Although the default rule is to pay a flat 28% on investments (taxa liberatória), Portuguese law allows you to choose an alternative when filing your return: englobamento.
What is englobamento?
- It means adding investment gains to your employment income (salary) and paying tax on the total at the progressive IRS rate that applies to you.
- If you choose englobamento, you must include ALL income from that category (you cannot choose to englobar only some shares and not others).
Who benefits from it? Englobamento is generally advantageous if your total income (salary + investments) is low. If your progressive IRS rate is below 28% (for example, you are in the early brackets at 13% or 16,5%), englobing would mean paying less tax on your investments. If your salary already puts you in brackets above 28%, it is usually better to keep the separate taxa liberatória.
Additionally, englobamento is mandatory if you want to offset losses (menos-valias) on share sales against future gains. Without englobamento, the loss is lost for tax purposes. But if you do englobar in the year you suffer the loss, the AT allows you to carry it forward and offset it against Category G gains over the following 5 years.