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Financial Planning Tips for Portugal

By

Alex Ingrim, MCSI

Posted

November 23, 2022

at

08:40 AM

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Portugal has a lot to offer American expats and retirees, including favorable tax regimes, great weather, a low cost of living, and relatively easy immigration pathways. In order to best take advantage of all that Portugal has to offer, including the NHR tax regime, expats and retirees should build a financial plan around their move. Here are a few tips to help Americans thinking about moving to Portugal:

What is the NHR (Non Habitual Resident) Tax Regime?

Overall, the NHR regime has significant benefits for retirees and some workers, including a 10% tax rate on all pension income. This includes US Social Security and 401k and IRA distributions.

Do I need to pay US taxes under the NHR Tax Regime?

As an American, your tax liabilities do not end with paying Portuguese taxes under NHR. If your US tax liability exceeds your Portuguese tax liability, you may owe US taxes, as well.

How long is the NHR regime? Is it indefinite?

NHR only lasts for 10 years. After 10 years, you revert to Portuguese income tax rates which quickly scale up to 48%.

💡 If you are currently working, it is best to contact a tax advisor ahead of your move to determine your tax liabilities in Portugal and the best tax strategy and structuring

ruas-mais-bonitas-de-lisboa-1.webp Rua da Bica. Lisbon is the most populous city in Portugal and also one of the oldest in Europe. Known for being vibrant and charismatic, the capital is full of life and animation, and just a few minutes walk through its streets to be able to absorb its contagious energy.

Considerations for Investments and Structuring Accounts in Portugal

Is there any benefit to moving my US qualified accounts (i.e. 401k, IRA) into a European or Portuguese Structure?

It’s a frequently asked question – there is no benefit to moving your US qualified accounts (401k, IRA) into a European or Portuguese structure. There is no US compliant equivalent, and ‘moving’ these accounts is just a distribution taxed at income tax rates (and possibly penalized).

Does Portugal recognize Roth IRAs?

Portugal does not recognize Roth IRAs, and the tax benefits of a Roth are not relevant in the Portuguese system.

Does investing through a Portuguese company have any tax benefits?

While investing via Portuguese company structures may be tax efficient in Portugal, it could create unforeseen tax problems in the US.

Can I invest in local Portuguese mutual funds or ETFs? Are these US tax compliant?

Investing in local Portuguese mutual funds or ETFs will not be US tax compliant. These are considered Passive Foreign Investment Companies (PFICs) in the US and are not tax efficient.

Paying Taxes in Portugal as a U.S. Citizen

The interaction between the US tax regime and the Portuguese tax code is complex and often requires specialist planning. With the right financial plan, you can live financially secure in Portugal even after the initial 10-year NHR period. Although Americans do not get the full tax advantage of NHR, there are plenty of financial planning opportunities available with the right advice and structures. Feel free to get in touch for a free initial consultation.

Alex Ingrim is a financial advisor specialized in helping American expats plan their financial future while living in Europe. He help clients with financial planning, tax optimization strategies, and investment management, always taking into account their US tax situation.

👉 Contact Alex today

Chase Buchanan is authorised and regulated by the Cyprus Securities and Exchange Commission with Licence No: 287/15

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