Portugal seems to be the go-to place right now to relocate. With a Golden Visa program that can lead to obtaining E.U citizenship after a certain amount of residency in the country.
This with a combination of no crypto tax and affordable quality of life with a good climate. It is seen as the perfect place for many U.S expats to move to get a second residency and obtain citizenship.
However, all is not as simple when it comes to investing as a U.S expat.
Alongside the PFICs taxation and FATCA its not as simple to open a bank account or brokerage. I have written about it in a number of blogs that is applicable to U.S expats in Portugal as well.
If you have any questions and you would rather speak to someone, please email me at info@investmentsforexpats.com
Please be aware that investing can put your capital at risk and you may get less back than what you originally put in. Please understand the product you are investing in.
What else needs to be considered for U.S expats?
Portugal has obscure tax policies
The Non-Habitual resident program, capital gains, gift tax and IHT regulation. All need careful tax and estate planning when moving to Portugal on a permanent basis.
The U.S and Portugal, have a double taxation treaty when it comes to income taxes and social security. Intended in aiding U.S citizens in Portugal to avoid double taxation. Although, the basis of the double taxation treaty is used to reduce the tax liability to ensure that no country is getting two bites of the pie. This can be complicated in navigating around this aspect and would aid that any U.S citizen living in Portugal seeks to see a specialist CPA about this move.
Portugal’s non-habitual residency program
The Portugal non-habitual residency program offers a variety of tax benefits to new residents.
For the first 10 years, you get
- Flat 10% tax benefit on foreign payments and 20% on Portuguese income instead of a top rate of 48%. So, for example, withdrawals from IRA and/or 401K will be taxed at 10%.
- No tax on dividend and interest payments from foreign investments.
- No tax on foreign earned income as long as it has been taxed at source in the country.
Taxes that are paid in Portugal can be used as tax credits, If you want to read more about this, please see these blogs:
Capital gains tax under the NHR program is where Americans, are in a different category from other nations as the U.S is one of the only countries in the world to impose citizenship-based taxation.
When U.S expats are under the NHR program Portugal does not impose the 28% CGT in Portugal.
Although, these aspects seem great. Note that after 10 years you are then taxed at the Portuguese normal rate.
Residency leading to Citizenship
Portugal like a number of other E.U countries offers a Golden Visa program that allows overseas investors to establish Portuguese residency and citizenship.
The most common method to obtain this is to buy a property worth more than €500,000 in certain regions. This has become very popular as a way to get citizenship and please be aware that with anything, buying a house has other associated costs as well.
IHT tax planning in Portugal
IHT is a European favourite for taxes as it is mainly aimed at UHNWs, in the U.S with a limit of $12.06 million per single user (doubled up if married to a U.S citizen).
The good news is that Portugal no longer has an IHT tax. As was eliminated in 2004. However, it does apply a 10% stamp duty when assets are gifted or passed on at death.
There are exceptions which are:
- Spouses, civil partners, descendants (children, grandchildren, etc.), and ascendants (parents, etc.) are exempt. A 0.8% tax still applies to gifts of real estate.
- The stamp duty tax only applies to Portuguese assets regardless of where the donor or beneficiary is resident. Assets in the U.S. are exempt.
Notably, the U.S. and Portugal do not have an estate, inheritance, or gift tax treaty, creating the possibility of double taxation on these types of transfers.
Portugal also has a separate Property Transfer Tax that is applied to Portuguese real estate regardless of how the property is transferred. This tax varies between 5% and 10% depending on the circumstances.
Trusts don’t travel well
I have written about this in other articles for U.S expats but with the exception of the U.K., a lot of Europe’s countries are not too favourable for trusts.
Trusts are a common tool for estate planning in the U.S to bypass probate.
This may not work in Portugal, as historically Portugal did not acknowledge trusts. Although in 2015 law was passed to put a classification on trusts and taxation it is still not fully clear and is done on a case by case basis.
For those looking to open up a brokerage account or look at the option of finding a feasible trust option when in Portugal you may find these blogs useful or if you have specific questions feel free to get in touch.
- https://investmentsforexpats.com/brokerage-accounts-for-u-s-expats-abroad/
- https://investmentsforexpats.com/brokerage-accounts-for-us-expats/
Again, if you would like to speak to me about US financial planning, the opening of accounts, investments or taxes, please email me and I can arrange a time to speak to you. My email is info@investmentsforxpats.com
