The End of the Prior Recognition on High Added Value Activities

The recently published Circular-letter by the Portuguese Tax Authorities, following the order from the General Director of this integrated entity within the Ministry of Finance, shall create a paradigm shift intended to remove bureaucracy by establishing the end of the prior recognition of high added value activities under the scope of the non-permanent resident’s regime.

According to the previous interpretation of the regime, in order to obtain the recognition of this tax benefit, namely a 20% flat tax rate, the taxable person would have to require the prior recognition of high added value activities to the Portuguese Tax Authorities, which turned out to be a truly time-consuming process with long waiting periods.

With the end of this prior recognition, the Portuguese Tax Authorities acknowledge that under the article 5 of the Tax Benefits Measure, this tax relief occurs automatically and derives directly from law, being enough the registration act as a non-habitual resident.

Pursuant to the new interpretation of the regime, the taxpayer is only required to develop an activity foreseen in Ordinance No. 12/2010 to acquire this fiscal benefit. To do so, the taxpayer only has to fill the annual income tax return by registering the activity’s code in Annex L to model declaration 3.

However, this revision on the proceeding also results in an enhancement of control by the Tax Authorities, establishing that during the ten-year period of non-habitual residence, the taxpayer shall be requested to present documentary evidence about the practice of the foreseen activities. This documentary evidence should be presented within a 15 day period, or a 25 day period in case of difficulties in providing the requested documents, according to article 128º, paragraphs one and two of the Personal Income Tax Code.

In conclusion, we should salute this new proceeding practiced by the Portuguese Tax Authorities due to the fact that under the legal terms provided by the articles 72º/10 and 81º/5 of the Personal Income Tax Code the prior recognition is not specifically foreseen which results in a greater consistency between law and practice.

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