Tax reform - 2015
Under the tax reform, new rules regarding taxation of individuals have entered into force on 1 January 2015, introduced by Law n.78/VIII/2014 published on 31 December 2014 (Personal Income Tax [PIT] Code).
The new PIT Code results from the segregation of the former regime, Imposto Único Sobre o Rendimento or IUR, into two separated Codes, one for Companies and another for Individuals (Código do Imposto sobre o Rendimento das Pessoas Colectivas and Código do Imposto sobre o Rendimento das Pessoas Singulares).
Effective 1 January 2015, the new PIT Code has introduced significant changes to the previous tax treatment of income with a significant impact.
The main changes introduced are as follows:
- Broadening of the tax base.
- Worldwide tax system.
- Revocation of the exemption on dividends and capital gains.
- Individuals who earn only employment and pension income have an option whether to file, or not, the annual tax return.
Taxable income comprises the aggregate annual income covered and earned by tax resident/non-resident individuals according to the following five new categories:
- Category A: Employment and pension income (income derived directly or indirectly from employment or pension).
- Category B: Business and professional income (e.g. profits from carrying out any commercial, industrial, agricultural, or fishing activity; income from the provision of services; income from intellectual rights when earned by the original owner).
- Category C: Rental income (e.g. income from the rental of real estate).
- Category D: Investment income (interest, royalties, dividends, other income derived from financial investments).
- Category E: Capital gains (e.g. gains arising from the sale of immovable property, gains arising from the sale of shares, unjustified net wealth increases).