Is Portugal still viable w/o the NHR program?
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Hi!
My name's Meagan. I'm brand new here and joined the membership because our young family is seriously considering a move abroad. We have 3 preschool/elementary age children. I'm in love with everything about the country of Portugal, and I already speak a good bit of Portuguese. But I'm thinking I would be going on a digital nomad visa (D8; I'm from the US and meet the requirements), but with the NHR program ending, I believe I'd be hit with paying between a 45% and 48% tax rate, which feels enormous. There's no way around that now, right? I adore Portugal, but that feels like a deal-breaker. Anyone have any insight/advice on this?Thanks so much!
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Hi @MEAGANDOUG Welcome, and thanks for your question!
We’ve checked in with Ted Baumann, our Global Diversification Expert, to get an answer to your question. This was his response,
Once you have lived in Portugal for more than 183 days out of a year, you become tax resident. You are therefore liable for Portuguese income tax. Portuguese tax brackets are much higher than in the United States. But there are several offsets that you need to keep in mind.
First, any taxes you pay to the IRS are deducted from your Portuguese tax obligations. In other words, you won’t pay tax twice on the same dollar of income. You will, however, pay the difference between us and Portuguese tax rates.
Second, if you are self-employed, as in freelancing or consultancy work, you can deduct legitimate business expenses just as you would in the United States. That means you will only pay tax on your net income, not gross.
Third, Portugal has many tax deductions, particularly related to children. You may well be able to qualify for those and reduce your tax burden.
Finally, and by far most important, most people who move to Portugal find that even though they pay higher taxes, public services (especially health care) along with the significantly lower cost of living balances things out. Remember that your taxes help to pay for the low cost public health system and all the other benefits of living in the EU.
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This is very helpful! Thank you so much!
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I don't quite understand Mr Baumann's comment about "you will, however, pay the difference between u.s. and Portuguese tax rates." Does he mean if I pay 25% rate in U.S. and Portuguese retirement taxes are 40% I pay an additional 15% on my retirement income?
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Hi, Meagan. I am not a tax attorney. But I can confirm your note that the NHR program has ended, and that you would be subject to the taxes you describe under the Digital Nomad Visa. Perhaps you could consult an attorney here who might suggest another alternative? Rita Jardin is an attorney here who does work for International Living: https://www.mayerjardim.com/en/lawyer/
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Hello, Meagan
There is currently an NHR tax regime in Portugal. It's NHR 2.0. It's considerably more restrictive than the old NHR regime but depending on your profession you might qualify. Also, the current government is considering additional changes to NHR 2.0 that would broaden it and make it a bit more widely available. The Prime Minister is looking at using a process called Portaria that would allow the changes to go through without approval of the full legislature.
I suggest you do some further research. -
Note that Portugal has a progressive tax structure. The top tax bracket does seem to be 48%, but only on income over 81,199 euros. The 45% tax bracket applies to income between 51,997 euros and 81,199 euros - etc. etc. etc. There is an investment (interest, dividends, etc.) of 28%. It's important to factor in the income/tax brackets before calculating your actual total tax rate.
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Hi, does anyone know if this taxation applies for digital businesses registered outside Portugal?
Thanks!
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JSWIGART2 said:
I don't quite understand Mr Baumann's comment about "you will, however, pay the difference between u.s. and Portuguese tax rates." Does he mean if I pay 25% rate in U.S. and Portuguese retirement taxes are 40% I pay an additional 15% on my retirement income?
JSWIGART2 - Yes, your understanding is correct.