In this article I'm going to share with you thirteen conclusions from the new Portuguese State Budget for 2024. It only takes five minutes to read: take the opportunity to find out what's in store for you next year!
Tip no. 1 - Talk to your accountant
It's time to look at your figures, know your accounts, anticipate what the end of the year will be like and understand what tax benefits are still available: in other words, what investments you should make and whether or not it's worth making them this year in order to make the most of the tax legislation in force.
Last call: watch out for SIFIDE!
Tip no. 2 - There is an update of the benefit to the salary valuation
If you're not familiar with the benefit, find out more about it here.
The great news is that we are no longer dependent on the collective bargaining agreement to get it: as long as we don't increase the salary range, i.e. the difference between those who earn more and less in the company.
Beware: an increase in the salaries of the entire company by the same percentage will sharpen the scope of the salary range. The idea is to bring those who earn less closer to those who earn more!
Tip no. 3 - Where does state money come from?
This graph is for the west of the country. But have you noticed how state revenue from personal income tax and VAT is growing? Why is that?
For a simple reason: the IRS brackets have been updated, it's true, from the first to the fifth bracket... But the base has been broadened, with the minimum subsistence level (the salary from which I have to pay IRS) being updated to 820 euros.
"The state basically just takes revenue funds to cover its growing expenses, without cleaning house " - Paulo Carmona, President of the Portuguese Taxpayers' Association
"Portugal is the OECD country with the most [working] days spent complying with tax obligations " - Paulo Carmona, President of the Portuguese Taxpayers' Association
Tip no. 4 - I earn more with what I spend on housing
There is an adjustment to the rent deduction for own permanent dwellings, from 502 to 507.12 euros. And there's a reinforcement of the IRS youth limits. But is this (only/only) what young people need to stay in the country?
Tip no. 5 - Goodbye Golden Visas... Hello Golden Visas.
The regime for non-habitual residents will no longer be abolished, at least until the end of 2024. If you're not familiar with this concept: the topic gave rise, among other debates, to the famous discussion about the end of the Golden Visa.
The problem? Given the vagueness and suddenness of the threat, confidence in investing in Portugal has been undermined. And it may be difficult to regain the interest of entrepreneurs who have canceled investment projects in the face of the imminent cancellation of the Golden Visas.
Attention Portuguese government officials: Greece and Italy are already taking the opportunity to attract the investment that Portugal scared away with the threat of the regime's extinction. Foreign investment isn't just about housing!
Tip no. 6 - Allowances have been updated
It's 0.40€/km. Per day, national journeys pay up to 62.75€ and international journeys pay 148.91€.
Tip no. 7 - The IRS changes (but stays the same from the 6th bracket onwards)
As we saw earlier, there is indeed an update to the IRS brackets and rates: but only up to the sixth bracket. Below is a chart with the updated table:
Let's take a practical example: if a taxpayer earns €2,333 gross per month, he or she is outside the spectrum that receives IRS relief. And how much is in this taxpayer's pocket at the end of the month? That's right: €1,496... A fortune!
Let me remind you that the average salary in Portugal is €1,358.
Tip no. 8 - Education expenses have been clarified
Until now, expenses incurred in professional training for taxable persons were not considered to be training expenses. Now the State Budget clarifies that they are - and that they should be included in deductions.
Positive!
Tip no. 9 - What's true today, isn't tomorrow
The big problem that this budget reiterates is the permanent fiscal instability, which threatens our country's companies and foreign investment. For example: elections are scheduled for March... Will we have a new budget soon after?
Tip no. 10 - The effective corporate income tax rate is still +32% (and I'll explain why)
Let's take a practical example: a company has a CIT payable of €595 - because it has a taxable profit of €3,500, on which it will pay 17% CIT.
Simple, right? But there's more.
This company's autonomous taxation involves a series of expenses resulting from a vehicle it recently acquired:
- Insurance = 500€ x 8.5% = 42.50€
- Fuel = 1000€ x 8.5% = 85€
- Maintenance costs = 600€ x 8.5% = 51€
- Depreciation = 3000€ x 8.5% = 255€
- Allowances = 2215€ x 5% = 106,25€
Total: €539.75...
...and only because we are calculating the 8.5% rate of autonomous taxation, corresponding to the value of 2024!
Now, in simple math, all you have to do is add the value of the autonomous taxes to the initial value of the IRC: €595 + €539.7 = €1134.75. This final figure corresponds to an effective tax rate of 32.4% and not 17%!
On this subject, it's worth listening to minute 15:00 of the latest Corporate Business, to understand why autonomous taxation was created. The way they are applied today completely undermines their initial justification.
Tip no. 11 - Have you sold your house recently? You have more time to take advantage of reinvestment (temporarily)
The law stipulates that there is a 36-month window for reinvesting capital gains on own permanent homes. But... until March (when there are elections) we have a one-year window beyond this period.
Tip no. 12 - There's a new tax benefit: giving homes to workers
Up to the limit allowed by the rental law, employees can be exempt from social security and personal income tax if the company rents them a home. This can be interesting:
- If the property is owned by the company, because this vehicle allows you to accelerate the depreciation of the property from 2 to 4%;
- For the worker, who can now use the money he was going to spend on personal income tax and social security on renting his home.
There is, of course, a lack of equity between companies with their own homes and companies that rent property from third parties for this purpose - because they don't enjoy the benefits of depreciation. But it is a benefit nonetheless that provides a saving of 23.75% to the company seeking to take advantage of this benefit!
Tip no. 13 - We've been breaking tax burden records for three consecutive years (and it keeps getting worse)
Without going into the realm of opinion: shouldn't this philosophy of permanently "penalizing" the taxpayer be reconsidered? I'll give you some practical examples:
- The government wants to encourage people to trade in old vehicles because of the issue of polluting emissions. So it increases the tax on those who can't afford to change vehicles, instead of increasing the subsidy for those who want to?
- The government has started taxing plastic bags, also for environmental reasons. So shouldn't fruit pre-packaged in plastic be taxed in the same way?
- And what has become of the security deposit on the bottles we buy, so that we can get the deposit back when we hand in the empty bottle? What has become of this incentive philosophy, which once existed in Portugal?
I'll say goodbye for today.
Admittedly, the article wasn't very long, because there isn't much news about the new budget either. But I hope it has helped you to be aware of what's new, starting next year!
