Financial considerations when moving from the US to Portugal

Having a solid financial plan in place can help to ensure that you are able to enjoy your life abroad, without any nasty surprises further down the line.

The reality of changing tax jurisdictions

As a US citizen, you are liable to pay taxes on your worldwide income, regardless of where you live. Portugal has a residency-based tax system, which means that you only need to pay tax in Portugal when you are a Portuguese tax resident.

To be classified as tax resident, you need to have a permanent address in Portugal and you need to spend at least six months of the year in Portugal. This means that if you live in Portugal for more than half the year, you will be considered tax resident in Portugal and owe taxes in Portugal. In other words: your tax residency will change.

While Portugal has a tax treaty with the US that will protect you from paying double tax in some cases, changing your tax residency can have a large impact on your current investments and financial structures.

It’s essential to get qualified advice before you move tax jurisdictions to ensure you aren’t negatively impacted and that you have a robust investment strategy that takes advantage of any new opportunities that come with this change.

Portugal’s Non-Habitual Residency (NHR) tax regime

One of the opportunities that comes with becoming a Portuguese tax resident is the ability to take advantage of Portugal’s NHR tax regime for the first 10 years you live in Portugal.

This regime encourages foreign investment in the country by offering foreigners reduced tax rates. The most appealing benefit of the NHR is a flat 10% tax rate on pension income (such as 401k, IRA and 403b distributions and defined benefit or Social Security income). You may still owe tax in the US, depending on your federal income rate, but you will only need to pay the difference for any tax owed above the 10%.

It’s important, however, to be aware that after the 10 years have passed your tax liability on this income will go up to the Portuguese income tax rate – which can be as high as 48%.With the right financial and tax planning advice you can mitigate the impact of this increase well before it happens.

Another important factor to note is that you can only register for the NHR regime if you are a new tax resident (you cannot have been a Portuguese tax resident any time in the five years preceding your application). This is another reason why planning ahead is essential.

Benefit from global diversification

As a US citizen, your investment portfolio most likely holds a US home bias (most of your investments are US-centric) but, as the saying goes, there’s a big world out there, especially now you’re relocating to the EU.

Having assets and investments spread across the globe means you’re not putting all your eggs in one basket and also mitigates the risk of liability mismatching.

Our team of qualified advisers is licensed across multiple jurisdictions (including the US and EU) and specialises in the cross-border space.

Get in touch at claudia.mendes@sableinternational.com or give us a call on +44 (0) 20 7759 7519 to find out more about we can help you plan and implement a strategy tailored to your unique circumstances.

Disclaimer: This communication is for informational purposes only based on our understanding of current legislation which is subject to change and are not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.