continue negotiating with the Swiss. This automatic exchange of information however will only be implemented by the start of 2011 at the latest. For Luxembourg, Austria and Belgium a 7 year transition period as from 1st. of January will come into effect whereby these countries will levy a withholding tax of at least 20%.

Now March 2003:

It now seems that on the 21th. of January of this year 2003 EU governments reached a historic agreement that will change the way people handle their finances. They have resolved that “with a view to implementing the principle that all citizens resident in a member state of the European Union should pay tax due on all their savings income, exchange of information on as wide a basis as possible shall be the ultimate objective of the EU, in line with international developments”

It seems that discussions now have been concluded and that we are now faced with the hard facts of the new laws:

  • EU Member States will now automatically exchange information to prevent, and enable investigation into tax evasion

  • Other EU Member States and Switzerland will impose a withholding tax of up to 35% on all non-resident accounts.

  • Banking secrecy, as we have know it, is finished

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