Under Portuguese tax law, until 31st December 2022 capital gains derived by non-resident taxpayers from the sale of Portuguese located real estate assets were subject to taxation on the full amount of the capital-gain, at a flat 28% rate.
However, Personal Income Tax (PIT) rules for resident taxpayers established that their capital gains were only taxed on 50% of the realized gain, at a progressive tax rate up to 48% - thus resulting in an effective 24% tax rate.
This difference in taxable income was the object of several administrative and judicial appeals, eventually making its way to the European Court of Justice (ECJ) in 2007 – Case C-443/06 Hollman.
The ECJ ruled that the difference in tax treatment of resident and non-resident investors was contrary to the principle of free movement of capital enshrined in article 63 of the Treaty on the Functioning of the European Union (TFUE).
Under TFUE rules, the principle of free movement of capital applies to both EU and non-EU individuals or entities.
The Hollman case led to a string of victories for non-resident taxpayers in both administrative, judicial and arbitration procedures – and the eventual amendment of the PIT Code, which removed the restriction on the 50% income exclusion and the 28% flat rate for non-residents, applicable from January 1st 2023 onwards.
This means that non-resident taxpayers that were taxed on 100% of the capital gains derived from the sale of Portuguese real estate can now request a refund of 50% of the tax paid.
Under Portuguese law, claims against previous levies can be filled within a deadline of four years after the levy is issued, based on an erroneous conduct of the Portuguese tax authorities – which opens the possibility of appealing against any levies issued from early 2021 until 31st December 2022.
Fresh Portugal has a team of tax lawyers with experience handling this specific issue and can support you with your claims.