Understanding how to prove residency status to the Portuguese Tax Authority is not always straightforward, so, here in the Algarve, Blacktower Financial Management is on hand to help you ensure you are registered correctly.
In order to qualify for Portuguese tax residency, you will have to satisfy Finanças (Portuguese Tax Authorities) that you are resident in the country 183 days or more within the relevant 12-month period. However, you may still qualify for Portuguese residency even if you do not meet the 183 days test because you may still be deemed tax resident if you own a Portuguese property which is considered to be your ‘primary and permanent home’.
Determining the correct tax status for your circumstances and long-term interests can be a complex process and, as such, is something that we can help you understand and get right.
Taxation for residents
If you are a resident of Portugal for tax purposes, you will have to pay tax on your worldwide income, most forms of capital gains and, potentially, on income derived from property investments.
If you have not been registered as a tax resident of Portugal in the previous 5 years, you are to benefit from the country’s ‘non-habitual resident’ (NHR) regime. To register for the NHR scheme, you must apply to the Finanças by 31 March of each year.
As an NHR you are entitled to special tax treatment during your first decade in the country. For example:
- You may be able to receive your UK pension paying only 10% tax
- You may be exempt from tax on earnings derived from dividends and royalties.
- You may be entitled to the 20% flat rate on certain foreign source incomes (including salary earned from work in ‘high value’ professions as well as income from self-employment).
- Tax exemption for gifts and inheritance to direct family members.
- No wealth taxes.
- Free remittance of funds to Portugal.
Even those without NHR status may find that Portugal offers a taxation environment that compares favourably with other EU countries. Income tax is levied on a sliding scale starting at 14.5% and reaching 48% for the highest earners – while investors in Portuguese start-ups and other ventures may find that they are eligible for certain tax incentives. Every individual is likely to have different needs, so it is essential that you speak to an experienced cross-border wealth manager in order to make the most of the many potential advantages afforded by Portuguese tax residency.
Inheritance tax in Portugal
Given the uncertain financial future of younger generations, inheritance planning is an increasing priority for many expats. Fortunately, Portugal offers an inheritance regime that is much kinder than that of the UK and other EU countries. In fact, inheritance tax is levied in the form of stamp duty, which is fixed at 10% and applies only to Portuguese assets passed on to indirect or non-family members. Direct family members are free from any such tax.
Ensuring the Portuguese tax system works in your favour
Portuguese tax residency offers many advantages, but it is still necessary to structure your assets and income in the right way and to ensure that you correctly declare your situation while also submitting your tax return on time each year.
Advice from Blacktower Financial Management
The management of cross-border financial interests brings with it as many challenges as it does opportunities. Blacktower Financial Management has the expertise necessary to help you ensure you can make the most of your expat and Portuguese tax resident status, not only in Portugal but also back in your country of origin. For more information about how we may be able to help you, contact one of the representatives at our Algarve office today.
Blacktower in Portugal
Blacktower’s offices in Portugal can help you manage your wealth to your best advantage. For more information contact your local office.
The above does not constitute advice and guidance should be sought from an independent tax adviser before making decisions.
Manuela Robinson is the associate director of Blacktower in the Algarve, Portugal, With offices in Quinta do Lago and Cascais.
Blacktower Financial Management has been providing expert, localised, wealth management advice in Portugal for the last 20 years. We can help with specialist, independent advice on securing your financial future. Get in touch with us on (+351) 289 355 685 or email us at firstname.lastname@example.org.
This communication is based on our understanding of current taxation legislation and practices which is subject to change and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice form a professional adviser before embarking on any financial planning activity.