Roadmap to Portugal – Financial considerations before you move

This article was originally published on The South African

With its warm, Mediterranean climate, high standard of living and access to Europe, Portugal is fast becoming a location of choice for South Africans looking at foreign citizenship. 

As exciting as a move can be, the amount of planning that goes into it can be intimidating and it’s easy to overlook key aspects like tax and investments. Here’s our step-by-step guide to what you need to think about before emigrating.

Don't rush your decision

Reality is sometimes different from what the brochures promise. The best thing to do is visit Portugal for yourself before making your move. While travel restrictions are in place, you can get a head start on your preparation for your move to Portugal by speaking to other South Africans who are now living there. Find out what their day-to-day lives are like, what your income requirements might be and ask them if there are any frustrations or regrets they have. 

There are a number of large communities of South African expats now living in Portugal on Facebook that you can tap for insight if you don’t know anyone personally who’s made the move.

You may find that you don’t want to move to Portugal yourself, but it’s still possible to claim the benefits of Portuguese citizenship through investment in the country’s Golden Residence Permit Programme. 

Visa and citizenship options

If you do decide to relocate to Portugal, the first step is understanding how you can legally live in Portugal.

The Golden Residence Permit Programme (also known as the Golden Visa) mentioned above is one option if you don’t want to be restricted by the long-term residency visa minimum stay stays, but are happy to meet the minimum 183 days (per calendar year) in Portugal to qualify as a Portuguese tax resident. The Portuguese government grants residency in exchange for investment in the economy. One of the reasons this programme has been so popular is because that investment can be in a property, where you might choose to live. Golden Visa investment options start at €280,000. 

Alternatively, another popular option is the Passive Income Visa (also known as the D7 or Type I Visa), which permits you to reside in Portugal if you’re living off recognised, stable income from sources such as intellectual property or financial investment. Some other visas you could look into are the Retirement Visa, Startup visa or a Work visa.  

You will need to apply for a residency visa, which is a temporary visa, while in South Africa. This will allow you to travel to Portugal. Once you’re in the country, you may apply for a residency permit which will allow you to stay in Portugal for longer and may lead to permanent residency or citizenship. 

These long-term temporary permits require that you meet the minimum stay days in Portugal. Currently these are:

• For the initial two-year temporary residency permit: At least 16 months per two-year period, provided no absence exceeds six consecutive months.
• In the subsequent three-year temporary residency permit: At least 28 months per three-year period, provided no absence exceeds six consecutive months.  

Financial planning

Many people don’t realise how important it is to look at your assets and investments before you leave South Africa. Once you emigrate, how you’re seen by South Africa, and in terms of international law, changes and this can impact your investments. It can also grant you a number of opportunities, provided you receive the proper advice from a cross-border wealth specialist.  

It’s not unusual for financial planning and restructuring to be the last concern when moving country. However, with a move from South Africa to Portugal it’s important to implement most of the restructuring before moving to Portugal. There are various reasons for this. Below is a commetary on typical South African financial products that are not suitable for a resident of Portugal:  

Endowment policies

• Endowment polices provide tax benefits for certain SA tax residents in the way they’re structured and taxed. Life insurance companies are required to follow the ‘five-fund approach,’ which essentially is where polices are divided into five funds, depending on the nature of the beneficiary, and taxed at the rate applicable to the type of fund. These rates are 30% income tax and 12% CGT for individual policyholder funds. 

• Dividends and interest will not benefit from the Double Taxation Agreement (DTA) between SA and Portugal, meaning you will possibly be taxed on them in both jurisdictions. 

• By holding onto these structures, you could be faced with a Capital Gains Tax (CGT) charge of 28% – 35% upon redemption of these investments in Portugal, either on the investment capital or gain. 

Unit trust investments and shares portfolios

In Portugal there is no rebasing of capital gains, which means even after paying your exit tax in South Africa when you change your tax status, you could be taxed on the full gain where acquisition cost is the cost base. 

Blacklisted jurisdictions

Another important aspect to bear in mind is that punitive tax rates will apply for any investments held in jurisdictions defined as “tax havens” and blacklisted by Portugal. 

We often find that clients assume the EU blacklist is the same as the Portugal blacklist, which isn’t the case. Portugal’s list includes former EU member states like Gibraltar and EU principles of free movement of capital do not necessarily override national sanctions imposed by Portugal. The Portugal blacklist has been in force since 2011. 

The Portuguese authorities have signed several agreements on exchange of information for tax purposes that may lead to the removal of some jurisdictions, such as the Channel Islands and the Isle of Man, from the blacklist. However, as of January 2021, only one country (Andorra) has been removed, so there is no guarantee. 

Don't forget about tax

No one likes to think about tax, but when moving overseas, there are many financial benefits to starting your planning with tax in mind. For instance, the month you leave South Africa can have a large impact on how much “exit tax” you end up paying. It’s important to understand and plan for the date your South African tax residency ends and your Portuguese tax residency starts. 

When it comes to Portugal in particular, the government has established a special tax programme to attract investors and residents it sees as “high value”. The Non-Habitual Residence (NHR) programme offers tax relief on certain income from foreign sources. Almost all foreign income is tax exempt and foreign pensions are only taxed at 10%. This programme has key benefits if you plan to continue to receive income from South Africa (for example rental income or dividends). However, to benefit from this regime, you need to relocate to Portugal and have exclusive tax residency there. Also, registration is not automatic and there’s a narrow timeframe in which you are able to apply. If you leave it too late after you have relocated, you may not qualify.

We can help

Any restructuring that is required should be done prior to you relocating to Portugal.

Our Wealth team has already assisted many South Africans in restructuring their assets for the move to Portugal. It’s a detailed process and we would recommend you start discussions with us at least six months before your planned departure. 

Once you have identified your legal entry into Portugal, focussing on the wealth planning component for such a relocation is just as important. Get in touch with our Wealth team by calling us on +27 (0) 21 657 154 (SA) or emailing wealth@sableinternational.com.