Many wealthy expats in Portugal are enjoying the tax benefits of the Non-Habitual Resident (NHR) tax regime. However, for some, a rude awakening awaits them at the end of the 10-year benefit period due to a lack of structure and planning, early on in their NHR tax status life.
Once the decade is up, which is far too late to take action, affluent expats become subject to Portugal’s progressive tax system, which can mean tax rates of up to 48%.
The recent case of the Swedish couple’s unfortunate situation, which made headlines in Portugal, highlights the crucial need for early planning under the NHR tax regime. They mistakenly believed the 10-year tax benefits could be extended, but their request for renewal by the Portuguese Tax and Customs Authority (AT) was rejected.
This resulted in a hefty tax bill exceeding €186,000 under the standard tax system that applies after NHR expires. Unfortunately, they’re not alone. According to a wealthy expats in Portugal report, a whopping 73% of NHR tax holders are completely unaware of the potential tax burdens waiting for them if they fail to act early.
This emphasises the importance of proactive and early structuring of any overseas derived income and assets, including pensions with a specialist professional guidance with experts who understand the international cross-border tax treaties and structures for optimising affluent expats long term tax positions in Portugal, not just under NHR tax regime. By taking these steps, NHR tax holders can mitigate significant and unexpected tax liabilities in advance of exiting the NHR tax status.
Peter Marshall, a UK expat who is now a resident in Portugal and has been under the NHR tax regime for four years, explains: “I was completely unaware that any structuring of my overseas income and assets was necessary.
“It wasn’t until I realised, I could face potential taxes of 48% on my UK pension and other foreign assets and income that I sought professional advice through Portugal Pathways.
“Luckily, I am now set fair for another 10 years, albeit having to pay a little bit more tax, but certainly a fraction of the amount that I was looking at before we took the advice. If we had left it any longer, we would have had to consider leaving Portugal.”
There are several strategies to mitigate future tax burdens. One approach is to shift investment portfolios towards tax-efficient options that are aligned to the European Union and Portugal. Additionally, utilising available tax deductions and credits can further minimise tax liabilities.
Most importantly, with the help of qualified professionals, individuals can structure their income and assets to potentially achieve minimal annual tax obligations after the NHR period ends.
Paul Stannard Chairman at Portugal Pathways, an organisation that advises and supports wealthy expats in Portugal said:
” Many affluent expats on NHR simply aren’t aware of the risks involved and what they need to do. Without early planning and structuring of overseas derived income, assets, and pensions, they risk facing Portugal’s progressive tax rates of up to 48%.
‘’The key takeaway is that the NHR tax benefits are temporary but, wealthy expats can sort this out if they act early.
‘’These recent cases are a cautionary tale, but there’s still time to maximise your assets and investments but not pay unnecessary taxes through poor structuring. By seeking professional guidance as soon as possible, expats can mitigate the financial blow and continue enjoying life in Portugal and without the cloud of a hefty tax bill looming overhead.”
NHR tax status holders should act now and get peace of mind for the future. Portugal Pathways offers an initial no-obligation discovery call and guidance with relevant professional supply chain partners who are experts at structuring overseas assets, income, and pensions for the long term, pre and post NHR tax status.
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