Capital gains on property 

When the capital gains are a result of selling immovable property (like homes or commercial property), the answer is often fairly straight-forward. The double taxation treaties that Portugal is party to normally state clearly that capital gains from a sale of property are taxable in the country where the property is based. Therefore normally only people holding property in a country that does not have a double taxation treaty with Portugal should be worried about taxation from property gains. Such people are almost always better off selling their property before coming to Portugal or holding on to it as long as they are in Portugal. 

 

Capital gains on securities (such as shares) 

The question becomes more complex when it comes to capital gains from securities or other assets. The NHR law clearly includes capital gains as a category that could benefit from NHR (category G). The rule that is states in the law is that if the other country may tax the gain, Portugal will not tax it. To know whether a country may or may not tax the gain, we need to look at the relevant tax treaty between Portugal and the other country. 

Tax treaties generally give the country of residency the exclusive right to tax capital gains. 

The exception is U.S. citizens, where the double taxation agreement expressly reserves the right for the US to apply tax on capital gains.

In a recent case involving a FRESH Portugal client, the tax authorities admitted that capital gains on securities for US citizens are free of tax in Portugal under the NHR.

 

Declaring capital gains on tax returns 

Sadly, however, whoever created the online tax return form “didn’t get the memo”. Even if the taxpayer rightfully claims an exemption from capital gains, the automated calculation will not acknowledge it and will produce a tax assessment that includes full taxation on the gains. This leaves the taxpayer to choose between three bad choices: (1) pay the tax even through it isn’t due (2) choose different category and submit a wrong return (3) submit a correct return and dispute the wrong outcome. In one case, a US citizen taxpayer chose option 3 and successfully won in court, but that had not changed the form. 

 

Tax planning 

Whether tax is due or not, considerable capital gains offer a wide range of planning opportunities with the most common structure being incurring capital gains within an entity.


Frequently Asked Questions

Automatically Created

Are capital gains from property sales taxable in Portugal under the NHR regime?
Capital gains from property sales are generally taxable in the country where the property is located, as per double taxation treaties. Thus, they are not typically taxed in Portugal unless the property is in a country without such a treaty.
How are capital gains on securities treated under the NHR regime in Portugal?
Capital gains on securities may be exempt from Portuguese tax under the NHR regime if the other country has the right to tax them, according to the relevant tax treaty. However, U.S. citizens are an exception, as the U.S. retains the right to tax these gains.
What issues might arise when declaring capital gains on Portuguese tax returns under the NHR regime?
The online tax return form in Portugal may incorrectly calculate tax on exempt capital gains, forcing taxpayers to either pay unnecessary tax, submit incorrect returns, or dispute the assessment.
What tax planning opportunities exist for capital gains under the NHR regime?
Considerable capital gains offer planning opportunities, such as incurring gains within an entity, to optimize tax outcomes.