American expats living in Portugal should consult a US international tax specialist who specializes un US tax Portugal prior to making plans to reside. Since the United States imposes taxes on worldwide income, planning ahead is crucial.
Are You Retiring in Portugal or Digital Nomading Abroad? - When living abroad in Portugal there are various US expat tax deadlines you need to be aware of and adhere to.
FATCA
Portugal, known for its high quality of life and temperate climate, is becoming more attractive to Americans and other expats as an expatriation destination. US taxpayers should keep in mind that living abroad entails unique tax considerations similar to living in their home country.
US citizens and permanent residents must file tax returns based on worldwide income, even if you only reside abroad for less than 183 days each calendar year. Furthermore, those with foreign bank accounts should submit an FBAR report with the IRS as required. Thankfully, compliance with filing requirements has become much simpler for Americans living abroad.
If you are a citizen or green card holder residing primarily in Portugal, and meet certain requirements, then the Non-Habitual Resident (NHR) program could offer significant tax savings through preferential rates on certain income and exemptions for many others. Filing an accurate return with the relevant authorities is key if you wish to benefit from it.
As well as the National Housing Rights (NHR) program, US expats in Portugal can also take advantage of other tax regimes with favorable tax treatments for US expats living there, such as foreign earned income exclusion, housing exclusion and foreign tax credit to reduce taxable income and avoid double taxation. It can be complicated to navigate these benefits on your own; an experienced US expat tax specialist is highly recommended.
Finally, it is crucial to keep in mind that both the US and Portugal share a comprehensive tax treaty, with many articles that can benefit American expats moving to Portugal. When making plans to relocate there it is wise to review this treaty thoroughly in order to maximize success in your move.
As previously mentioned, Portugal and the US both possess different legal systems, which may have significant ramifications on estate planning for American expats in Portugal. An existing estate plan might not adapt well and could even have dire repercussions if not updated accordingly; that's why working with an established wealth management firm specializing in US expat services is of vital importance.
Foreign Earned Income Exclusion
While the US tax code can be complex, it does offer certain perks for Americans living abroad. One such benefit is the Foreign Earned Income Exclusion which helps individuals avoid double taxation by qualifying under Bona Fide Residence Test/Physical Presence Test as it excludes up to $101,300 annually of earned income earned abroad.
One key requirement of US expat taxes is the Foreign Bank Account Reporting Act, or FBAR filing requirement, which mandates American citizens and permanent residents reporting all assets held outside the US. Failure to file can incur penalties up to $10,000; we offer comprehensive FBAR filing services so you remain compliant.
US expats living in Portugal should be aware that in addition to the national transfer tax, there may also be an additional property transfer tax which varies based on both value and method of transfer.
Good news if you sell real estate in Portugal is that if eligible, it may qualify for capital gains exclusion, foreign housing deduction and/or foreign taxes paid credit (FTC). Furthermore, non-resident aliens (NHR) can avoid filing requirements by obtaining a Certificate of Non-Resident Status to attach with their US tax return.
Portugal is a developed nation in southwestern Europe that boasts an excellent quality of life for its citizens. Like many European nations, Portugal enjoys a low unemployment rate and high household income average; furthermore it features international schools and universities making Portugal an appealing place for students studying abroad.
Portugal is an OECD member country and offers low personal income tax rates, while having a wealth tax designed to raise revenue from Portugal's wealthiest residents, similar to Swiss and Dutch wealth taxes.
Non-Habitual Resident (NHR) Program
Portugal is a popular choice among US expats due to its delicious seafood dishes and stunning 16th to 19th-century architecture, but determining how much in taxes is often challenging. Expats should keep both Portuguese and US taxes in mind as well as any exemptions that may reduce overall tax liabilities.
The National Home Rule Program (NHRP) offers qualified US expats living in Portugal special tax breaks on foreign-sourced income from eligible sources that either have a double taxation agreement with Portugal or don't feature on Portugal's list of blacklisted tax havens. To qualify, either country must meet both conditions - DTA with Portugal and/or don't fall on its blacklist of tax havens.
Expats who qualify for this unique exemption can avoid paying income taxes on foreign-sourced income up to the amount paid in Portuguese taxation. While reporting their income must still be made annually to the IRS, reporting may take place via Form 1116 rather than 1040NR.
For those who do not qualify for NHR, tax exemptions such as Foreign Earned Income Exclusion may help to lower or even eliminate their US income taxes altogether. To maximize these opportunities, however, be mindful not to overstate foreign-sourced income by claiming too many tax credits on Form 1116.
US expats living abroad should also be cognizant of the legal ramifications associated with their residency status. For instance, if they live in Portugal for over 183 days in one year they will become tax residents and must pay taxes on all worldwide income earned while there.
Americans in Portugal need to have a thorough knowledge of both US and Portuguese taxes in order to file correctly and comply with legal obligations, otherwise costly mistakes and penalties could occur. HTJ can assist in helping navigate your tax obligations as an American living in Portugal - reach out now to learn more!
Tax Treaties
The US and Portugal have signed a tax treaty, which can reduce your risk of double taxation. By properly claiming benefits such as the Foreign Earned Income Exclusion or Foreign Tax Credit on IRS Form 1116, you can reduce your US income tax liability.
Before moving to Portugal, it is advisable to seek advice from an American expat tax specialist as the laws can differ significantly between the countries. An estate plan incorporating trusts - popular in the US but less so in Portugal due to civil law traditions and Roman-based inheritance laws - might not work effectively there.
As a Portuguese national, your estate plan could be subject to inheritance taxes upon your death depending on its structure. An experienced international wealth manager can review your estate plans and offer solutions that minimize tax liabilities upon death.
Lastly, if you own assets in the US, they must be reported to the IRS as they follow an individual system of capital gains taxation which can be complex and expensive. A qualified US expat tax advisor can assist with understanding these complex regulations to avoid penalties.
Portugal stands out among European nations by offering lower income tax rates for American expats by offering tax advantages on retirement savings, investment returns and employment-based earnings. In 2009, they implemented their Non-Habitual Resident (NHR) program that offered tax breaks to individuals who had not resided in Portugal within five years prior.
The National Housing Registry program offers a flat tax rate of 20% on foreign-sourced income for up to 10 years - significantly lowering Portugal's regular income tax rates that can reach 48 percent for residents. Furthermore, certain deductions and allowances exist that further lower tax liability. By alleviating tax liabilities in Portugal and making relocation more cost-effective than before.