Livestream – US & Portugal Taxes (10th May 2022)

INTRO:

This podcast channel is about, successful entrepreneurs, successful ex-pats, and successful investors. Sponsored by HTJ.tax.

DERREN JOSEPH:

Thank you for joining us. We HTJ.tax and we do these live streams every week. We are actually doing three this week. So we love to talk to people and hear their concerns and perhaps point them in the right direction. Patricia, do you want to say a few words?

PATRICIA CASABURI:

Hi, there I'm Patricia from global city solutions. We are a consultancy firm on the city, Japan investment scenarios that will help lots of international clients with their immigration processes or just buying property or investing abroad, Portugal, being a big market. We have this life came about. I follow they're in abusive, very closely, and find very helpful, a lot of their services and lives. And it kind of helps gear people in the right direction when you're navigating this kind of tax scenario. So we thought it would be a good opportunity to extend that to some of our clients or people considering or already kind of living away. So thanks, for everyone joining, and hopefully, you find it as useful as we think.

DERREN JOSEPH:

Fantastic. Thank you, Patricia. And thanks for giving us the opportunity to speak to your audience. So, as I said, we actually did our tax and we do these live streams every week. We help people with international tax issues in general, US Portugal in particular, as well as multiple jurisdictions. So we have clients that are US Portugal, Spain, and France because they have acted in several jurisdictions. We're happy to help now in terms of some, some, just, just a few pointers, this is being reported. So if it is that you do not want your image to be displayed on the recording that we're making feel free to switch your camera off. You should be okay, so I will meet pluses. Okay. So everyone is muted. When you enter, please don't unmute, unless you want to ask a question, questions, and answers at the end. So please just keep it muted while the, at least the beginning part. So this is going to be divided into two parts and beginning Augusta is gonna talk us through some of the technical points in terms of Portugal's Taxes. And that immediately, I know you guys have questions because we got your emails. If you sent an email and yes, we did get it and we will answer them in the order in which they will receive for those who could not make it. I know some of you have friends or colleagues who could make it, this is being recorded and it will be available after the session. We put it up on YouTube and SoundCloud and Spotify and iTunes, and wherever you get your favorite podcasts, this would probably be available. So as we are licensed tax professionals, we have to say that this should not be construed as advice. If it, as you walked in here, thinking, Hey, at the end of this, I'm going to be able to take pen and paper and do my own tax returns. Sorry to disappoint. What we, what we're going to do is highlight key principles that you need to keep in mind. And you need to bring it up with your advisor who will know your situation inside out. So again, we're just going to highlight key issues. This is not meant to be advice. You can take it as educational and for some of you, you can take it as entertainment, but this is not advice. You know, we need to stay out of trouble without licensing and governing bullets. So without further ado, I turn you over to the hands of the Portugal Taxes expert, Augusto Paulino. The stage is yours.

AUGUSTO PAULINO:

Hello everyone. Thanks. Thanks for joining. Thanks, Patricia and Derren for the invitation. Yeah, maybe I can slip tradition off myself. I'm a tax advisor here in Portugal and, we work with both private and corporate clients and then among our clients or private clients, we have several individuals that decide, to move to Portugal or at least are considering moving to Portugal. And the idea is that I provide just a brief, a brief introduction of the tax regime in Portugal, namely with respect to the non-habitual residence regime, which is a favorable tax regime for individuals that are considered to move to Portugal and investing in Portugal. And maybe I can start with that brief presentation and then we move to the Q and A as Derren, as there suggested in the beginning. So maybe I can share my screen. The presentation is confirmed if you are able, to see it. I don't know. Right. Okay. So I'll try to brief terms of the presentation, not taking too long and oriented in too much detail, but anyway, just I'll try to cover these topics. So talk about tax registration, and none of it, all residents application, the main tax obligations for, for individuals in Portugal, which, which is the personal income tax and we'll return. I'll try to summarize the main features of this regime and, and, and try to summarize the benefits, self situation. So in terms of the tax registration and the first remark that I would like, to address is the fact that we usually think of Portugal as a place where people can decide to leave, but also it could be the case that only invests and not be contexts resident in Portugal. So I will only address the cases where individuals move to Portugal and intend to spend most of their time here and then became tax residents. Because when we talk about the energy regime is a regime applicable to tax residents in Portugal. And this is the first message that I would like, to be so people can have, for example, residence permits, or a visit and not become tax residents in Portugal. So these NHR are regime as some conditions, mainly the main condition would be, of course, to be the first time, or at least was not resisted as tax resident in the previous five years in Portugal. So this is one condition. And the other one that I already mentioned, Tax residency in Portugal and not, and the application for the NHR regime is made until the end of March of the year following the one that the change of the tax residency occurs. And it is, it is a regime that is applicable for 10 years. So this is in terms of the conditions, to be context resident and be considered tax resident in Portugal. The first criteria would be more than when a T2 12-month view one of the situations where individuals become tax resident, but individuals can also consider text residents in Portugal, even in case they spend less than 83 days, but a property it willing in Portugal in conditions that suggest the intention to, to maintain an occupied such property as a B12 residence, in terms of the tax registration procedures in brief terms, once you individual become tax resident in Portugal, you need to report here the worldwide income. So income from Portuguese and foreign sources and the main steps, our first step would be to apply the Portuguese by, for Portuguese to expire number, which is something that usually occurs. The moment that individual starts, the process of getting, for example, a visa or residency permit, then the moment that he moves to Portugal on a permanent basis to register as a tax resident applied for the EnerGov status. And then from that moment on, on an annual basis to file the personal income tax return, the tax period in Portugal is the calendar here. As I mentioned, individuals need to re-report worldwide another important aspect is that they need to read point bank accounts. So the obligation is to report just the number of the bank accounts, not report to balance our assets, just to try to cover some of the main features of the EnerGov regime with respect to passive income, what we call passive income from foreign sources. There is an exemption available, namely in those cases where the income can be subject to taxation at source under the double tax treaties concluded by Portugal. For example, in the case of interest or dividends these are usually sources of income that are taxable at source, and then exempt from personal income tax in Portugal under any charging, the same applies, for example, to rent from properties held abroad. Of course, there are some exceptions. And then to give one example of a foreign source income that is subject to tax session and not exempt under the NHR regime would be the case of capital gains derived from the sale of securities in general terms. And also do not benefit from the exemption income source in what we call blacklisted jurisdictions, Portugal has a long list of jurisdictions that are considered blacklisted, and we should pay attention. And if I'm awaiting the tech session in case of any income derived from those, those jurisdictions, with respect to all other sources of income, in this case, employment income, more self-employment income exemptions under the NHR regime are also available well, but in this case, or the, the requirement is to be effective. The tax at source so effective taxation is required to grant exemption with respect to self-employment income. The exemption could also apply, but only in the case of income derived from the so-called high-value-added activities, there is a list of activities that are considered, value-added for this purpose and only self-employment activities. And B eh, exempt when one comment with respect to pension income from a foreign source, which is currently subject to taxation at the flat rate of 10% in the past, there was also full exemption from, for patient income from a foreign source is no longer the case. And with respect to income from Portuguese source, also let you know that also there are also some benefits, namely, a cent flat rate applicable to salaries or self-employment income. Again, if such income derives from value-added activities, this is the list of five fellow and the activities I will not enter into much determined it is. So in, in trying to summarize, this NHR regime is a favorable tax regime. Portugal is a white-list tax environment. So we get benefits from double tax treaties. And so on. We also have some benefits with respect, with respect to the sale of assets. In some circumstances, for example, we will state assets could be exempt from taxation capital games. There could be also advantages in terms of inheritance or gift taxes because we can get exemptions in Portugal. If the assets are not located here, or if the assets are inherited by descendants, then it's still a good tax environment with respect to the retirement income, because if applicable, still competitive. So these are more or less, the main features that I would like to present. And I don't know if there can or want, to have some additional comments in this respect.

DERREN JOSEPH:

Right. Fantastic. Thank you very much for that comprehensive move, Augusto. So again, for those who just joined us, please feel free to type your questions down below. If you did email your questions, we have them and we'll get to them in the order in which we receive them. If you are watching this on one of the other platforms like Facebook, again, you can just type in the box below and we will get to them in the order in which they receive. Right. So, all right, let's look at our first question. Hello. I have received conflicting advice about whether US citizens living in Portugal, entering the NHR need to pay the 10% tax in Portugal on these social security benefits. Could you address this? And this is from Charlotte. So social security payments from the US government Augusto, how would those be treat from a Portugal Taxes perspective?

AUGUSTO PAULINO:

Okay. So the question is how much income would be dealt with under the double tax treaty between Portugal and us, because social security benefits driving from public service, for example, would be taxed exclusively in us under the double tax treaty. And so this would mean that such income, even if received by a tax resident in Portugal, where should be taxed in the US army, and then not subject to tax session in Portugal, not because of the NHR regime, but because of the whole tax treaty rules.

DERREN JOSEPH:

No, I mean, it is short and sweet. That is exactly what it is, but then, you know, Charlotte, we understand because a lot of this is brand new for quite a few tax practitioners, right. And understanding the nuances of the treaty and so-and-so can be a source of some misunderstanding, but for us that this is unambiguous, it's taxing the new west again, you know how it is in the US well, the ones above a certain threshold, would it be taxing the US in the first place? It should not be taxable to Portugal. So hope that helps. Oh, she has the questionnaire as a follow-up question. What is considered public service?

AUGUSTO PAULINO:

Oh, okay. I think the double tax treaty also as a definition with is, is services provided to the government and other public institutions. I do not recall exactly the terms, but something like this, the government public services and public institutions, we can, Maybe we can confirm that after.

DERREN JOSEPH:

Yeah, exactly. So in, in fact, you know, in the, in the, in the tax treaty itself, it is, it is clearly spelled out as social security itself. So w you know, if, when it is challenged, when you consult with your tax team, you guys can have a deeper dive into it, but social security is named as social security itself in the, in the treaty. And then the treatment of social security is clearly defined. So yeah, hope that helps to move on if that's okay. How is capital I've got, so I know you touched on bees and some of your slides, but, you know, just for clarity? So someone is asking how is capital gains tax? I know it depends, right? Whether it's capital gains, it could be from securities income, which should be treated in a certain way. It can be from real estate. You know, so it is a wide kind of question in that,

AUGUSTO PAULINO:

Yes, we need to confirm the nature of the capital gain, but to give two examples, we can consider capital gains on the sale of real estate. For example, the rule would be that those capital gains would be taxed in the country where the property is located and therefore exempt from taxation in Portugal. These would be the most common situation under the double tax treaties concluded by Portugal. So taxation at source exemption under the NHR regime in Portugal with respect to securities, it's the opposite because usually, the double tax treaties allow the tech session at the country of residence, which in this case would be Portugal. And then, and is granted under the NHR regime. There are some exceptions to this rule. Four, I can recall, for example, Brazil or the double tax treaty concluded between Portugal and Brazil is an exception, but the most common situation would be that the capital gains on the sale of securities would be subject to taxation, Portugal under the NHR regime.

DERREN JOSEPH:

Thank you very much for that. And so generally speaking, and so this is one thing that we want to get clear. I know that the NHR is very nuanced. It's not as simple as like the backroom law next door in Spain, the flat tax in Italy, Reza non-dominant to the, or the, in Ireland and the UK where it's, it's really domestic income tax, foreign income, not a tax. So with NHR, it's quite nuanced, just some things that aren't, and they're varying rates. One of, the big shocks that we see that our clients, one thing I recommend is not just that you get advice. And this is something that you can do not necessarily with the US, but whoever you prefer a tax team is run a model, let them map drive your planning decision. So we help clients run models where we say, okay, you may not have moved to Portugal yet, but if you were to move, that'll be what your return looks like. And this is what your Portugal return would look like. And then when you, if you see something that it's kind of old school, you can deal with it, then fine, give it a thumbs up, let it right. Otherwise, we can look at it as the, we can look for planning opportunities. So one of the big stickers shocks that US prisons get when they move to Portugal. I mean, this is the most common one would be securities income. You know, they have their investments, they have, you know, ETFs, they have whatever funds that they have, you know, stashed away. And then suddenly they realized my goodness, this is subject to such a high tax rate in Portugal. It's a lot of sticker shock. Again, sit with an advisor, and understand hub and math works. And there are planning opportunities around that, but generally speaking capital gains, tax-free outside of what your goal is, as Augusto mentioned, but securities income and for the type of clients that we deal with, that's a major part of their wealth portfolio. So this is something that requires attention before you jump in. I hope that helps. Okay. Moving down the list. Okay. So this is a different one. If someone wants to set up a business and, you know when they're asking, what is the average salary in Portugal? I mean, that's really why you ready, depends on exactly what you want the person to do, but maybe what's the minimum wage. Maybe that's kind of helpful as a guide. What's, what's a minimum wage, Augusto?

AUGUSTO PAULINO:

It's near eight hundred Euros.

DERREN JOSEPH:

Okay. So yeah. So whoever asked me using 800 euros as if it is that you kind of instill in the planning stages of whether you want to set up, that's kind of like the ballpark as to what a minimum wage would be. Obviously, it needs to be higher to attract talent depending on what you're trying to do, but that's hopefully a useful guide. Yeah. Okay. The list of professions. So someone is asking above the list of professions of Gusto did have a slide on that. So the list of high value-added activities changes over time. You know, the government reserves the right to tweak it. So Augusta had the most recent one. If this was being recorded, you can just play over the recording you can hit pause, and you can see the list. Now having said that it is sometimes not very clear as to exactly what the job description would be. So I would recommend, you know, you sit with an Augusto, you sit with whoever you prefer it, Portugal tax advisor would be to, you know, to make sure that your profession has a chance of being qualified into one of those boxes. Otherwise, you may need to, again, do some planning around that. Okay. Someone is asking re the self-employment author, author, okay. The author write writes here is listed as high value. If I write some book in Portugal and sell it in the US with the US income, be exempt in Portugal. So I guess if it is that you're selling if assuming you're going to sell it on Amazon, then Amazon will pay you royalties. So I guess that's the question would royalty income from the US be taxed attached to them coming into Portugal?

AUGUSTO PAULINO:

Under the NHR regime, in case of royalties are exempt.

DERREN JOSEPH:

Right? So there you go. So right away, you just write as many books as you want. What you do is not going to tax it as long as you are protected by the NHR. Okay. Okay. Yes. Someone is commenting on blast. Okay. Right? Yeah. Okay. Moving down, gift taxes. So in the US, there are taxes on gifts, depending on the threshold, depending on, from whom, and to whom and just taxes or transfer taxes in the US are levied potentially on the person giving the gift Augusto, gift taxes, and Portugal.

AUGUSTO PAULINO:

There are, but only with respect to assets located herein.

DERREN JOSEPH:

Okay. So that's interesting. So in terms of less so on put assets outside of Portugal, no gift tax, no problem. Once you enter the NHR, but if it's Portugal sites as assets, just very roughly, how does the gift regime work here in Portugal?

AUGUSTO PAULINO:

We have a rate of 10% and cars in general terms.

DERREN JOSEPH:

Okay. So 10%. And as the tax levied.

AUGUSTO PAULINO:

There are exemptions, right. There are exemptions for the US, for instance, in the case of the sentence, children.

DERREN JOSEPH:

Kids, and stuff like that. So it depends on the relationship between the person giving and the person receiving. Right. So, but generally speaking, I'm looking at 10%. Okay. That's good to know. Okay. Someone's coming in. If it's not too late, I would like to submit these two questions for discussion. Okay. Number one, how does the new S and Portugal tax treaty work, if all of your income pension, social security interests, and distributions from a retirement fund are US-based and you have no income and Portugal. If you reside in Portugal, do you pee in US taxes first, then claim a credit on your Portugal Taxes. So this is something I'll just, you know, give a perspective here. We've got, so this is something that we deal with all the time, right? So generally speaking, even if you reside in Portugal, we would suggest that you know, you speak to Augusto, whoever it is, you are advising you from a Portugal Taxes perspective. You speak to that person and get them to prepare their returns first, because the way it works, even though it's all us source income, we would need to, the person who's doing us return, whether it's us or whoever you prefer, they would need to trigger some special elections on the form. 1116 to make sure that you're not double taxed because otherwise, you will be, there's a risk of being taxed twice, and nobody wants to be a double chance, right? So you reduce the risk of being double-tax and making sure if you Portugal tax resident, get your Portugal stuff done first. And then we take, we make special elections and your us tax return. And basically, we do something technical called resourcing your income. So even though everything you mentioned is a US source, we would treat that and base an election to treat it as if it were a foreign source. I know it sounds counter-intuitive, but that's the way the tax law works. And therefore we'll get to credit against you in US liability for taxes paid in Portugal. So that's, that's how we avoid trouble, that the double tax in that situation. But unfortunately, depending on what your situation is, cause I don't know your situation, right? You, if it is a new still subject to tax at the state level in the US, unfortunately, double tax patient is indeed a risk. Whereas the F because the federal government may give you a credit for taxes paid to Portugal and therefore reducing US liability at the federal level. Usually, states do not recognize foreign tax credits. So without proper planning, you may be hit with double tats at the state level. So, you know, again, seek advice if possible. We normally advise our clients to be very careful in terms of tax planning around states. So if it is you, especially if you want to be high tax states like in New York or California, whatever, we recommend that you several, your tax domicile with your state, if it is one of the taxing states and re-establish domiciles in one of the seven or eight states, without an income tax popular ones, being the Vada, Florida, Texas, you know, Wyoming, Alaska, whatever. So pick one of those states and we can coach you through that establishing Donna sow so that you can manage your state taxes because you would imagine that once you leave the state and you don't reside in New York or California for a number of years, that that's it, you should have cut tax ties, but unfortunately that's not how the mole works. So you need to take special, deliberate, and thoughtful action to, manage your state tax domicile. But at the federal level, once you tack team knows what they're doing and they coordinate, you should be able to avoid most instances of double tax at the federal level. I hope that answers your first question Silas, in terms of your second question. Okay. So his second question is about distributions from a traditional IRA into a Roth tax in Portugal. I was told by the finances that in Portugal distributions from retirement accounts are not taxed because the money used for them was post-tax. Okay. Traditional interrupt. Okay. So just, just to kind of clarify Tims. So in terms of retirement funds, generally speaking, we have a rough, which you invest with after-tax money. So correct that money has already been taxed and you put it into retirement, but, or you can just have a traditional IRA, which is pre-tax money. So the money has not been taxed and we put it into the retirement fund. Now, when you pull it out of the records of time with the required, the RMD required minimum distributions, the will be if it was not taxed. So if it was traditional, it will be taxed on the way out by the US and if it was after-tax like a Roth it's, you should be able to pull it out. Tax-free now in Augusto his deck in his presentation, he did mention that 10% tax on pensions. That's relatively new because it didn't exist like a couple of years ago, but it relative it's relatively new. It's 10%. However, there, there is an opportunity to is planning. There's a planning opportunity if it is. So for example, you, you have, you have a Roth, right? If it is that you can do, you keep great records and you can bifurcate the income and you can demonstrate how much of it was the original principal that you invested and how much of it is a return on that investment? Well, a yield, the return on that investment, then the return would be taxable 10% by Portugal, but the original amount that is after-tax income that you put in should not be taxable. But of course, this is a function of your record keeping. And some people find this quite difficult, but if you can do that, that's a huge win in terms of a tax planning opportunity, Augusto, when thoughts on that?

AUGUSTO PAULINO:

No. And that's exactly, what you mentioned. So the challenge would be to split between income and capital. Let's say contributed only, only the income component would be subject to tax session.

DERREN JOSEPH:

Okay. That's great. Okay. Thank you. I'm just going to check on some of the other platforms to see if anyone is asking questions on Facebook or anything like that. Oh yes, there are. Okay. Sorry. I'm looking at you guys on Facebook now. Sorry. I've been ignoring you. Sorry. I am okay. So this one is related to France and not related to Portugal. So I'm sorry, Maddie. I'll skip that for now, but we are going to do France later this week. So if you have a look at HTJ.tax and we'd be talking about French tax issues, the next stream, sorry, not this one. I'm sorry. Next questions. Steven is asking just to clarify, resourceful security benefits. Most Americans pay into and then receive social security, whether private or public jobs. Therefore, if someone contributed to social security appeal and private employment, blah, blah, blah, blah. Okay. Right. So again, this has nothing as Augusto mentioned. This is not really a function of any child, but if the tax treaty, the tax-free itself treats with social security and there's a special carve-out for social security in the tax treaty, like the best dimension. So if it is the income that you're receiving is social security, as Augusta mentioned, it will. So to your point, to your point, Steven, whether it is that you were working in the private or the public sector, the point is that's government social security, and it would be shielded from tax and Portugal. Bye-bye. The tax really, as Augusta mentioned. Okay. But thanks for asking it's good that you ask for clarification because it's good to get this stuff cleared up. Thank you. Next one, Sergei. How, okay. Puts you at ease and incorporated US, citizens, working remotely for the US client's attacks into the NHR. My profession is on the list of high value-added. So I don't have a surrogate. So I'll read the surrogate's question and I'll just comment on it. So surveys asking how a Portuguese incorporated us citizens working remotely from us clients tax under the NHR. My profession is on the list of high value. Okay. Somebody okay. Somebody just moved. Okay. My profession is on the list of high value-added. Do I just pay 20% flat or 20% plus additional taxes, plus it's such as social security, et cetera. So, sorry, I don't understand what you mean by Portuguese incorporated US citizens. So I'm just going to assume that you are a US person you're working or theoretically, maybe working in Portugal and it's so happened. Luckily that, whatever your profession is on that list of high value-added, right? So your clients, you working as I'm assuming as well, that you're going to be working as a freelancer. So you are not, I'm assuming that you are not an employee, but you're going to be a freelancer. So you're, you are here in Portugal. So the question is an Augusto freelancer, American Portugal. Isn't just 20%. If his profession is on the list, was it 20% plus something else?

AUGUSTO PAULINO:

Well, unfortunately, I need to say that it's more something else because we have social security contributions in Portugal as well for self-employed workers. So from the moment that the activity is performed, mainly in Portugal, physically, then the self employers are also subject to social security contributions and the NH regime. It's a regime that benefits for personal income tax purposes only. So the general rules with respect to social security will apply meaning that the self-employed will live one year of exemption. But after that initial period of exemption, social security contributions will be due.

DERREN JOSEPH:

Okay. And it's how much is it? Is it

AUGUSTO PAULINO:

21, 21 0.4%?

DERREN JOSEPH:
21.4,

AUGUSTO PAULINO:

As of self-employed in general terms. Yeah.

DERREN JOSEPH:

All right. So Sergey, sorry about that. So you, but the good news, I mean, okay. So they give you some good news. He's saying that your first year will be free of social security, but after that first year, it kicks in, as you know, in the US and the US has 15.3. So just a little bit more 21.4, but you know it's unavoidable, unfortunately. Okay. Hope that answers your question. Next one. Okay. I was wondering where are crypto guys? Okay. We have, we have a first quick crypto question because how could you do a live stream on Portugal without talking about crypto? Come on, right. Okay. So Samir is asking, I hope you're doing well. I have a question. Does Portugal tax capital gains or personal income for holding crypto digital assets? That's the first one. And then his second question is can one whole crypto as an asset on the balance sheet with a Portugal company. So let's deal with the first question first. Right? So Augusto, so Samir is asking this Portugal task capital gains. That's one all personal income on crypto digital assets.

AUGUSTO PAULINO:

Well, I believe that the answer is all over the internet. Well, at least for now, there is no rule for taxation, unless, those capital gains are derived from business activity. So if the main source of income and the number of transactions, it's basically the main activity of the individual in such case can be seen as business profits.

DERREN JOSEPH:

Okay. So I, again, I'm glad that Samir is asking, because again, there's this, as you say, all over the internet, there's this perception crypto is completely tax-free in Portugal, but it is not completely tax-free as always, there are some little nuances. So Augusto said, capital gains as an investor are tax-free. But if it is that you are deriving income, it's somehow your source of business. And this is very, very nuanced. You're going to want to sit down with a Gusto, whoever you preferred Portugal tax advisor just to get the nuance, because when it comes to crypto, there are many ways of earning an income, as you know, right? So you'd want to sit with Augusta or whoever you prefer. A tax advisor is and goes through, have a crypto portfolio, and this is what I'm going to be doing with it, for him or her to, to help you understand if they are any tax implications, what the taxes would be with, generally speaking, we can say the capital gains for investors will be tax-free. I'm going to move on to the second part question. If you hold crypto as an asset on the balance sheet with a Portugal company, what are the implications of that? Augusto?

AUGUSTO PAULINO:

Okay. So, any gain there is from crypto trading or any transaction with crypto assets would be part of the taxable profits of the company. The main challenge would be to determine the amount of the gain to reflect, in the accounting records, but that's another discussion, but any gain would be part of the taxable income of the company.

DERREN JOSEPH:

Hmm. Be taxable, Portugal, corporate tax rates, which are roughly how much?

AUGUSTO PAULINO:

21% plus 1.5% of when you're supposed to surcharge.

DERREN JOSEPH:

Okay. So, which is pretty reasonable, generally speaking, because, for a USC court, you're looking at 21%. So it's in line with what you would experience in the US so it's same, same, but again, Samira, if you have a portfolio, best advice, get, get you, you know, get you the details of your investments and, you know, your asset portfolio together and sit with what you go to a qualified tax advisor of your choice and, and walk through it just to make sure that you, you heading in the right direction. You need to get advice. Okay. Moving on. So this is Ashley from any other questions. So Patricia asked, you know, we were chatting, we have like a quick conversation before we went live. And she mentioned that one or two of you were asking about something called a PFIC or PFIC. So this unfortunately is something that we do every day. And what is a PFIC that stands for a passive foreign investment company? What does that mean? So under U S cast rules, international tax rules, there are what we call, there's a classification of rules that we call anti-deferral rules and what it seeks to do. It seeks to prevent anyone from using us person from using auto investments. So investments outside of the US basically get an advantage over a similar investment within the U S so, right. So to create a level playing field. So the first big one, I think was in the 1960s when you had Subpart F rules, and then the next big one came in 1986 under president Regan, which will be a whole range of tax reform, which includes the PFIC rules that you mentioned. And the most recent one is the end of 2017 on the president Trump task and a jobs app. So what, what is the piece that rule? So what is a P in the first place? Right? So essentially it's a non-US mutual fund. It's defined in a lot of detail in section 1297, but basically, it's. And when you set up a structure outside of the US and you can trigger PFIT status in one of two ways, I know when more than seventy-five percent or more of your gross income is classified as passive. So 75% of them, or more of the income derived from whatever this structure is, is in the form of interest dividends, capital gains, et cetera, right? So passive, so unearned income, passive income, 75% or more that's the first way. And then the second way is if 50 or more, 50% or more of the assets in the structure are held for the production of that passive income. So there's a 75% rule in 50% of them. So essentially to cut to the chase when you apply for the golden visa, for those who are inclined to think of the golden visa route, which is, which is a huge advantage to that. And, you know, because you can have the benefit of the privilege to spend an extended period of time in Portugal without potentially triggering tax residency in Portugal. So you don't need to worry about any charts. You don't need to worry about anything if you plan it correctly with your golden visa, right. So a huge one. Now, unfortunately, some of the funds do trigger PFIC status. Some of the golden visa investment funds do trigger PFIC. David, what does that mean? I mean, one of the implications of that, we just know it's a bad thing, right? So what it means is that if you're a taxes on being done properly, from a US perspective, there are some really nasty throwback rules that would kick in. And as a result, you'll be taxed at the highest marginal tax rate, which is I think 37%. So that's a pretty high tax rate. And this is not just an income that is realized it could be chats and unrealized gains within that fund. So basically being taxed on Phantom income that you have not constructively received, you're going to be paying taxes on it at a really high at the highest marginal tax rate, which is 37. That is not a good thing, obviously. So you'd want to sit with you prefer a tax advisor. They're all, there are tools you can use. You can defer you can, we have clients that have made an election. You need to declare to there, there's no hiding from this. The more you try to hide stuff like this from the IRS, the worse the counties become if you'd come pretty draconian. And if you don't declare them on other forms like you, you know, the laws and stuff, it could be, it could even be criminal penalties, not just civil, the criminal as well. So you want to be very, very careful. You're going to get proper advice on this. So you can make an election to defer payments until there's a liquidity event at the end of the holding period, you can, or you can do what we call a two-year election under one of, the code sections. Basically, you can elect to treat it as a queue up, which means a qualified elect fund, qualified electric fund, the key. So as a result of that, every year, a statement needs to be produced, and again, we work with funds in various places in the world. I don't want to name any because I'm not recommending anyone, but we do work with funds to prepare curious statements for the US expose investors. And with that statement, your us tax advisor would need to have that statement. And they'll fill in something called a form 86, 21, and it will avoid, it's not, you're going to pay no tax, but you can avoid the nasty throwback rules by making a yearly report, annual reports with your tax returns of the movements in the fund. So if there's growth in the fund, unfortunately, you know, that needs to be declared taxes paid. But to some extent, if, the investment declines in value in one of the funds, you can claim some of what we call unrevised inclusions. It gets really technical. But the point is the takeaway that I want you, to have from this is that if it's a PFIC it's not the end of the world, that's the first thing, stop panicking, because we know people do panic. And the second thing is to get advice immediately because the throwback rules on no joke, they really aggressively get advice, and clean up any of the past issues that need to be cleaned up and on a go-forward basis. There are certain elections you can make for less aggressive tax treatment. So those are your three takeaways. Don't panic. Look back, look forward. Hope that helps. All right. Any other questions? I'm going to have a quick look on Facebook to see how the Facebook people are doing with any questions. Nope. Things like we're good. All right. And there's none here in zoom. So I think we have an audience that is clean and all the incidents satisfied, but we have not necessarily addressed the concern, but pointed them in the right direction where they can get qualified advice to do things in the right way, Patricia any more comments?

PATRICIA CASABURI:

Thank you so much for clarifying. Kind of the more frequently asked questions we've got your contact client can reach out to us and we'll redirect to, and it's very useful to find someone that can advise on kind of both ends. A lot of people have really good accountants in the US but they don't necessarily, they're not familiar with Portugal and vice versa. So I think you guys are doing a very stellar job to kind of supporting the ex-pat community here. So thanks very much.

DERREN JOSEPH:

Okay. My pleasure. So again, my name is Derren Joseph, and I'm here with Augusto Paulino. If you have any questions at all, please feel free to reach out to us. Have a good evening and morning day, depending on what time zone you're in, and we'll see you next time. Bye-bye

OUTRO:

Here are four ways. We can help you.

1. Sign up for a few webinars US expert, taxes, and international entrepreneur tax at www.HTJ.tax
2. Stream premium educational videos at www.htj.tax
3. Contact us for tax optimization, consult offer zoom
4. High net worth. We can quote for doing your US international Texas returns.

Our books and upcoming event are available at HTJ.tax. Please subscribe like share and comment below or email us at help@htj.tax to engage us for advice on international tax or business matters.

Related Posts