All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.
Sponsored

Short-term capital gains taxation faces a significant increase in Portugal

Lisbon

Budgetary changes could result in a capital gains tax rate of 53%, says Solange Dias Nóbrega of Morais Leitão, as Portugal’s policy of heavy taxation of individuals shows no sign of being reversed.

On May 27 2022, the Portuguese Parliament approved the Budget Law for 2022 and significant changes, with effect from January 1 2023, are foreseen on the taxation of capital gains from the sale of shares or other securities, such as participation units.

According to the rules in force up to December 31 2022, the positive balance of any capital gains and losses from the sale of shares or other securities is taxed, for personal income tax purposes, at a flat rate of 28%. This is irrespective of the total amount of other income earned by the individual, or the holding period of the shares or securities.

Familiar targets

The provisions that will come into effect on January 1 2023 introduce a sharp increase in the taxation of capital gains when, cumulatively, the total taxable income of the individual, including the capital gains, equals or exceeds €75,009 ($75,902) and the shares or securities have been held for less than 365 days before the sale. In these situations, the positive balance of the capital gains and losses will be necessarily taxed by aggregation at the general and progressive personal income tax rates.

Given that the progressive rates are up to 48% (for taxable income exceeding €75,009) and surtax will also be levied (at the rate of 2.5% for taxable income higher than €80,000 and 5% for taxable income above €250,000), the aggregate tax rate in Portugal applicable to those capital gains may reach 53%, which will be the highest tax rate when compared with the most relevant jurisdictions of the EU.

This measure illustrates once again that the Portuguese tax regime aims to heavily tax individuals with higher incomes and, in particular, investors and speculative transactions.

If the increase of the taxation has its raison d´être in a speculative market, Portugal does not grant any exemption or substantial reduction on the taxation of gains on the sale of shares held for a medium or long term. With regard to non-speculative transactions, special rules are not set forth in the tax code.

Potential consequences

Several matters were not duly planned when this measure was approved.

On the one hand, the Portuguese capital market will possibly be affected by investors that will have the need to freeze certain transactions (to reach the 365-day holding threshold).

On the other hand, the new rule may increase the taxation of some capital gains even though that was not the intention of the legislator. This will be the case for some equity incentive plans when employees sell company shares in the short term (where they hold the shares or securities for less than 365 days) and the company’s market value has had a significant increase.

Therefore, it is safe to conclude that Portugal insists on heavy taxation of individuals and shows no intention of changing course.

more across site & bottom lb ros

More from across our site

Gorka Echevarria talks to reporter Siqalane Taho about how inflation, e-invoicing and technology are affecting the laser printing firm in a post-COVID world.
Tax directors have called on companies to better secure their data as they generate ever-increasing amounts of information due to greater government scrutiny.
Incoming amendments to the treaty could increase costs on non-resident Indian service providers.
Experts say the proposed minimum tax does not align with the OECD’s pillar two regime and risks other countries pulling out.
The Malawian government has targeted US gemstone miner Columbia Gem House, while Amgen has successfully consolidated two separate tax disputes with the Internal Revenue Service.
ITR's latest quarterly PDF is now live, leading on the rise of tax technology.
ITR is delighted to reveal all the shortlisted firms, teams, and practitioners for the 2022 Americas Tax Awards – winners to be announced on September 22
‘Care’ is the operative word as HMRC seeks to clamp down on transfer pricing breaches next year.
Tax directors tell ITR that the CRA’s clampdown on unpaid taxes on insurance premiums is causing uncertainty for businesses as they try to stay compliant.
HMRC has informed tax directors that it will impose automated assessments on online sellers with inaccurate VAT returns, in a bid to fight fraud.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree