Luxembourg life insurance contract and tax obligations in Portugal

Wealth Management and Legal & Tax Departments
June 1, 2021
The Luxembourg life insurance contract, when taken out by a Portuguese tax resident, is subject to certain declaration obligations. These obligations must be met by the policyholder or, in certain cases, on the insurance company. Here is a reminder of the various declarations to be made and their possible tax consequences.

Life insurance contract and income tax return (IRS)

In accordance with the provisions of paragraph 8 of Article 63-A of the general tax law, taxpayers subject to the personal income tax are required to declare in their tax return the existence and identification of deposit or securities accounts opened with a bank non-resident in Portugal, or with a branch outside Portuguese territory of a financial institution resident in Portugal, of which they are holders, beneficiaries or which they are authorised to operate. 
Life insurance contracts are not covered by this rule. The duty of communication provided for in paragraph 8 of Article 63-A of general tax law does not apply to the life insurance contract. Therefore, there is currently no requirement which obliges policyholders to declare the existence of their insurance policy in the tax return

Consequences in case of surrender

The policyholder of a life insurance contract is subject to the following taxes in case of surrender (only the positive difference between the amounts paid for the surrender of the life insurance and the transactions and the respective premiums paid or the amounts invested is qualified as capital income (category E) is subject to tax):

  • Income tax rate, or 28% on income if surrender occurs within 5 years;
  • Income tax rate, or 28% of income (22.45%) if surrender occurs between 5 and 8 years;
  • Income tax rate, or 28% on 40% of income (11.2%) if surrender occurs after 8 years.
     

Reporting obligations of the life insurance company

The life insurance company is subject to reporting obligations on:

  • deduction and payment of the ASF tax: Semi-annual collection of information, calculations and reports relating to the deduction and payment of the ASF tax deducted from all premiums received by the insurer on PT policies;
  • deduction and payment of the INEM Taxa, only applicable to policies with additional death cover. 
  • information on the remuneration paid to insurance brokers for the provision of broking services;
  • details of the activity under the Free Provision of Services (FPS) regime;
  • management of claims by the Insurance Company;
  • report for the purposes of behavioural supervision provided for by regulatory standard 10/2020-R.
     

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