Fifty percent of the total of capital gains arising from the sale of a real estate property in Portugal, made by a resident in this country, is subject to taxation. However, such capital gains will be subject to taxation at progressive rates that may vary between 14.5% and 53% (considering the additional solidarity tax).
On the other hand, capital gains arising from this same real estate property sale made by a non-resident in Portugal are subject to 100% taxation at a fixed rate of 28%.
Non-residents are given the option to be treated as tax residents, i.e., to be subject to progressive income tax rates, but are always taxed on 100% of the capital gains in which case the worldwide income obtained should be taken into account for purposes of determination of the applicable tax rate to capital gains. And this constitutes a discriminatory treatment for non-residents.
In these terms, taxation is always more burdensome for non-residents than residents.
Considering the above, some judicial and arbitration decisions were issued confirming this discrimination between residents and non-residents.
For instance, the arbitral decision of CAAD of May 30, 2018, regarding process no. 644/2017-T, where the debate was centred on whether limiting the income tax incidence to 50% of capital gains for residents would constitute a discrimination in terms of the free movement of capital and violate article 63 of the Treaty on the Functioning of the EU when not encompassing residents in another EU Member States.
In this regard, the court has decided that the solution adopted by the Portuguese legislator had not eliminated the discrimination towards taxpayers residing in other EU Member States, and decided in favour of the annulment of the settlement made by the Tax Authorities, because income tax taxation on capital gains was being reduced to 50% only for those who resided in Portugal.
The EU Court of Justice has also decided in this sense by making a completely innovative decision involving a resident in a third country (Angola). This decision considered that the legislation of a given Member State that establishes that capital gains arising from the alienation of a real estate property located in such Member State made by a resident in a third country are subject to a higher tax burden than what would be expected for these type of operations made by a resident in such Member State is a restriction to the free movement of capital that cannot be justified by article 65 of the TFUE on the free movement of capital.
In our opinion, the Personal Income Tax Code should be amended in a way that the option given to non-residents to be treated as residents would concern only 50% of capital gains, i.e., the exact same terms applicable to residents. This possibility should be given to residents in EU territories and other territories - eventually excluding tax havens.
Until then, we consider that resorting to arbitration and judicial courts to obtain equal treatment is justified.
Fiscal and Tax Law department | (Portugal)
Belzuz Abogados SLP
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