In Portugal, IRS exemption on salaries and pensions depends on specific rules set out in tax law. These rules distinguish the tax calculated at the end of the year from the monthly withholding tax and define both the annual value below which the taxpayer is protected in the final assessment, and the social benefits that, by their nature, are exempt from IRS. The regime is based on the , the current State Budget and the official withholding tax tables.
The starting point continues to be the so-called “existence minimum”, that is, the minimum annual income that the State understands must be protected to guarantee the taxpayer’s subsistence. It is this reference value that weighs in the analysis of who is, or is not, exempt from paying IR in the final adjustment.
In the regime currently in force, the reference value of the minimum existence remains at 12,180 euros per year, because the law sets this level as the highest value between 12,180 euros and 1.×14×IAS, with the IAS being 537.13 euros.
Anyone who, throughout the year, has gross income equal to or less than 12,180 euros, whether in wages (Category A) or pensions (Category H), is exempt from the final IRS assessment. The legal basis for this rule remains in article 70 of the Federal Revenue Code.
Withholding tax: a (sometimes) apparent exemption
Withholding tax works like a monthly tax advance. In the official Continent tables currently in force, salaries up to 920 euros per month are not subject to retention, and the same applies to pensions up to that same amount. This means that, in these cases, the monthly income is paid in full, without IRS deduction.
Above this level, the limits and rates vary depending on the family situation and type of income, in accordance with the official tables published for dependent work and pensions.
Even so, the absence of monthly withholding does not automatically equate to exemption in the final settlement. Confirmation only appears in the annual settlement: if the relevant income falls within the minimum existence, there is no tax to pay; if there have been undue or excessive withholdings, these amounts are returned.
Social benefits that are exempt by nature
In addition to situations in which income is low, there are social benefits that do not, as a rule, fall within the normal IRS taxation circuit. Among them are:
- Unemployment benefit;
- Family allowance;
- RSI – Social Insertion Income;
- Social action subsidies awarded by public entities, by Santa Casa da Misericórdia de Lisboa or by private social solidarity institutions, intended for health, education and support for the elderly, children or people with disabilities.
These benefits and support are framed, depending on the case, in article 12 of the Income Tax Code and in the guidelines published by Social Security on income that does not need to be declared for income tax purposes.
Thus, anyone who receives only this type of amount, without accumulating other income subject to tax, is generally excluded from effective IR taxation and, in many cases, also outside the practical obligation to present a declaration due to lack of relevant taxable income.
Other frequent exemptions
There is also income from work that is partially excluded from taxation, even above the subsistence minimum. This is the case with meal vouchers, which are only taxed on the part that exceeds the legal limit, or that exceeds it by 70% when paid by card or voucher.
With the most recent update of the meal allowance in the Public Administration to R$6.15 per day, this also became the reference value for cash exclusion; when support is paid by card or voucher, the bar rises by 70%, to 10.46 euros per day.
The IRS Jovem, provided for in article 12-B of the IRS Code, also maintains a partial exemption from income from work for young people up to the age of 35, in the first 10 years of obtaining income. The exemption continues to be 100% in the 1st year, 75% from the 2nd to the 4th, 50% from the 5th to the 7th and 25% from the 8th to the 10th, with a limit of 55 times the IAS, which corresponds to 29,542.15 euros.
Applicable legal basis
The IRS exemption regime is regulated in:
- Personal Income Tax Code (CIRS), approved by Decree-Law No. 442-A/88, of November 30, with successive amendments;
- State Budget Law in force and other complementary legislation that updates the relevant annual parameters, such as the IAS and the national minimum wage;
- Official withholding tax tables published for dependent work and pensions, within the scope of the mechanism provided for in article 99-F of the CIRS;
- Articles 2, 12, 12-B, 58, 70 and 99-F of the CIRS, which deal with taxable income, exclusions, exemptions, exemption from declaration, minimum existence and withholding tax.
In summary, the annual reference value that continues to protect the lowest incomes is 12,180 euros, while the withholding tables place salaries and pensions of up to 920 euros per month exempt from IRS on the Continent. In addition, several social benefits remain outside of taxation, guaranteeing additional protection for those who depend on social support or have lower incomes.
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