s this the first time you are filing your tax return in Portugal? Do you have new expenses or income to declare to the Portuguese Tax and Customs Authority and don't know how to fill in your declaration? This Personal Income Tax (IRS) practical guide shows you what to do, step by step.
One of the great advantages of cross-checked information is that most of the information is now already filled out on your tax return. However, there are data that may not be correct or may need to be added in certain attachments.
As the IRS return has to be filed between April 1st and June 30th, 2023, it is best to understand step by step what you have to do.
Step 1: Gather all the information you need to declare to the Tax Office
Although the IRS declaration is automatically pre-filled in several fields, you should never submit it without first confirming all the information. Therefore, you should prepare your return well in advance.
Check the amount of your income in all categories, but also your expenses. After all, it may be necessary to correct some information that appears pre-filled in.
For example, if you live in a rented house, check that the amount of rent you declare is correct. If for some reason, the amount of rent you paid for the year 2022 doesn't appear on your tax return, you should calculate the total amount you paid for that year.
If you have benefited from certain tax benefits, gather the information about them and confirm all the amounts.
If you work independently, it is essential that you make a list of all the entities to which you have provided services and the total amount you have invoiced to each of them. Don't forget to check the total amount of contributions paid to Social Security in the respective year.
Having all this information on your side will make it easier to fill in your tax return.
Step 2: Log in to the Tax Office Portal and access your IRS declaration
Since nowadays the IRS declaration can only be submitted electronically, you need to log in to the Tax Office Portal ("Portal das Finanças"). The access to the portal can be done using your tax number (NIF) and password, mobile digital key or with your citizen card. To access it with your citizen card you need to have a card reader.
After entering the Tax Office Portal, type in the search bar "IRS declaration". In practice, there are two options for filing your tax return: the Automatic IRS Return and the Model 3 Return.
The easiest way is to see if the Automatic IRS Return is available for you. When you select this option, an information box will appear that tells you whether or not you benefit from the Automatic IRS. If you don't, you'll have to file a model 3 declaration.
Step 3: Submitting the Automatic IRS
If you are eligible to submit the Automatic IRS - which is the case of those who earn income in the IRS category A and H (except when you obtain gratuities not attributed by your employer or have received alimony payments) or have obtained income from services in category B under the simplified regime, provided that the activity is included in article 151.º of the CIRS (except when the activity is "other service providers") - the whole process will be easier.
However, if you meet the above requirements or have income taxed at a flat rate, you may be excluded from the Automatic IRS if:
- You choose to aggregate income taxed at a flat rate;
- You have not lived in Portugal for the whole year;
- You have obtained income abroad or have had Non Habitual Resident Status;
- You have enjoyed tax benefits, except those related to the deduction of income tax on PPR investments.
Once your eligibility has been confirmed, if you are not married or cohabiting, you will have your tax return with all the details filled in.
Be careful: calmly confirm all the information regarding your income and deductions. Then, in the Automatic Personal Income Tax Return, you will have access to the respective tax assessment, which will give you information about the refund amount or the amount you have to pay to the Tax Authorities.
If you are married or living with a partner, you will have three options available. Two of the declarations that you will find on the portal are for the case where the couple opts for separate taxation and the other one is for joint taxation. This way, you can check which is the most beneficial option for your family.
If you detect any mistake, you will have to submit the IRS Model 3 Declaration, since the Automatic IRS does not allow corrections.
Step 4: IRS Model 3 declaration begins by filling in the cover sheet
As with the Automatic IRS, much of the data is already automatically filled in on the IRS Model 3. However, you may have to correct certain information or add other information that is not on the declaration.
Unlike the Automatic IRS, the IRS Model 3 is more comprehensive, since it is composed by the cover sheet with 14 tables and 12 attachments. But beware, you don't have to fill in all the attachments: only those that concern your situation as an employee or your income.
Filling in the cover sheet is not very complex. Taking into account the order of the boxes, you should add the following information:
- The code of the Tax Office of your tax residence;
- The year to which the declaration corresponds;
- If it's an individual declaration, your data on taxable person A;
- Your marital status;
- If you want to deliver a joint declaration, you must select this option in box 5;
- The information about your household, with box 6A being intended for the spouse or unmarried partner, 6B for dependants, and 6C only for those with dependants in foster care;
- The information regarding ascendants, collaterals or foster families, if applicable;
- Your tax residence (if you don't live in Portugal, you should indicate the country code on the table in Annex J), your IBAN for the IRS refund, indication on whether this is your first declaration or a replacement declaration, and your IRS or VAT consignment;
- Finally, you will have to fill in table 12 the number of annexes that will be included in your IRS declaration, in table 13 the special deadlines according to the CIRS, and table 14 should only be filled in by the Tax Office services.
Step 5: What should be included in each annex of the IRS?
Normally, this is the step that raises more questions from taxpayers, since there are 12 annexes and it is not always easy to understand where to place each information. Therefore, in a summarised way, we explain what should be included in each annex:
Annex B: annex B of the IRS. This is a well-known annex for the self-employed and sole proprietors. But if, in 2022, you passed an isolated act, subject to taxation, you should also indicate this income in this annex (field 2). In terms of information, it must contain data on the taxpayer, CAE and type of income, gross income (box 4), total income from services provided to a single entity (box 5), withholding tax (box 6), charges (box 7), among other information, depending on the activity.
- Annex A: This annex should be filled in with the income of your household related to dependent work (category A), pensions (category H), and certain tax benefits, as is the case of IRS for young people. In other words, annex A is one of the annexes that includes more taxpayers. In box 3, you must identify the taxpayers. In box 4, you must indicate income, withholdings, compulsory contributions and pre-retirement contracts. However, in this category you must also declare payments on account and certain tax regimes (ex-residents, IRS for young people, etc.).
- Annex B: If you have earned business or professional income that falls under the simplified regime, you should fill out annex B of the IRS. This is a well-known annex for the self-employed and sole proprietors. But if, in 2022, you filed an isolated act, subject to taxation, you should also indicate that income in this annex (box 2). It should include details of the taxpayer, CAE and type of income, gross income (box 4), total income from services provided to a single entity (box 5), withholding tax (box 6), charges (box 7), among other information, depending on the activity.
- Annex C – Should only be filled in if you have category B income under the organised accounting regime, which is compulsory for self-employed workers who have an annual turnover of more than 200 thousand euros.
- Annex D – You should fill in this annex if you are covered by the fiscal transparency regime.
- Annex E - This is the annex where you declare capital income that is subject to special or flat rates. Here, you must declare capital gains and losses on investments, as well as profits, interest and dividends from financial products.
- Annex F – If you are a landlord, you should declare your rental income in Annex F - Rental Income.
- Annex G – If you have capital gains and other property increases, you should use annex G to declare these amounts. When you sell a house and get capital gains, it is in annex G that you must declare the amount. If you have non-taxed capital gains, you should use annex G1 for that purpose. The sale, for example, of shares that were in your possession for more than 365 days is considered as an untaxed capital gain.
- Annex H – This is an annex that covers most taxpayers, since it concerns deductions to the IRS. In other words, all the invoices with a tax number that you have approved on the e-invoice will already be filled in this annex, and you may rectify amounts or add exempt income. Besides deductions, in this annex you should also declare partially exempt income from intellectual property, alimony paid according to the judicial agreement, tax benefits associated with your PPRs, and even permanent housing expenses and rent for displaced students.
- Annex I – If you have category B income that concerns an inheritance (being the main heir or administrator of the inheritance), but this income has to be attributed to other heirs (according to the quotas), you should fill in annex I.
- Annex J – Annex J should be completed when there is income earned abroad, for example if you receive a retirement pension from a foreign country.
- Annex L – If you benefit from the non-habitual resident status in Portugal, annex L must be filled in to declare income from IRS category A and/or B, regarding high added value activities. If you wish to eliminate international double taxation, you must fill in Annex L in the respective field.
- Annex SS: This is an annex for self-employed workers with open economic activity. However, it is used to determine whether you are a self-employed worker that is economically dependent on an entity, in case you need the subsidy for termination of activity. In other words, in legal terms, if you have an annual income equal to or greater than 6 IAS and, of that income, 50% relates to services rendered to the same entity, you are considered economically dependent on that entity. Therefore, you will have to identify all the entities to which you provide services, stating the respective income associated to each of them.
Step 6: Review your declaration and simulate before submitting it
Finally, after you have all your tax return filled out, you should review it to see if there are any mistakes. Then you should validate it and see if it's accepted by the Tax Office, or if there are errors that won't allow you to submit the declaration.
Before submitting your tax return, do one or more simulations (depending on whether you're submitting an individual or joint tax return). This way you'll get an idea of the IRS refund you'll receive or the amount you'll have to pay to the Tax Authorities. After identifying the option that is most advantageous for you, and if everything is in order, you should then submit your tax return.
Keep in mind that, in certain professional activities or at certain times, the completion of this declaration may be more complex. So, if you have any doubts, never submit your tax return without first clarifying your questions, either with the tax authorities or with a certified accountant. Also, remember this: you should not wait for the last day (30th June) to submit your declaration. The sooner you submit, the sooner you will receive your refund.