Portugal has become a popular destination for remote workers, pensioners and families who seek to provide children a slow-paced upbringing while benefiting from a cost of living that is still lower than their home countries’. A wide coast, fine weather, stable governments, good surroundings to raise a family or to grow old. Then you have taxes.
Taxpayers often endure significant bureaucracy upon their tax entrance or exit from Portugal, especially when they fail to plan their relocation or take longer to inform the tax authorities that they have left. What seem to be minor inconveniences at a first glance may become long tax battles with the Portuguese tax authorities, especially when proof of non-residence in Portugal is required.
At present, the Portuguese personal income tax code provides standard, special and anti-abuse tax residence rules.
The standard rules are based on time of permanence in Portuguese territory and/or habitual residence (=main abode)[1].
The special rules apply to ships, aircraft workers, and Portuguese diplomats exercising their function abroad[2].
The special anti-abuse rules serve to attract residence in cases where the risk of tax evasion is deemed high[3].
The assessment of residence is made on a factual, intentional and individual basis[4]. Unlike in other jurisdictions, there are no legal presumptions of residence based solely on ownership of property or on having a spouse living in Portugal.
Aside from the definition of residence, there is yet to be a definition for non-residence in Portuguese tax law. Mainstream academia[5] and courts[6] have been consistently asserting that a non-resident for tax purposes should by any individual who does not meet the local tax residence requirements.
However, the Portuguese tax authorities systematically require, as sole proof of non-residence, proof of tax residence in DTA contracting states, denying requests and applications where such proof is not provided.
Do the tax authorities have powers to establish sole proof of local non-tax residence, if such proof does not align with local unwritten non-residence criteria (or even if it did)?
Tax courts have systematically said no. Several decisions of the Portuguese arbitral court (CAAD)[7] went even further, deciding that where the Portuguese tax authorities may access taxpayers’ tax information relevant to the case, they are legally bound to do it, in view of the exchange of tax information mechanisms[8] and the inquisitorial principle[9]. Even if proof of residence in other EU Member State or DTA State was legally required, the Portuguese Tax Authorities should pursue that information through the means made available to them.
If one keeps in mind that the Portuguese Tax Authorities rely primarily on self-disclosure duties to assess taxpayers’ residence statuses, it is not surprising that they are stricter when it comes to accepting non-resident statuses. Non-residence means limited tax liability/exposure[10], whereas residence implies taxation on a worldwide income basis[11].
Within self-disclosure systems, great trust comes with great suspicion. There is also lack of personnel and soft consequences for collecting undue tax. Portuguese taxpayers likely have to resort to court disputes if they are unable to timely obtain certificates of tax residence and prove their non-residence status before the Portuguese tax authorities.
Diana Figueiredo
December 2022
[1] Cf. Article 16, paragraph 1, subparagraphs a) and b) of the Personal Income Tax Code.
[2] Cf. Article 16, paragraph 1, subparagraphs c) and d) of the Personal Income Tax Code.
[3] Cf. Article 16, paragraphs 4, 6, 7, 14 and 16 of the Personal Income Tax Code.
[4] Cf. Article 16, paragraph 5 of the Personal Income Tax Code; Cf. Decision of the Portuguese Supreme Administrative Court no. 0876/10, dated of 24th April 2011, paragraph 7.2, displayed at: Acordão do Supremo Tribunal Administrativo (dgsi.pt); Cf. Ruling Decision of the Portuguese Supreme Administrative Court no. 3/2020, dated of 6th October 2020, displayed at: Acórdão do Supremo Tribunal Administrativo n.º 3/2020 | DRE.
[5] Cf. Faustino, M. (2020). A Tributação do Rendimento das Pessoas Singulares. In Guimarães, V. & Catarino, J. (Ed). Lições de Fiscalidade – Princípios Gerais e Fiscalidade Interna (p. 244), 7ª ed. actualizada. Coimbra: Almedina; Guerra, J. C. (2014). A (não) residência fiscal no código do IRS e seus requisitos: do conceito legal à distorção administrativa. In Cadernos de Justiça Tributária, Vol. 1 (6), 16-22; Morais, R. (2016). Incidência Pessoal. In Morais, R. (Ed). Sobre o IRS (p. 23), 2ª ed. Coimbra: Almedina; Roma, P. (2018). O regime de residência fiscal parcial português. In Roma, P. (Ed). Residência Fiscal Parcial em IRS (pp. 120-121). Coimbra: Almedina; Xavier, A. (2016). Os elementos de conexão subjectivos. In Xavier, A. (Ed). Direito Tributário Internacional (p. 290), 2ª ed. actualizada. Coimbra: Almedina.
[6] Cf. Decision of the Portuguese Arbitral Court (“CAAD”) dated of 13th July 2022, Case no. 36/2022-T, displayed at: CAAD – Jurisprudência; Cf. Decision of the Portuguese Arbitral Court (“CAAD”), dated of 11th October 2022, Case no. 63/2022-T, displayed at: CAAD – Jurisprudência ; Cf. Decision of the Portuguese Arbitral Court (“CAAD”), dated of 14th March 2022, Case no. 461/2021-T, displayed at: CAAD – Jurisprudência.
[7] Decision of the Portuguese Arbitral Court (“CAAD”) dated of 21st March 2022, Case no. 394/2021-T, displayed at: CAAD – Jurisprudência; Decision of the Portuguese Arbitral Court (“CAAD”) dated of 6th July 2022, Case no. 846/2021-T, displayed at: CAAD – Jurisprudência.
[8] Council Directive 2011/16/EU of 15 February 2021 and Exchange of Information Agreements.
[9] Cf. Article 58 of the Portuguese General Tax Act.
[10] Cf. Article 15, paragraph 2 of the Personal Income Tax Code.
[11] Cf. Article 15, paragraph 1 of the Personal Income Tax Code.