Residency in Portugal - Part 1: Residents

Dennis Swing Greene

This is the first in a 3 part series on Residency status in Portugal.

Increasingly, countries challenge former residents who attempt to move to another. Although the rules vary, most states define a “resident" as an individual who is in the state for other than a temporary or transitory purpose. Countries consider a person’s “residence" or home to be the place of his or her permanent home to which he or she intends to return to whenever absent from the state for a period of time.
Most claim the right to tax an individual’s income if they are believed to be a resident. Usually, they also impose tax on 100% of a resident’s income from all sources, including investment portfolio income.

Resident individuals are taxable on income and capital gains wherever arising worldwide (except for those with Non-Habitual Resident status) and not on a remittance basis (where taxation is based on income actually received in Portugal) as occurs in some jurisdictions. Unlike the “Residência” (the Residency Permit issued by the Foreign Office or your local Council) residence for taxation purposes is factually determined. Individuals may be deemed to be tax resident in the following situations:

When physically present in Portugal for more than 183 days in a calendar year; or
When physically present for less than 183 days but have fixed a permanent physical home in Portugal by 31 December; or
If, at the end of a tax year, owning a dwelling in Portugal that might reasonably be considered their habitual residence, individuals are generally considered to be resident in that tax year; or
If the head of a family group is resident in Portugal for tax purposes, other immediate family members are normally considered to be resident, even if living separately. However, if the foreign country has a tax treaty with Portugal, the treaty contains rules to determine residency. Residence qualifications may be modified under the terms of Double Taxation Treaties.

Question: When is a foreigner considered resident for tax purposes?
euroFINESCO: It is important to distinguish between a Residency Permit (“Residência”) and Fiscal Residency. The former is a documented status. The latter is circumstantial in nature. Individuals are deemed tax resident when they meet any of the criteria detailed above.

Please consult euroFINESCO brochure nº 37, “Current Residency Law” available on the euroFINESCO website.

If you do have a “Residência”, you are deemed to be resident whether physically present or not in Portugal. The Estrangeiros office now insists that non-EU residents present IRS tax declarations for “Residência” renewals as does Finanças as proof of your status.

Question: I am “pay-as-you-earn” in the UK and haven’t filed a tax return in years. Do I have to declare in Portugal?
euroFINESCO: In the 2015 tax year, all residents are required to submit a tax return with the exception of those with earning falling below €8,500.
No IRS income tax return can put you on the wrong side of the law and vulnerable to undesired consequences from the authorities. Perhaps it is better to turn the question around: Do you have a valid reason for not obeying the Law? If you are renewing, you will not be able to update your “Residência” without one.