Understanding tax residency in Portugal
By International Adviser, 24 Mar 17
If you have recently moved or are moving to Portugal, you need to understand the tax implications of living there as a British national, says Jason Porter, director of European IFA firm Blevins Franks.
Central to this is getting to grips with residency rules and establishing where clients should be paying taxes. Not only does this ensure they fulfil their obligations under local and international law, but it can help them avoid paying more tax than you need to.
Are you tax resident in Portugal or the UK?
It is important to understand where your clients are tax resident as it is their country of residence that has the right to tax them on their worldwide income and capital gains.
However, residency rules are different for each country and the answer is not always straightforward. Many expatriates, for example, assume they should continue paying tax in Britain – particularly if they have UK-source income, such as UK pensions – when they are actually tax resident here.
Even if they do not live there full-time, they could still meet the residency criteria. The Portuguese tax authorities (Finanças) will consider them a resident if they spend a total of 183 days or more in Portugal within 12 months.
As Portugal splits the year for residency purposes, clients could be recognised as a tax resident from the day they arrive in Portugal with the intention of staying permanently.
They could still be seen as a tax resident if they spend less than 183 days a year here and own Portuguese property. This could happen if the Finanças identify that they intend to keep and occupy the property as their ‘permanent home’ as of 31 December.
Where a client’s tax status is unclear because they meet the residency criteria for both Portugal and the UK, their residency is determined by the UK/Portugal double tax treaty.
This sets out ‘tie-breaker’ rules that look at the location of a client’s permanent home, where their finances are based and where they normally live. If their residency still cannot be decided, it comes down to their nationality or mutual agreement between the two countries.
Tags: Blevins Franks | Portugal | Residency
