We all have our stories to pass to posterity about how we’ve suffered because of bureaucrats and the systemic bureaucracy of Portugal (and Spain).
We’re still dangling through ours with the Autoridade Tributária e Aduaneira—aka The Tax Man (IRS), an arm of Finanças (Portugal’s financial system).
For us, nothing really had changed much when filing last year’s income declaration this year. Except for one important item: We’d sold our house and bought another.
Our new Portuguese tax accountant sort of assured us that there shouldn’t be a problem, as we handed over about 100 pages of official forms documenting what we’d paid and what we’d spent on the property.
Sort of assured us?
Let’s put it this way: She didn’t have definitive answers for what was and wasn’t deductible from our house repairs and improvements. “Not to worry,” she began while rifling through and assorting our documents. “A friend of the firm will help us decide which box to check.” Which box to check? “Not to worry. I will see him today or tomorrow,” she nodded. “But, not to worry. It doesn’t really matter, since you purchased another house — a new primary residence — between the two years before your sale and two years after it.”
Honestly, we weren’t very assured when we left her office on 18 April—she simply didn’t inspire confidence. “When will our taxes be ready?” I asked, as she escorted us to the door. “Two weeks, I imagine … but, no matter, because the taxes cannot be accepted by Finanças before June. Not to worry.”
When we met with her again to pick up our taxes, they still weren’t ready. She had yet to speak with the friend of the firm (who we later learned worked for Finanças), so she still didn’t know which box to check on the form.
I should have suspected that something was amiss, as she hadn’t replied to my initial four emails and two telephone calls to schedule an appointment. I had copied her manager on all our correspondence, and assumed he knew that I was getting impatient. Not just to schedule an appointment … but for the courtesy of a response. Am I the only one who believes that waiting two weeks to respond is unprofessional (at best) and negligent (at worst)—no matter what country we’re talking about? Portugal is no exception. At long last, we were scheduled to meet with her on Wednesday of the following week.
In the meantime—sometime between 18 April and 22 June—we had done some research with Google to learn what could be deducted from the sales price of the house to avoid any heavily-taxed capital gains. Commission paid to the property agency? Yes. The four inverter aircon units we had purchased including installation? No. The new kitchen cabinets upstairs and down? Yes. The pellet stove we purchased with installation? No. The electrical work we had contracted for to upgrade the wiring throughout the house to prevent overheating (and circuit breakers flipping)? Yes. The new refrigerators, ranges, sinks, toilets, and commodes? No. The four windows (with screens) and two doors that replaced single-pane glass ones surrounded by rusty metal frames? Yes. The big bar we bought for our gathering room which required two men and two days to assemble? No.
Bottom line: If it could be moved out of the house and taken elsewhere, it wasn’t deductible. If it was fixed to the house, it usually was. Goodbye nearly €8,000 worth of what we thought were irrefutable deductions.
Now you know why when looking at homes to buy (or rent) in Portugal, website photos may show a furnished and equipped property. But once you sign on the line, all that’s left there when you move in are a few bare light bulbs hanging from electrical cords.
Although the accountant was “pretty sure” which box to check on our return, she still wasn’t certain. The “friend of the firm at Finanças” hadn’t yet consulted with her. But “no problem,” our accountant promised. “If there is a mistake, Finanças will advise us.”
On 4 July (not a holiday in Portugal), our taxes were filed.
Then came a period of electronic fun and games with Finanças:
- On 7 July at 07:56 AM, I was informed that my tax declaration had been received and considered “certa” (correct);
- On 7 July at 07:48 PM, I was further informed that my tax declaration had been selected for analysis (“because of the expenses involved in the sale of the house,” presumed our accountant);
- On 8 July at 15:58 PM, I was notified that “The expenses sent are not legible, but they do not seem to add up to the total mentioned in the declaration.” New, legible copies had to be delivered to Finanças;
- On 11 July at 02:14PM, our relationship entered a new phrase as the email salutations now read “Caro/a contribuinte” (dear taxpayer), followed by my full name and fiscal number. The email message was a word-for-word repetition of the one received on 08/07 at 15:58 PM;
- On 11 July at 07:21 AM, I received another email informing me that my declaration had been received and that it was correct;
- On 12 July at 08:15 AM, however, I was told that, regarding the notification sent on 11/07/22, I should be aware that, once the discrepancy found in the declaration had been corrected, “the process that gave rise to it has ended”;
- On 15 July at 07:21 AM, I was informed that the declaration received the day before was considered correct;
- On 15 July at 08:13, nonetheless, I was again told that “the discrepancy found in the declaration” had yet to be corrected;
- On 15 July at 12:39 AM, I was notified that, “following the procedure for the settlement of the IRS statements, for the year 2021, your income statement was selected for analysis, so you will soon be sent, via CTT, a notification informing you of the situation(s) to be verified by the Tax and Customs Authority services, as well as the procedures to be adopted with a view to resolving the same. It is further informed that the referred situation is, since this date, already perfectly identified in your personal area of the Portal das Finanças website.” Whatever in the world that meant!
I tried contacting our accountant … but you know how that goes.
To further complicate matters, since I am married and filing jointly, my lawfully wedded spouse also received a personalized copy of each message. Although my own tax status in Portugal for 2021 may be resolved through the Finanças looking glass portal, his isn’t.
See, while I am retired and my Social Security payments and pension income aren’t taxed in Portugal because we have Non-Habitual Residency (NHR) status which exempts me from being taxed here on that income – and there’s a treaty in place between Portugal and the USA precluding double taxation – he continues to work remotely as an independent contractor for his former employer in the USA. Which means that he must pay both Social Security and income tax to Portugal.
Naturally, nothing is simple here.
He earns the same amount every month and sends his pay stubs promptly to another accountant, who files the Portuguese paperwork and tells him how much to submit to the proper authority in a timely manner.
Which he did/does.
Although each month’s earnings may be the same in US dollars, the amount in Portugal differs according to the (then current) exchange rates for euros. So, of course, the annual earnings shown on his 1099-MISC differ from the amount he’s already paid taxes on based upon euros and shown in his fiscal records.
It’s what Portugal’s IRS and Finanças consider a “discrepancy.”
Guess what that means in terms of us?
Bruce Joffe is publisher and creative director of Portugal Living Magazine. You are invited to read our current and past issues on this page of its website. For those who prefer the feel of paper pages, paperback editions of the magazine are available at all Amazon sites.