Azores Taxation Of Individual Income
Azores Taxation of Individual Income covers reduced IRS rates, regional tax incentives, and key rules for residents earning local or foreign income in the Azores.
Tax Returns
Tax Residence & Liability to Income Tax Azores
Resident individuals are inherently subject to worldwide income tax. In Azores, Portugal, non-resident individuals are only subject to tax on their income of Portuguese origin.
A person is considered a resident of Azores if more than 183 days (consecutive/interpolated) are spent in the country in a given calendar/tax year, or if a place of residence is maintained in the country in a manner that indicates its use as a habitual residence.
As a rule, subjection to Portuguese income tax begins on the first day of stay in the country and ends on the last day of stay, although with some exceptions.
Tax Returns
Compliance and Deadlines For Azores Taxation:
- For IRS purposes, the tax year corresponds to the calendar year, with the deadline for submitting the annual return being June 30, extendable to December 31. If there is foreign income the deadline for paying income tax is August 31.
- Couples married and cohabiting partners also have the possibility to file a joint IRS declaration, unless one of the spouses is not a resident. You only have to submit a declaration if you own a property in Portugal or have a Portuguese source of income. Filing a joint tax return may be beneficial in a situation where the couple’s total income benefits from a lower tax rate when divided by two.
Azores Taxation Rates For Income
- There are 6 broad categories where income is taxable: employment, business and professionals, investment, real estate, net capital gains and pension income. This income is taxed at progressive rates, and in just a few types, can be taxed autonomously at fixed rates, namely investment income and net capital gains on the sale of securities taxed at a rate of 28%.
- In the calculation of income tax, some deductions are available from the tax base up to certain limits, such as expenses with health, education, social security, pensions, and additionally, certain tax credits are applicable in relation to marital status, number of dependents and level income overall.
- Only 50% of the capital gain is taxed on the sale of real estate, at the normal progressive rate, except when the real estate is the main residence and the proceeds from the sale are used to buy another main residence in the EU (or in an EEA member country that is signatory to a tax information exchange agreement) where the gain is tax-free. As long as the seller is over 65 years old or retired, capital gains earned on the sale of the main house are also exempt, if the proceeds from the sale are reinvested in an insurance contract, an open pension fund or a public capitalization scheme .
Except for exemptions or reduced rates applicable under a double taxation agreement, non-residents are taxed at 25% on wages, fees, royalties, commissions, pensions and certain indemnity compensation, or 28% on investment income and income liquid rents.
Exemptions and Reductions Of Azores Taxation
Limited exemptions or reduced rates of azores taxation apply in special situations:
The regime applicable to some insurance payments;
The regime applicable to some insurance payments;
Read MoreThe “non-habitual residence regime”;
The “non-habitual residence regime”;
Read MoreIncome benefiting from a double taxation agreement, to which Portugal is a signatory 79.
Income benefiting from a double taxation agreement, to which Portugal is a signatory 79.
Read More
Social Security
Employment
Contributions to social security on gross salaries and fees of a resident entity are paid at the rate of 34.75% ad valorem, with 11% deducted from salaries or fees (and deductible from tax) and the remaining 23.75% responsibility of the employer.
Self-employment
Contributions on income from services provided by self-employed professionals/individual entrepreneurs:
- The monthly contribution is calculated based on the respective revenue, which is 70% of the value of services provided in the previous quarter divided by 3.
- The contribution to social security then becomes 21.4% (plus 7% or 10% per resident employer) in the case of self-employed workers, or 25.2% in the case of individual entrepreneurs.
- The self-employed professional or individual trade can choose to increase or decrease this monthly contribution by 25%.
People who are +65 are entitled to an old age pension and may request an exemption from Social Security contributions on self-employment income if their occupational pension from private employment is compatible with carrying out a self-employment activity.
Relevant Taxes on Individuals
There is no capital duty or wealth tax, and an inheritance or gift received by the spouse, a descendant or an ascendant is tax exempt, there being otherwise stamp duty at the rate of 10%. In addition, Real estate is subject to an annual municipal tax and to tax on the transfer of property, except for qualifying rehabilitated property.
Value Added Tax (VAT)
VAT rules follow those of the EU and the applicable rates in Azores (Portugal) are as follows: 4% reduced rate, 9% intermediate rate and 16% standard rate.
Other indirect taxes include excise duties in accordance with applicable EU directives and taxes on alcohol, petroleum, tobacco and vehicles. Stamp duty is payable on deeds, contracts, documents, titles, books, papers and other listed items that are generally not subject to VAT. Additionally taxes: the tax on the transfer of immovable property (“IMT”) and the annual municipal property tax (“IMI”).
Disclaimer: The overview that follows is a generic summary in relation to which IBC AZORES make no representations or warranties. It is not advice, should not be treated as such. For any legal advice or to know more about relevant legislation applied to you, please, contact us.
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The Azores offer one of the lowest VAT rates in Europe and some of the most competitive incentive packages within the European Union.
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