[ HTJ Podcast ] WEBINAR – U.S. Portugal Taxes for Expats – 4th May 2021

VOICE OVER:

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DERREN JOSEPH:

So good afternoon. Good evening. Those who are in Portugal, good morning. And good evening for those who are in different time zones. Great to see you all. Thank you for joining us for yet. Another webinar on US/Portugal tax and with me is Augusta Paulino, a various team in Portugal, a tax lawyer. So, I'm going to be really, really quick. So, I'm going to go through the US side. Augusta is going to go through the Portugal sign and we'd get with jumped into the Q and a, and I want to I'll I'm cutting down on my time slot compared to previous webinars. And the reason is because we've got so many questions. I want to allow reasonable time to go through the questions that you guys sent.

And if you have questions that you did not previously email in to Hannah, please feel free to type below in the box below the chat box below. You may have. If you are on other platforms, if you're looking at us from Facebook or YouTube or whatever, feel free to type our check every once in a while, what questions you guys are typing below as well. Now, in terms of basic housekeeping, please keep yourself mute until we get to the Q and a pod. And if we get a chance to have that conversation, you can emit yourself. Otherwise, keep, please keep yourself mute. And this webinar is being recorded.

So, if you know, that's going to be a challenge for you, you are free to keep your cameras switched off, and that way we don't record your image, but it's being recorded. And without further ado, do you, I'm going to share my screen. All right. Just very, very quickly. So, as I mentioned before, my name is Darren Joseph. I run a small private client tax team within Moore's rule in Asia Pacific. We have just about 30 offices, mainly in Asia as the name suggests. So as far North, as to envisioning all the way down to Sydney and Melbourne and Australia, I actually sit in Singapore.

I've been based in Singapore since 2013, and we are a member of fusion international, which is how we have that relationship with Augusta was practice, which you'll introduce it in a bit. So, through fusion, we get the access, the expertise on European jurisdictions, which we would not otherwise have Now because I'm us qualified. Of course, I'm legally required to say, you know, this goes guys, nothing that I say here should be construed as advice. We may be tax professionals, but we are not your tax professional. Treat this as like an educational piece or an entertainment piece, depending on how you look at it.

We're not giving you what we call, let's say actionable intelligence. We are giving you pointers or giving you key principles that we hope that you will take to your preferred advisor. Again, we are not giving tax advice, nothing that we say here should be encouraging you to pay less than your fair share of taxes in any jurisdiction, to which you may be exposed. And that's how we stay out of jail and stay out of trouble. So, thank you for your patience on that. And let's jump into it. I'm going to talk about these key points. So, since a base taxation, I don't think this is a surprise to anyone, many developed countries, meaning the OACD or the wealthy countries in the world practice citizenship-based taxation. What makes the US different is that the worldwide tax does not cease when you leave. So, for example, if you are a citizen of Portugal or Canada or the UK or whatever, once you leave and you meet certain criteria, you cease to be taxed by the authorities in Portugal, Canada, the UK, whereas with the us, doesn't matter where you go, how long you go for your subject to US taxes on your worldwide income. So, most jurisdictions or practice will wipe taxation. That's not unusual, but that whole inability to break tax residency to, to break ties with your country of origin.

That's what, one of the things that makes the US tax code quite unique. So, no matter how long you stay in Portugal is my point. You will be subject to us taxes, as long as you have your US passport. People ask me, well, you know, I’m living abroad, I'm living in Portugal. I'm living in Spain; I'm living in wherever. How is the US going to know what I'm up to? You know, how are they going to know? Well, I'm not going to tell them, right? So that's where FATCA comes in the financial account compliance act. So, it was passed I think it's 2010 as a writer to president Obama's higher act at hiring incentives through store employment. And what it means is that it was a writer, it was not part of the main piece of legislation. So, there are a lot of unintended consequences, which annoys many of us, and we can deal with that later on. But then more important piece to take away is that it has an empowered the US government to go around the world and signed bilateral agreements with basically every country in the world that's worth sending an agreement with. And so that includes obviously Portugal, but also countries that you would not have expected to sign like China or Russia. So basically, the US has signed this agreement with every jurisdiction you can think of except for your North Korea's, except for Iran, Cuba, but any major economy in the world has signed us a bilateral agreement with the US and what it does. It requires the signatories. So, in this case, Portugal to wave its domestic bank secrecy laws, and then mandate or require the local financial institutions here in Portugal to identify any account holder who they deem to be us exposed. So even if you rock up into your bank and you, you know, many of you are dual citizens, I am as well. So, you don't need to show you us passport. And you think you're pulling a fast one on them, according to the rules, even if you self-identify as another nationality, if they suspect that you are us exposed, they're required to still report you and the factor.

So, this is how the, the US government finds out what you're doing outside of the US in terms of your banking or financial flows. This is FATCA. There's something else called the common reporting standard, but I won't get into that unless there's the questions around it. But FATCA is the way that the US government has created checks and balances so that they know what you're doing outside of the U S for those, for whom it's their first time working outside of the US this is an acronym that I kind of made up, which I hope captures what your basic responsibilities would be, which is to do your best.

So best B stands for bank account. You are required by law to disclose every bank account you have outside of the us and every financial account more broadly. So, if you have a unit trust or some sort of investment account or mutual fund, if you have an insurance policy with a cash surrender value or cash value on it, if you have pensions outside of the us, whatever it is, whatever financial account, and if in doubt, still report it. And this is not new. This dates back to 1917, 1971, the bank secrecy act. This is definitely not new. The thing is it was kind of ignored up until 9/11.

And then we had something called the Patriot act, which put a lot of teeth into that legislation, which meant that if you did not report your accounts outside of the us, you not only subject to civil penalties, but criminal penalties as well, you can go to jail. So, the US government treats us very aggressively. And this is where I say that it's really unconscious intuitive. If we, if you dealing with us domestic tax, it appears as if the emphasis is on revenue collection with international taxes, completely different. The US government, their emphasis is on data collection. They want to know what you're doing. Data's more important than money. And I'm saying that because the penalties for not reporting certain activities, even though there are not tax consequences, they're just not reporting certain accounts or investments or whatever. They are pretty aggressive. And many of them carry civil and criminal penalties. So, bank accounts, please report them estimated taxes. Obviously, when you knew us and you get paid on a W2, it's subject to withholding. So, money's being automatically withheld by your employer and sent to the IRS. When you all say that's not going to happen. So, what you're required to do is calculate what your tax liability to the U S would be annually. And you need to make quarterly payments failure to do that leads down under underpayment penalties, which depending on how much it is, can be quite aggressive.

So again, pay attention to the estimated taxes S state tax issues. So, you have 50 different States, 50 different rules, but most States have domicile States, which mean that if certain, certain actions on taken, you're still, you may, depending on the state, you may still be deemed to be resident in that state, even though you're living in Portugal, which means that you may be subject to state taxes, even though you're not living there, because you didn't take the necessary steps to several tax residency with your given state. And you may think, well, having Portugal who cares, right? But we've had many clients who, when they returned to the us, for whatever reason, they, some point in time, you might want to go back home.

And they are greeted with a really steep tax bill because the state has been waiting for you. So, stay tax issues, pay attention. And we can talk about that later on, if you have questions on that last, but not least transfer taxes. Now, this is one that many people forget, right? And the U S if you give a gift to someone or you're, you know, when unfortunately, when you pass away or a member of your family passes away and their assets above a certain threshold, and the threshold is one fee, it's pretty high, the federal level, but at the state level, it might be relatively low. There are transfer taxes associated with that.

And again, failure to not report a gift, maybe up to 30% of the unreal, the unreported balance that you transfer transferred over to someone. And you, you know, you're living in Portugal. You may have come over single, you get into a relationship with someone, whether it's, you know, personal or professional, and you may want to invest with them. You may transfer whatever money you may receive money from them. Again, it may not be taxable, but it certainly is reportable. So don't forget those gifts and estate taxes. We take a state tax planning pretty seriously. You know, we live in unfortunate times where we have medical concerns and so on, and we deal on a monthly basis with when a us person passes away and they leave a sort of a messy situation for their loved ones to deal with because they, the tax side of it wasn't thought out properly.

So, gift and estate tax planning super important. So, the takeaway is do your best now stimulus payments people have been asking what stimulus payments. Obviously, there were two rounds, one last summer, the second round in December, which most people would have collected in January. And there's one relatively recently as well last month, if it is, you did not receive your stimulus payments last year, you can get, you can get a tax credit when you filing your 2020 returns to speak to your chosen tax professional, just because you didn't receive it.

If you were due to receive it, you still can. You still can benefit. It is not lost to you. If it is that you have questions on it. I'm just going to skip over this. Right? The IRS website is really, I mean, this part of the website is pretty well maintained. So, feel free. You can, you can go in, you can change your address. You can update your, your band details. If you want to put you bound to get credited to your account, whatever you need to do, there are lots of FAQ's frequently asked questions, feel free to check that part of the website for those who have not yet filed the 2020 returns.

Sometimes there's a misunderstanding as to what the filing threshold may be. Now it changes from year to year, but just for 2020, you know, just calling out that if you found married, filing separately, that threshold is actually $5. If you made more than $5, a tax return is do people confuse us with a foreign earned income exclusion, which is like 107 hundred and $8,000 this year. So that's a threshold above, below which your earned income is sheltered from us tax, but it's a distinction, right? Even though you earn less than the foreign earned income exclusion, a tax return is still due. You may not have to pay anything but attached to train and still do.

So, you know, speak to your chosen professional, make sure that if you haven't filed, make sure that you really weren't supposed to file. And if you haven't, it's not too late. The deadline is middle of May. So pretty soon Mo well, many of our clients are higher income earners. And all of the questions we get would be around people, WhatsApp and me emailing me, where's my money. Where's my money. Then part of the price of success, if your income is above a certain threshold, you may not qualify for the stimulus payments. So, if you didn't get it, you know how to look to see whether it's because your income is on the higher side.

So, you've got phased out Biden tax plan. Well, that's obviously a hot topic. It is pretty comprehensive, and it's no way that we're going to get, get into that in any detail. Now, what I would say is that it's structured in a way that targets the higher income earners. So particularly those were the first threshold taxable incomes, over 400,000. And then for those, with incomes, over a million dollars, you will be subject to actually as a tax in terms of higher levels of personal income tax, high levels of capital gains tax.

He's talking about removing the carried interest and we expect as well, they, the lifetime exclusion for gift and estate taxes to come back down. So, from 11 million, which was set under president Trump back down to about 5 million, if there questions on this, we can take a dive into, but at this stage is just speculation. The white house has announced what their intentions are, what, what their wish list is, but of course this needs to go to Congress and there'll be a lot of horse-trading. So, it's useful to wait until the final outcome, but in terms of tax planning, if you're a high-income earner, you should be sitting with you, your tax or your finance professional to take preventative measures to just in case.

And with that, what I will do is I will stop here and hand over to Augusto and we'll come back and we'll deal with everything in Q and A. So please keep your questions type them below, and we get into them after Augusto speak. So, Augusto over to you.

AUGUSTO PAULINO

Hello. Hi everyone. I was just trying to share my presentation as well. Okay. I think now I'm on screen. So, my name is Augusto Paulino. I'm tax advisor here in Portugal at Your Group. Of course, I would like to think the invitations for this webinar, the idea would be to share some of our experience with private clients, namely expects that decide to move to, to this beautiful country. And of course, I will focus on the special tax regime of elbow in Portugal, which is called the Non- Habitual Residents regime.

I think that you should have heard about it. There are two key messages that I want to share with you. Of course, the first one is that the, these regimes, the NHR regime is not automatic. So, there are some requirements to meet and procedures to complete to follow. And the second is that the regime does not entitle you to full exemption for, of taxation. And there are also tax compliance obligations in Portugal, even regarding those sources of income that could be exempt.

And I've just prepared a brief presentation. Now, I think you are seeing the presentation, right? I will skip my introduction. The idea is trying to cover some topics of the NHR regime since the registration in Portugal and the application for the special regime. Also speak a little bit about the annual tax compliance obligation, the tax return in Portugal, and then it covers some of the main features of the regime.

Also, one topic that is related to the benefits that are specifically attributed to what we call the IFL, the wider, the activities that I will also focus on the end of the presentation. So, with respect to the decks fix registration and the NHR application. So, as I said before, this is not automatic. So, there are some conditions that need to be compliant with namely, a person taxpayer that applies for the regime must be considered tax resident in Portugal and cannot be tax resident here in the previous five years. So, this is the main, those are the main conditions and the application for this special status is made until the end of March or for the year following the change of tax residency, Portugal. And the regime is applicable for 10 years, counting from the first year that the taxpayer became resident in Portugal.

So, what about the tax residency requirements? So, in brief terms, a person is considered a tax resident in Portugal when stays in the country for more than 183 days during a 12-month period. So, this is the first or the main criteria. And even in those cases where the person stays less time, but by the end of the such person, as it willing in Portugal in conditions that suggest that the intentions to stay and to keep an occupied as the habitual residence, such person is also considered as techs, resident in Portugal and Portugal as the concept of partial residency.

This means that, and even if a person moves to Portugal, for instance, in November of a given year in Portugal detects year follows the calendar year. In the example that I was mentioning the fact that the person moves to Portugal in November, it could mean that it will be considered tax residents since November, until the end of the year to the end of December.

Okay. With respect to the text residency in Portugal, please note that once you are considered texts residents here, you need to report, do work wild income. So, income from Portuguese and from foreign source and such income, even in some circumstances, exempted needs to be reported in the annual tax return, personal income tax return.

In terms of the main steps for the process of registration. And the NHR application first would be asked for fortunately, is text identification number, and then register as tax resident. And of course, it is important at this stage to clarify that the NHR is a text, wishing it is not an immigration or a matter, it runs in parallel, meaning that the immigration and visa procedures should be followed, eh, in principle previously to do text registration in Portugal and the NHR application, as I mentioned before, in Portugal, the texts period is, is the calendar year.

You should report the worldwide income, but also report foreign bank accounts health. You don't need to report the balances or other assets, just the number of the foreign bank accounts. And of course, there are some, some rules, some specific rules in respect to assets or shares in, in, in blacklisted jurisdictions or low taxation jurisdiction that may attract taxation at the level of the shareholders in part Portugal.

In respect of the main features of the, the NHR regime, I will try to present the main characteristics of the regime and starting what we call we, what we call the passive income from foreign source and the rule in respect of passive investment income, whatever we call it is that it could be exempt in Portugal. If such income would be liable to tax in the country of source of such income. And to confirm the exemption, it's always required to evaluate whether a double tax treaty concluded by part two and the country of residence exists. And if it is the case, eh, the tech session offers specific income, according to such double tax treaty. What I can add at, with respect to passive income is that in most circumstances, deviance interests, rental income from foreign source is exempt from personal and contexts in Portugal under the NHR regime.

If we are talking about capital gains and namely capital gains on securities shares, bonds or other investments, capital gains in principle will not be exempt under the NHR because usually the double tax treaties concluded by Portugal and state that the capital gains will be taxed exclusively in Portugal, in the tech, in the country of residency, which means that in several circumstances kept organs on securities are not exempt capital gains on real estate in principle will get the exemption from taxation in Portugal, under the NHR regime.

Now moving to other types or other sources of income. When we are talking about employment income and self-employment income and starting with employment income, the rule is that in order to benefit from the personal income tax exemption in Portugal, under the NHR such employment income must be subject to actual taxation at source in the country where the income or from where the income derives. And this is the rule for implementing can in respect to self-employment income, if derived from I value added activities and royalties, and we will come, we'll go to evaluate the activities.

And at the end of the presentation, the rule is that the, the exemption applies as long as according to the double tax treaty, the income can be subject to taxation at source, even if for any reason, such country does not impose tax session, according to the internal rules, just another source or type of income, pension income. There was a significant change in the regime in 2020. So, with respect to taxpayers that move to Portugal after March, 2020, the pension income from foreign source starts to be taxed at 10% personally contexts, right? And for such the expires is no longer applicable due exemption, full exemption that existed before changing the law. Of course, for those that move to Portugal before March, 2020, the exemption is still applicable during the 10 years of the NHR regime applicable to such a specific person.

Just for completeness, with respect to income from porch resource, namely employment and or self-employment income, the NHR also forces reduced 20% personally income tax, right? For activities or income arising from liabilities. And the least was updated for 2020 onwards and is by the new list is based on the code, the professional position location, or, or profession poetry specification of professionals.

And it's this one the tricky part is to identify if a specific activity is, is foreseen in this list or not. In terms of summarizing the, the mine ID is the, the NHR regime in Portugal is a favorable tax regime, attractive way that allows to, to accrue wealth in a least friendly tax environment. And there is also another benefit that in Portugal, there are no inheritance or give taxes, except in respect of assets that are located in Portugal and exemption is also applicable in case of inheritance.

And even considering the recent change with respect to pension income, the 10% tax leakage is still attractive. So, it is a very attractive regime, like, like I mentioned, and is applicable for 10 years. So, these or the main ideas that I want to share reviews prior to the discussion of the questions that you might have, and that were already set sent in advance to this session. Well, okay. I will unmute now.  

DERREN JOSEPH:

Now we get to the fun part, right? That's why you're here. So, the Q and A, the first question, sorry, I'm just saying this in the order in which we got it right. So does the NHR consider the distributions from a US LLC as foreign source dividends? For example, I have a pastor LLC abroad and it pays the manager using distributions. Is this exempt from local tax as per the NHR rules. Augusto you want to jump in.

AUGUSTO PAULINO:

Maybe you can start there from, from a US perspective.

DERREN JOSEPH:

Well, okay. So, from a US perspective, it's pretty easy unless you took an election using the, the requisite form format thing is an idiot 32, and you elected for that LLC to be an S Corp or for that LLC, to be treated as a C Corp or whatever the case may be. The default is that it's a pass through. So, it's, doesn't file a return on its own. So, the activity of the LLC is reflected on your personal return. So, it is a pass through if it had been more than one member, because an LLC doesn't have shareholders, LLCs have members. So, there's more than one member. She does a partnership. If it's just one person on their own, it's treated as a sole proprietorship. Now they, this, this is a popular question because this is the first time it's actually come up on this, on this webinar. But I get emails on this all the time. I've even been approached by tax professionals here in Portugal about this. Now there was an, I know that it's been growing around it. There was a certain court case a few years ago in which this matter was taken to the requisite, the appropriate court here in Portugal. And in that particular case, it was held that the distribution from the LLC was treated as a sort of a dividend. And, but in that specific case, now, if you look at the notes of that case, which are in Portuguese, but Google translate cures, all right, in that particular case, the LLC had what we call a substance in the U S the LLC was being run from the US. So, the person who is based in Portugal and is tax resident in Portugal, they were not actively involved in, in the business is being run in the us. So, in that case, yes, it was appropriate for the court to treat it as like a dividend, right. But if it is, and this is a case, would many entrepreneurs or digital nomads or whatever the case, if it is that you are, you are the key decision maker. It is your LLC. And you are based here in Portugal. You're a tax resident in Portugal. Then that's a completely different situation. And the tax authorities here in Portugal reserve the right to tax it in its entirety. Augusto?

Augusto Paulino:

Yes. The, fact that the LLC is a mirror, a pass-through vehicle and, and less description that you might such income will qualify as we call it as a business income and not as a dividend. And in such case, it will not qualify for the exemption that may be applicable in case of dividends.

DERREN JOSEPH:

Yeah, exactly. So, I actually, you know, just as an FYI, another tax professionally in Portugal came to me with this question because he has US clients and I gave him the opinion that we just give to you. And he's like, well, you know, in Portugal, they don't check. Nobody's going to check to see whether it is substance in the U S you know, that that's a risky position. We advocate following the rules. So, we just, just want to put that out there, cause that this position is fairly popular. It's come up more than once. Next question, if I'm a remote worker for a US-based company and the only employee outside of the us, what are the reporting requirements for the company in Portugal? And does that US company have any tax exposure in Portugal? This is the case, this person, he or she is allowed to work remotely anywhere in Europe and they have chosen Portugal, but they just want to be aware of the consequences. Now, before I answer, I know peoples use the word and the term employee quite loosely there in tax law. There's a big distinction between being an employee and an independent contractor. If you're an independent contractor, it's a completely different ball game, but I'm going to assume that you really are an employee as in you get paid on a W2. So, in the purest sense of the word, a us employee, if it is that you are a us employee working in Portugal for a company in the US, well, two things, I think it's pretty clear that the income that you earn in Portugal will be subject to tax in Portugal it's US. But, you know, we know it's a US but that’s in Portugal as well. And if don't worry, you know, give tax twice, once the tax team that you're working with knows how knows how it works, they can leverage the tax treaty to make sure that you are going to be taxed twice. And even with all the tax treaty you get something called foreign tax credit. So, so that much it's clear.

Now, what is not so easily understood is that by you being a full-time employee now, again, in the legal definition, you are an employee of that us company, but you sit here and Portugal that may create a, what we call a taxable presence or permanent establishment for that us company in Portugal. And then the company in the US has certain responsibilities. Augusto. you want to touch on that?

AUGUSTO PAULINO:

Okay. If it, I will stick just to a common situation that such employee does not as, or does not act as a manager of the company, because in such cases, other consequences may arise. But an employee that is performing is, is work on a permanent basis in Portugal. And the employer is a non-resident entity, such employer needs to register in Portugal for payroll purposes to withhold the taxes that are due on the employment income, and also to register for social security contributions that are due in Portugal. So, this is registration, not just for payroll purposes, doesn't mean that the company as having an employee would have all the tax obligations for corporate income tax, but needs to register it for payroll and for social security purposes in Portugal.

DERREN JOSEPH:

Okay. That's great. Moving on to the next question. Can you review the social security requirements for working remotely in Portugal and the prisoners asking, are there creative ways of legally minimizing this exposure and what is required to take advantage of the US Portugal totalization agreement for social security? So, I guess the first part is you as to what are the social security requirements for someone working remotely in Portugal?

AUGUSTO PAULINO:

Okay, again, we need to understand if it's an employee or self-employment and service provider, with respect to a situation where an employment contract is, is the situation is the one that I described before. So, the company needs to resist it. And social security contributions are doing Portugal with respect to self-employment. So, the moment that a person that is tax resident in Portugal starts an activity as a service provider or anything else as an individual in such person needs to what we call opening a business activity in Portugal and such activity. It should be initiated for tax purposes, as well as for social security purposes. And in there is an exemption for, for, for social security contributions during the first year of activity. But from that moment on, after the 12 months period in the self-employed needs to start contributing in Portugal.

DERREN JOSEPH:

Okay. Are there creative ways to legally minimize this exposure? I would imagine it ties back to what you mentioned before the NHR, is they the main tax planning tool available to a foreigner or an ex-pat who is based here in Portugal? Am I correct in saying that?

AUGUSTO PAULINO:

Yes. And, and it depends on the activity performance and such activity would qualify for the so-called evaluation activities but with these, for personal income tax purposes.

DERREN JOSEPH:

Gotcha. And last but not least what is required to take advantage of the totalization agreement? Well, they, they, the tax team that's working on your return would be able to advise in your particular situation. But the point is, once you have registered, as Augusta was explained, and you are paying the social charges equivalent here in Portugal, you're not required to do the same in the US again, this is a scenario in which you are an independent contractor you're self-employed, so you're not required to the same once you have, once you have the ability to demonstrate that you are paying you won't have to pay again to the US so, that's a tough one.

Next question. Are there any specific qualifying requirements for obtaining the NHR? There's a lot of conflicting information online regarding what income qualifies as 0% for self-employed workers versus remote workers, or if any income qualifies as 0%. Can you please explain Augusto? I'm not familiar with 0%? Could you shed some light on that?

AUGUSTO PAULINO:

Well, a 0%, it could be the case in a situation where, for example, employment, income deriving from foreign source that exempt under the NHR. But, but this exemption, as I mentioned in the presentation requires that such employment income is taxed at source, according to the double tax treaty. And, and that, that would be the requirement for not being subject to taxation in Portugal or 0% or whatever. But this is an example of a situation that could, could, could lead to no tax session in Portugal.

DERREN JOSEPH:

And in that scenario, would that employment need to be accepted outside of Portugal.

AUGUSTO PAULINO:

 Okay. Because under the double tax treaties, and of course, we need to check the, the double tax treaty at stake, and it's each specific situation, but the general rule is the double tax treaty would only grant the right of taxation at source if the employment, is performed in that country.

DERREN JOSEPH:

Right. Right. Okay.

AUGUSTO PAULINO:

You are working on a permanent basis from Portugal in principle, what the double tax treaties will tell you is that such income will only be tax in Portugal and therefore not exempt.

DERREN JOSEPH:

Exactly. So, in this 0% that this person, he or she is asking about, there'll be a scenario in which theoretically, perhaps that person jumped on a plane and went somewhere else. They Brendon, whatever service was required. And they were compensated accordingly and they were taxed at source and they jumped on a plane and then they returned to Portugal to continue living. And that's an AR potentially they may enjoy 0% in Portugal, but what otherwise normally there's no 0%.

AUGUSTO PAULINO:

We need to always need to check the specific tax treaty to make sure.

DERREN JOSEPH:

Right. Yeah. The devil is in the detail of these things are quite nuanced and therefore painting with a broad brush. As we see many social media influences do, it could be a bit dangerous. Next question, because you have quite a few fans for the grid info are these rules independent of the visa green card status in the US. So, in the US the parts that I mentioned and the, what we've been discussing so far, it assumes that you are a US person. So just like in Portugal, to some extent, tax law is separate from immigration law. So if you're in the US as a citizen, as a green card holder, or if you have something called substantial presence, you've been in the US was specific period of time, the 183 day rule it's calculated a bit differently from Portugal, but it does exist in the us then yes, that income tax law makes no distinction between someone who's in the US illegally or someone who is a US citizen. I mean, from an income tax perspective, it's all the same green card. E ID’s they are like 130 visa categories in the US quite a lot. Once you trigger a substantial presence, you're all the same.

Next question. It's more of a comment. Please do not assume that everyone is in any NHR. We fail to file for it. So, I think we've got still, his commentary has been pretty wide ranging. You want to say anything, Augusto?

AUGUSTO PAULINO:

The focus was the NHR regime. Of course, all the taxpayers that became Texas resident in Portugal will be subject to the standard rules applicable to all taxpayers that are considered tax resident. And the main rule is that they will be taxed on the overall worldwide income. So, income from Portuguese source, from a foreign source, and generally what the, the debt annual income is sun and texts, according to the progressive tax rates, up to 48% exception to some specific types of thinking that could be subject to a flat rate of 28% namely investment income, interest dividends, capital gains that on securities, for instance, that are subject to 28%.

DERREN JOSEPH:

And kind of flowing from that point as well. Another person is asking if someone has the NHR, but they move away from Portugal. Is there any claim Portugal has on that future income once that person has left Portugal?

AUGUSTO PAULINO:

No, in Portugal, there is no exit tax or similar taxation, meaning that if a taxpayer leaves Portugal for a simple fact of flyfishing does not have any texts or litigations. Of course, if such person as assets in Portugal and in case of a future sale or future capital gain, such a capital gain could be a texting Portugal, but only on assets that are located here in.

DERREN JOSEPH:

Okay. And of course, you know, I'm, I'm just imagining a scenario in which someone leaves Portugal in the middle of the year. So, they may have triggered, they may have been in Portugal for more than one 83 days. Let's say they left in September, October, and they've moved away, returned to the us or whatever. But for that particular year, there would be tax resident in Portugal. So even though they are, you know, freelancing or moving around the world, whatever they are doing, they may, of course, you know, we need to check treaties, whatever, but they may still be trapped within the tax net of Portugal, even though they've left because they have triggered substantial presence equivalent already.

Okay. So next question for retirees is social security considered passive and does not, not taxable by Portugal. And I think so you did cover that they, they, one of the new, or one of the changes to the NHR regime has been the, the imposition of a 10% tax on retirement income, which was previously not there. Do you want to comment further on that?

AUGUSTO PAULINO:

Yeah. I understand correctly, we are talking about income, that it can be considered passive income from social security or, or similar in such case, the rule is that such income is patient income and not passive income in the sense that describing it in presentation that may get exemption.

DERREN JOSEPH:

Yeah. And, and this of course is relatively new for those who would have arrived in Portugal before this, you know, yeah, this is something new, unfortunately, but you won't be double taxed. And I know this is what people ask. And the reason why is because we do have a treaty in place, and we are able to leverage that treaty to make sure that you're not going to be paying tax twice on the same income, but Portugal will tax it. But there's a way of getting the credits back on the U S side, which you can discuss with whoever your chosen team would be a next question. That's a comment. Thank you, Gusto. What is considered pension income by Portugal?

AUGUSTO PAULINO:

Well, I can you send some examples? Examples for a well patient income could be social security payments derived from previous employment. It could be private pension schemes or similar products. It could, it could be, pensions derived from disabilities. There are several sources of income that could be considered this patient income in Portugal. I don't know if this would be enough to reply or if there is any specific nature of income.

DERREN JOSEPH:

I think you've covered it there. You know, essentially someone has worked at an earlier stage of their life and in return for services rendered, either the state, the government or a private situation is providing them with an income stream. And there may be some tax benefits to it that were whether it's deferred tax or tax exemption really depends, but it's a pension. And from Portugal's point of view, unfortunately, new rules, it will be subject to a 10% tax. So, but the button we're smiling for that, but you're not going to be double taxed. So that that's important thing to bear in mind. Next question for self-employed individuals who earn an income here in Portugal or another country, other than the us, is that individuals subject to pay taxes in both Portugal in the us. Yes. Yes. But again, once your team knows what they're doing, chances are, you won't be double taxed. It kind of happened. I'm not going to lie to you under certain circumstances. It can happen. But at least of the, in most scenarios, no, you should not be double-tap where we, more often than not see double tax happening is at the state level. So, you may still be domiciled in the state and you, your tax resident in Portugal or wherever else outside of the U S and at the federal government level, you will get tax credits. They will recognize money paid to the tax authority here in Portugal, on form triple one, six, but at the state level, they don't tend to recognize those foreign taxes paid. And it may be your money may be taxed again, but that, you know, it's, it's in the rare situation. Once you've sat an advisor, you've had proper tax planning done, it would be rare to be taxed twice, but it can't happen. I'm not going to lie.

Okay. Next question. If someone has lived in Portugal for two plus years and has not applied for any char, is it too late? Augusto?

AUGUSTO PAULINO:

Yes. If during such period, a person became tax resident in Portugal, the application would need to be filed in the first year or until the end of March of the year following the one became stacks resident. So, the question is sometimes people can, you can stay in Portugal for some periods and they are not considered as tax resident. So, it could be the case that the period that this person stays in Portugal, or is not sufficient to be considered tax resident here. But if it was not the case, if the person was resisted as tax resident three years ago, it is no longer possible to apply.

DERREN JOSEPH:

Sorry, moving on and this is another popular question. I get at least once a week from Portugal, but every day I get this query, it's about crypto. So, the question is, are personal crypto gains or losses required to be reported in Portugal. And it is a very nuanced answer Augusto?

AUGUSTO PAULINO:

Well, maybe there are new receive a lot of questions in this respect. You have a smart head.

DERREN JOSEPH:

I mean, that's why a lot of people are here. You know, Portugal is a crypto haven, you know, Singapore, Malaysia, certain cantons in Switzerland, but you know, here in the EU, Portugal stands out. So, the government does not tax capital gains on crypto, but that doesn't mean that crypto is 100% tax free and that, and that's where it gets very nuanced, right? So, if you provide a service or if you, you know, you're working independent contract or whatever, and you are paid in crypto, that may be taxable depending on the situation. And for many people who are active traders, and many of my clients are traders, and this is where the distinction between someone who's just doing it on the side. So, it's an investment versus someone who's a trader. I know someone who we have people using algorithms, and they do like tens of thousands of treats per day. That, I mean, I'm just using an extreme example, but if it is that you would deem to be a trader, then you know, you're running a business and you are subject to, you know, the, the, the taxes for treating profits as would anybody else running a business. So, the, the, the point is for, for crypto, we need to understand whether you are an investor, because some people, they, they buy and hold, you know, they, they look at these things very long-term then chances are one extreme. No, you're not subject to tax because there's no capital gains tax in crypto here in Portugal, but I'm going to the other extreme. Now you are a trader you're 100%. There's no, there's no doubt. You are a crypto trader. You may be subject to taxes here in Portugal. So that's where you need to sit with a professional and understand the rules around treating the distinction between trading and investing and to understand which category you fit into. Now, like in most jurisdictions, for us coming from a common law jurisdiction, we know that there's certain rules that the IRS or HMRC in the UK, or in Australia, that they look for Portugal has them as well. So, you, you said, would you put your goal tax advisor and work out what side of the fence you sit on? And then you knew how to do it, and maybe it's worthwhile, even for those of you who are logging in from the U S I know some of you are, and you were thinking, should I move to Portugal? And you are big into crypto. This is something that you need to probably work out in advance of arriving in Portugal as well. So nuanced, next question, Gusto, if okay. If I don't have the NHR, then how would Roth IRAs and Arias and investment accounts, big taxed in Portugal, and they're all being taxed in the US so I think we answered that already, but anyway.

AUGUSTO PAULINO:

Okay. So, as you mentioned before, the tax in Portugal that does not have the NHR will be tax on the worldwide income. And for instance, if income from pension or similar product derives from a foreign source would be subject to taxation in Portugal as the country of residence. So, the, with respect to investment income, the same, it would be the part that could be considered investment income. For instance, in some cases where we have products that the contributions were made by the person itself and not by the employee or whatever, or the remuneration that such person received from such product, it's an investment income. And in such case could be subject to 28% instead of the progressive tax rates up to 48%.

DERREN JOSEPH:

Okay. That's great.

I'm moving down. Is there any other document, in addition to the 1994 tax treaty between the US and Portugal, is that it, if it is that you really want to get into the, the fun, legalese, there's a tactical explanation that was done in 1999? When you go to the IRS website, just do a search for Portugal tax treaty, and it all pops up. So, you have the actual tax treaty itself, and you have a technical explanation that, you know, kind of common tree. And then of course, there's the totalization agreement, which doesn't technically fall under the internal revenue service. It falls into the SSA, a social security administration. So, you can do those, or you mean, those are our main reference documents when we are looking at someone who is exposed in both. So, I hope that helps next question. Are there situations where someone would not want the NHR status? Augusto?

AUGUSTO PAULINO:

Okay. There is not a new reason for not wanting because it, after applying for the status, the taxpayer always has the option to choose being taxed as a common tax resident and not apply for the benefits or the regime of the NHR. So, the advice would be always applied for the regime and in a given or a specific year, if it does not bring benefits in such year file, the tax return as a common tax resident.

DERREN JOSEPH:

So, it's better to have it and not need it than to need it.

AUGUSTO PAULINO:

Because in the future, we cannot go back and ask for the regime.

DERREN JOSEPH:

Exactly. Next question of there's no NHR, and the social security is taxed in the US then what will be taxed in Portugal? I think a Gusto, you, you answered a question similar to that, a few questions up, so it will be subject to normal tax here in, in Portugal, but I'm just jumping in to see that if what you're implying is that, oh my God, am I going to be taxed twice? No, you will not because there's a way of leveraging the treaty to make sure that you're not going to be tasked twice. And it involves using some elections and form triple one, six, which are very nuanced and the IRS has got, so just a fun fact, there has got so annoyed at people getting this wrong, that they they've strangely enough. They have a fine of $1,000. If you make a mess of it, they just got so annoyed. So again, you, you probably want to speak to someone who had that before, just, you know, heads up. All right, next question. As a self-employed person, living in Portugal and working as a contractor for a US company. So, an independent contractor and an NHR is this income tax under the standard Portugal tax rates, the 20% NHR tax rate or exempt as non-Portugal source income Augusto?

AUGUSTO PAULINO:

Well, in principle, it will, in this case, it will depend on the activity because we need to check if it is evaluated the activity and the 20% federal rate in such cases we will apply.

DERREN JOSEPH:

Right? So, it really depends. But the, the third option that the person typed in about exempt, it's probably not going to happen.

AUGUSTO PAULINO:

So exempt, it could be the case.  If under the tax treaty, such income would be taxable at source. And usually what happens is such income will only be subject to taxation at source, if, for any reason, the person as a kind of physical presence establishment in the other country.

DERREN JOSEPH:

Okay. Gotcha. Right. So again, the example where someone jumps on a plane goes over, renders a service, jumps on a plane, and come back.

AUGUSTO PAULINO:

In this case, in this case to be tax in that country, it's not enough to jump in a plane. The person must have a permanent establishment there through which the person develops its activity.

Otherwise, it wouldn't be subject to taxation at source, and we will not get the exemption Portugal under the NHR.

DERREN JOSEPH:

Perfect.  So, in other words, seek advice, talk to a professional who understands the jurisdictions in play. Next question. If I can steal some more of your time, I've got to start, I know we're over the limit, but just two more out there's some others, but sorry, we just deal with two more. Does, can a Portugal tax credit result in a tax refund back to the person who received the credit does a Portugal tax credit results. So, tax refund, so like a refundable, right in the US we have tax credits that just reduce your tax liability. And then we have something called refundable credits, which can result in cash payments out to someone. Maybe that's what's somebody asking about Augusto?

AUGUSTO PAULINO:

I think so. Yeah. But from a US perspective, right?

DERREN JOSEPH:

Portugal tax credit results in a tax refund. So, I guess they're looking at the Portugal land, or can they get a refund from a Portugal tax credit?

AUGUSTO PAULINO:

No, in Portugal certain circumstances give tax credits, but the tax credit is limited to the tax that despite on such specific income. So, there is no circumstances where we can receive a tax credit.

DERREN JOSEPH:

Right. Which is so that that's quite different from the US where we have child tax credits, earned income credits. We have like credits or on a stimulus payment where someone can get cash back, but the tax credit is limited to the tax. Do you want the such specific income?

Understood. Okay. And the last question, it's not a technical question. Will the video be posted so we can refer others to see it? Yes. It will be on Facebook and it will be on YouTube and it it'll be wherever you get your podcasts, you're going to have it on, iTunes on Googleplay, on SoundCloud, probably about 20 podcast platforms. So yes, you can find it with that. Thank you, Augusto. We appreciate you sharing your time, your expertise and your insight, ladies and gentlemen, thank you for joining us. And we will see you next time.

Bye-bye

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