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How to legally avoid Portuguese tax on overseas earnings
| Published: | 27 Jul at 6 PM |
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If Portugal is your chosen expat retirement haven, checking out the country’s tax laws as regards foreign income could save you money.
Portugal has long been a popular destination for expat retirees from the UK, but those receiving regular income from the home country are well advised to check their tax status with a local accountant. Basically, residents are taxed on their income, whether salaries, capital gains, rental from buy-to-let properties and any other income originating overseas and brought into the country. This means retirees with such income will need to decide on the best jurisdictions to keep savings and receive pension payments.
Should you be a citizen of a country which has a double tax treaty with Portugal, your foreign earnings can only be taxed once, and where you pay tax will be determined on your length of stay in Portugal. If you are resident for over 182 days or more, you will be paying the Portuguese taxman as you are considered resident. In 2009, Portugal brought in its Non-Habitual Resident Scheme in order to attract foreign nationals and foreign investment, with the scheme helping many to reduce or eliminate their home country taxes. Foreign nationals who’ve not been tax resident in the country for five years can enjoy a 10-year benefit from the scheme, which allows a flat 20 per cent tax bracket on overseas income.
The scheme potentially excludes rental income, private pensions, state pensions and company pensions from any Portuguese tax liability, although the country has exclusive taxation rights under the double tax treaty. This means that once your status has been approved, your UK pensions and other earnings can be accessed tax free in both countries, even if monies are taken in a lump sum. It’s necessary to inform HMRC you are no longer resident or domiciled in the UK and to register as a tax payer in Portugal. Working with a Portuguese tax advisor will ensure you get your paperwork right and take full advantage of the money-saving scheme.
Portugal has long been a popular destination for expat retirees from the UK, but those receiving regular income from the home country are well advised to check their tax status with a local accountant. Basically, residents are taxed on their income, whether salaries, capital gains, rental from buy-to-let properties and any other income originating overseas and brought into the country. This means retirees with such income will need to decide on the best jurisdictions to keep savings and receive pension payments.
Should you be a citizen of a country which has a double tax treaty with Portugal, your foreign earnings can only be taxed once, and where you pay tax will be determined on your length of stay in Portugal. If you are resident for over 182 days or more, you will be paying the Portuguese taxman as you are considered resident. In 2009, Portugal brought in its Non-Habitual Resident Scheme in order to attract foreign nationals and foreign investment, with the scheme helping many to reduce or eliminate their home country taxes. Foreign nationals who’ve not been tax resident in the country for five years can enjoy a 10-year benefit from the scheme, which allows a flat 20 per cent tax bracket on overseas income.
The scheme potentially excludes rental income, private pensions, state pensions and company pensions from any Portuguese tax liability, although the country has exclusive taxation rights under the double tax treaty. This means that once your status has been approved, your UK pensions and other earnings can be accessed tax free in both countries, even if monies are taken in a lump sum. It’s necessary to inform HMRC you are no longer resident or domiciled in the UK and to register as a tax payer in Portugal. Working with a Portuguese tax advisor will ensure you get your paperwork right and take full advantage of the money-saving scheme.
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