The filing period for the 2020 IRS return (covering the 2019 tax year) runs until the end of June 2020
2020/04/01
Although the Tax Authority (AT) has improved online filing and introduced tools such as Automatic IRS for salary and pension income, preparing the declaration still requires careful planning to avoid tax inefficiencies. The main aspects include:
- Universality principle
Income earned by individuals who are tax residents in Portugal is subject to IRS in Portugal, regardless of where it was obtained or whether it has already been taxed abroad. - Joint vs separate filing
Whether a couple should file jointly or separately depends on each spouse’s income profile. Because the system is progressive, joint filing can often reduce the effective tax rate when there is a significant income gap between spouses. The Finance Portal simulator should be used to identify the break‑even point. - Aggregation of flat‑tax income
Choosing to aggregate passive income (rents, interest, dividends) into the progressive IRS rates can lower the overall effective rate when those rates are below the standard flat rate. However, aggregation applies to the entire category and can push other income (such as salaries) into higher brackets, so caution is essential. - Real estate capital gains
Gains on the sale of a primary residence may be exempt if the full sale price, not just the gain, is reinvested in another main home within five years (from two years before to three years after the sale). Correct reporting in the tax return is mandatory to secure the exemption. - Income tax paid abroad
Taxpayers with foreign‑source income may benefit from a refund or tax credit under Double Taxation Treaties. It is vital to declare the gross income and keep robust documentation, as these cases are frequently audited.
Non‑residents
Tax residency is defined by tax domicile, not nationality. Non‑residents are only subject to IRS on Portuguese‑source income (e.g. Portuguese property income or gains). Portuguese citizens living abroad who have not updated their tax domicile remain subject to the universality principle
[1] Sujeita aos condicionalismos do Decreto-Regulamentar n.º 1/2019, de 4 de Fevereiro
Rita Duarte | [email protected]