FOR MANY foreign residents, moving to Portugal means moving into a new tax system. With careful planning, expatriates can reduce, or even eliminate liability to income and capital gains taxes in their home jurisdictions. Instead, as a foreign resident, you become subject to the tax laws of Portugal, which, in many cases, turn out to be far less onerous – allowing you to keep more of your income. If you also make use of international investment services, you may well be able to protect your capital even further.
That’s the ideal situation, but the reality for many expatriates turns out to be different. Without taking the necessary steps, you may still find yourself paying tax at home as well as in Portugal.This double whammy is readily avoided. It is just a matter of spending some time properly establishing yourself as non-resident in your home jurisdiction, as well as understanding the relevant portions of the Double Tax Treaty between your home country and Portugal.
Do your homework
The first step is to make sure that you are non-resident in your home jurisdiction. Each country has a defined procedure for altering tax residency status. At the same time, you need to establish your Fiscal Residency in Portugal. The first step is to submit your first IRS individual income tax return. Subsequently, present an application for a Certificate of Fiscal Residency.With this document, you can stop withholding at source on pensions, bank accounts and the like. You may well be entitled to a refund for any tax improperly withheld.
If you have income sourced at home, such as from renting out a property, you may have to declare this on an annual local tax return, and are liable to tax on it. However, having such ‘source’ income also means that you will most likely retain any personal tax allowances, offering some tax relief.
Avoiding a double tax liability is neither difficult nor expensive. Unfortunately, you don’t get to choose where you pay your taxes. The Law does.Just because you may pay (incorrectly) back home, doesn’t mean that you will win any favour with the Finanças (tax office) in Portugal.To the contrary, Double Taxation Treaties clearly define taxpayer obligations.
The key is to be proactive. Nothing will happen of its own accord. Many people find that they are entitled to a substantial refund from their home jurisdiction, while they enjoy a lower tax burden in Portugal.
• Dennis Swing Greene is an International Fiscal Consultant for euroFINESCO s.a., with offices in the Algarve and in Lisbon.Appointments may be scheduled in Guia at 289 561 333 or in Lisbon at 21 342 4210.