Taxation of Financial Products

LIFE INSURANCE

The sums paid by the employer, whether obligatory or optional, with life insurance and operations, as long as they constitute acquired and individualized rights of the respective beneficiaries, as well as those that, not constituting acquired and individualized rights of the respective beneficiaries, are subject to redemption, advance payment, redemption or any other form of anticipation of the corresponding availability, or, in any case, reception of capital, are considered as employment income and are taxed as such.



On the other hand, the income derived from the investments in life insurance is subject to the IRS as capital income, such income being constituted by the positive difference between the amounts received (by way of redemption, advance or maturity) and the corresponding premiums paid or amounts received.



Life insurance income is subject to capital income tax at a final withholding rate of 28% (or 22,4%, if the taxpayer is resident in the Autonomous Region of the Azores).



However, this income is subject to a differentiated taxation, according to the time the investments have been held and as long as the increases made by the investor in the first part of the duration of the contract represent at least 35% of these increases, situation in which this income is taxed under the following conditions:

1/5 of the income is exempt from taxation, if the redemption, advance, redemption or other form of anticipation of availability, as well as the maturity, takes place between the fifth and eighth year of the contract;

3/5 of the income is exempt from taxation, if the redemption, advance, redemption or other form of anticipation of availability, as well as the maturity, takes place after the first eight years of duration of the contract..

Must be declared in Annex E,, Table 4.A, Code E20:

Anexo E quadro 4.A  código E20

The taxpayer may opt to aggregate this income with all the other income received by the taxpayer and include it in the IRS declaration, and its amount will be added to the remaining income to determine the applicable IRS rate.


If the taxpayer opts for aggregation, the withholding tax will have the nature of a provisional withholding tax.

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