If you own assets in Portugal or are expected to inherit assets in this country, it’s important to understand the legal and tax implications involved in the inheritance process. Portugal does not have a traditional inheritance tax, but rather a stamp duty on certain types of inherited assets, which are only enforced if certain conditions are met.
In Portugal, there are rules for taxing inheritances through a stamp duty, which in some cases imposes a flat rate of 10 percent on inherited assets. Early understanding of local law and early planning of wills, residency, and gifts during lifetime can significantly reduce exposure to tax payments when transferring assets between generations.
Beyond that, inheritance tax planning can prevent legal disputes, delays in the inheritance process, and unexpected demands from various authorities.
What’s the Difference Between Inheritance Tax and Estate Tax?
- Estate Tax – Imposed on the deceased’s assets before they are transferred to the heirs.
- Inheritance Tax – Applies to all assets received by the heir.
Inheritance Tax in Portugal – What You Need to Know?
In Portugal, there is no inheritance tax, estate tax, or gift tax. However, gratuitous transfers may be subject to stamp duty. Stamp duty applies to various tax events, including donations and inheritances of property throughout Portugal. for example, transfer of rights in real estate and movable property located in Portugal, etc. Stamp duty applies to the amount of inheritance received by each heir. This tax is at a fixed rate of 10 percent. Close family members (children, spouse, parents, grandparents, and grandchildren) are exempt from stamp duty.
Gift Tax
Gift tax is an important part of planning intergenerational asset transfers. Often, when asset owners learn about the amount of inheritance tax, the possibility of transferring assets as gifts during the lifetime of the testator arises, thinking it might be preferable to future inheritance. However, it should be considered that gifts may be subject to tax at rates identical to inheritance tax rates or even higher.
In Portugal, there is no gift tax. However, like inheritance tax, gratuitous transfers may be subject to stamp duty at a fixed rate of 10% in certain cases.
Therefore, early planning of inheritance and gift taxes is essential when transferring assets between generations. Proper planning allows maximizing existing exemptions, significantly reducing tax liability, and ensuring that assets are transferred to the next generation in an orderly and efficient manner.
Inheritance Taxation in Israel Compared to Portugal
In Israel, like Portugal, there is no estate tax or inheritance tax. However, in certain cases, tax may be imposed on the full value of the inheritance received, such as capital gains tax when selling the asset.
The tax treaty between Israel and Portugal includes provisions that can prevent double taxation. Still, it’s important to plan the reporting and filing accurately to avoid double payment.
To read the Israel-Portugal tax treaty in English on the Ministry of Finance website, click here.
Making a Will in Portugal – The Key to Tax Savings and Dispute Prevention
Inheritance doesn’t always transfer smoothly to the heirs. Sometimes complex procedural steps are needed to obtain a probate order or permission to realize the assets.
Creating an organized will is not just a matter of personal desire; it is an integral part of estate taxation. A detailed will can ensure that assets are transferred smoothly and efficiently to the heirs. The will should include the wishes of the deceased but must also be adapted to the requirements of the law so that its validity is not compromised.
In Portugal, there is a system of ‘forced heirship,’ meaning there are several rules regarding how the deceased’s estate is distributed, where part of the estate automatically passes to legal heirs (close family members). Thus, in Portugal, the testator has the right to choose who to leave their assets to for only part of their assets, and for this purpose, they must prepare a valid will that clearly and legally explains how the assets should be distributed.
At the stage of drafting the will, in many cases, it is possible to choose the law that will apply to it. When dealing with assets in Portugal, this choice can have a substantial impact on inheritance planning and its future realization. Without advance planning, the implication is that the law that will apply to the testator’s assets would be the law of the testator’s last and primary place of residence.
If you own assets in Portugal, our recommendation is to make a will to ensure that the transfer of assets is done as smoothly as possible. A will can prevent misunderstandings or lengthy legal processes and ensure that the process proceeds in an orderly manner even after the death of the deceased.
Received an Inheritance in Portugal? 7 Steps for Proper Realization of Inheritance from Portugal
1. Clarification of Factual and Legal Background
First, check the type of asset that is to be inherited, its location, the identity and status of the heirs, the value of the asset, and more.
2. Checking the Timing and Location of Inheritance Realization
Consider whether it’s advisable to realize the asset now, and if so, where is it better to realize it – in Portugal or in Israel?
3. Regulatory and Banking Aspects
It is recommended to check the costs of money transfers, whether there is a need to open an account in Portugal or another country for the purpose of transferring funds, what approvals are required, etc.
4. Planning the Asset Transfer
Consider whether to transfer the asset itself or its proceeds, and what the implications are in terms of tax, exemptions, deductions, etc.
5. Avoiding Double Taxation
In light of the existence of a double taxation prevention treaty, it is recommended to check whether there is a mechanism for crediting tax paid in Portugal against tax liability in Israel. Make sure that the reporting is done correctly and accurately to avoid double payment.
6. Checking the Future Effects on the Asset
It is recommended to examine the future effects on the asset – for example, a future sale of the asset will often be subject to capital gains tax in Israel as well.
7. Transferring the Asset to Israel
Performing all necessary actions, submitting documents, handling matters with banks in Portugal and Israel, and executing the asset transfer.
How Can We Help?
The goal is to transfer the inheritance to heirs in Israel in the most tax-efficient way, while addressing legal issues in Israel and Portugal and issues related to banking and regulation. For example, whether it’s better to realize a certain asset in Portugal or transfer it to Israel; how to transfer inheritance funds to a bank account in Israel; how to use various exemptions between heirs; whether to give gifts during lifetime; whether to establish a trust, and more. Strategic planning, according to law and tax treaties, is essential to minimize tax liabilities.
Nimrod Yaron & Co. has extensive experience in personally and professionally accompanying Israelis with assets or inheritances in many countries around the world, including Portugal – from the first stage of planning, through dealing with authorities in Portugal and Israel, to transferring inheritance funds to the heir’s bank account.
We work with all relevant professional entities in Portugal and Israel and offer legal solutions both in terms of taxation and banking – tailored to the circumstances of the case.
If you have inherited an asset or wish to bequeath assets in Portugal (like in Lisbon, Porto, etc.) in the future, our team of lawyers specializing in international taxation and inheritance law will be happy to advise you on this matter – contact us for an initial consultation.
Q&A
Do I need to pay tax in Israel on an asset inherited from Portugal?
No. There is no inheritance tax in Israel. However, capital gains tax may apply after the sale of the property. It is important to check the recommended date for selling the inherited property.
Why is it important to plan the transfer of assets between generations in advance?
The transfer of assets between generations from abroad is not just a family matter but also a tax and economic issue. Early planning, considering legal issues in Israel and abroad, can save a lot of money and prevent legal complications.
How can the inheritance be realized optimally and save tax?
To realize the inheritance optimally and save unnecessary tax payments, all tax options should be examined, including utilizing exemptions, planning gifts, establishing companies, trust funds, and more.
How can the inheritance tax liability in Portugal be reduced?
Through early tax planning, which includes drafting a will, utilizing exemptions, giving gifts during your lifetime, and more, you can significantly reduce your tax liability.
Is it better to give an asset as a gift during lifetime or to bequeath it?
The choice between giving a gift and bequeathing depends on the circumstances of the case. Sometimes a gift will be taxed similarly to an inheritance. Therefore, the legal and tax aspects should be examined before making a decision.
What are the implications in case there is no will?
In the absence of a will, the inheritance will be divided among the legal heirs according to the local inheritance law of Portugal.
What documents are required for the process of realizing an inheritance in Portugal?
To realize an inheritance in Portugal, documents such as a death certificate, a will (if one exists), copies of the heirs’ ID cards, property ownership documents, bank account confirmations, and more are required.
How long does the process of realizing an inheritance in Portugal take?
It should be considered that the process of realizing an inheritance in Portugal can take between several months and a year or more, depending on the complexity of the testator’s estate, the number of heirs, the existence of a will, and other factors.
How are corporations taxed when it comes to the inheritance of assets?
Corporations receiving inherited assets are classified as a gratuitous transfer, meaning that it is subject to the same stamp duty tax rate of 10 percent. Therefore, corporations and individuals who are non-family members experience the same stamp duty tax rate.
Additional articles:
