Moving to Portugal? Don’t stop your planning process

This article was originally published on The South African

An increasing number of South Africans are looking to emigrate to Portugal, whether they're claiming EU residency through the Golden Visa programme, looking to enjoy the tax benefits of retiring in Portugal, or simply relocating to a safe, stable Mediterranean country.

However, many I've spoken to would rather wait until things are “back to normal” before continuing with their plans. I believe that's a mistake and here's why.

Preparation is key

Before you physically up and leave South Africa, there's a lot to consider. Ideally, you want to actually visit Portugal at least once to get a feel for the place and to get a proper grasp on the cost of living and what your life in Portugal will be like.

You can't visit Portugal right now, but you can do some research. Speak to other South Africans to learn about their experiences of moving to Portugal, determine whether you can afford a standard of living you're comfortable with, investigate your visa options and whether or not you meet the income requirements for them, and decide where you want to live and whether you want to buy or rent.

Finally, you'll need to consider your investments, finances and whether you plan to work while in Portugal.

Tax planning considerations

Portugal's tax system has many benefits if you meet certain requirements. Whether you're retired or working and, if you're working, what profession you're in and who you're working for, are all considerations with sometimes far-reaching tax implications.

For instance, Portugal has a Non-Habitual Residence (NHR) tax programme that offers tax exemptions on certain foreign income and capital gains for a period of 10 years, but if you don't plan ahead you could accidentally disqualify yourself from the programme.

Retiring in Portugal also has tax advantages as a foreign pension income in Portugal is taxed at only 10%. Although, you might have to pay additional tax back home or be subject to other rules regarding your pension.

Finally, something that is often not taken into account when people relocate is Capital Gains Tax (or the “exit charge”) when you leave South Africa.

Understanding tax emigration and exit tax

When you leave South Africa, the onus is on you to inform SARS and you are meant to do this during the tax year in which the change occurs. This is called tax emigration and as of March 2021, it's the only way to ensure you'll be able to transfer your retirement annuity out of the country.

The day before you become a non-resident for tax purposes, you will be deemed to dispose of your worldwide asset base (excluding fixed property in SA and your retirement annuity) at market value. This triggers a Capital Gains Tax (CGT) event – also known as an exit charge.

• Up until the moment you change your tax status, you will get taxed on your worldwide income, including anything you earn in Portugal
• On the day of the change, you'll be due to pay an exit tax (CGT)
• On the day of the change, you may have to report and pay tax on your South African-sourced income
• After you become a non-resident, you are no longer required to submit a South African tax return, unless you still have assets left in the country that are generating streams of income

It's worth noting that CGT in South Africa is not a fixed rate but a percentage added to your annual income, depending on your tax bracket. This means that you could save money if you plan ahead on when to leave as the timing will affect your tax payments.

Also important to note is that, prior to March 2021, you were able to withdraw your retirement annuity as a lump sum when you left South Africa through a financial emigration process. Now you are only able to do so three years after tax emigration. This is something to bear in mind if you were hoping to use your RA to partly fund your move to Portugal.

Dealing with inertia

It's well known that us humans display extraordinary inertia when it comes to selling an asset that has done well and also one that has done poorly. We value things we own more than others do (it's called the ‘endowment effect'. So if an asset has done poorly we're convinced it will recover and if it's done well we're convinced that outperformance will continue. These well documented behaviours get in the way of financial planning that needs to happen well in advance of migrating from one country to another.

Sable International's Wealth division specialises in cross-border financial planning. We have the detailed knowledge of South African, Portuguese, UK tax and investment planning. We can help you decide on the best structures to take advantage of tax benefits and can offer a detailed analysis of your individual financial position, assets, liabilities, income and expenses.

What's more, we can put strategies in place that will help you protect your wealth by identifying red flags and using discretionary allowances, CGT allowances and offshore investment structures (that can include international pension plans and offshore portability and estate planning benefits).

Reduce your stress, plan ahead

I've made the move to Portugal myself, so I know how overwhelming it can be. While you're waiting for borders to re-open, don't put your financial plans on hold. When it comes to financial planning, sooner is better than later. Use this time to focus on maximising your offshore exposure and settling into alternative investment structures that are a better fit for a Portuguese tax resident. That way, when things “return to normal” all you'll have to do is book your flights and say “Olá!” to your new life in Portugal.

Cross-border wealth and tax planning can be complicated. we always recommend that you obtain personalised and professional guidance and advice before you relocate.

Get in touch with our wealth team by calling us on +44 (0) 20 7759 7519< (uk) or +27 (0) 21 657 154 (sa) or emailing nhr@sableinternational.com.