Many affluent expats enjoying Portugal's Non-Habitual Resident (NHR) tax regime are in for a surprise when their 10-year tax benefit period ends following recent Swedish couple’s €186,000 tax bill.
While the NHR tax regime has attracted many wealthy expats to the Algarve, a crucial detail is often overlooked which is that the tax benefits aren't permanent.
Wealthy families need to take early action to mitigate unnecessary high taxes through expert planning of their overseas derived income and assets.
The recent case of the Swedish couple who hadn’t planned under their NHR tax status ending made headlines in Portugal.
They believed they could renew the NHR tax benefits beyond the 10-year period, but their request was denied by the Tax and Customs Authority (AT). Facing a tax bill of over €186,000 under the regular tax system that comes into play after NHR, the couple appealed to CAAD, arguing they should have been allowed to extend their NHR tax benefits.
This case serves as a cautionary tale for NHR tax residents approaching the end of their 10-year tax benefit period. This emphasises the need for proactive planning and seeking professional advice early on in your NHR tax life in terms of overseas held income and assets as well as pensions to avoid unnecessary potential tax hikes.
Don't wait until it's too late to mitigate progressive taxes
Experts urge those with NHR tax status to seek professional advice well before their 10-year period ends. By restructuring income and assets, expats can significantly reduce their future tax burden.
NHR tax status holders should act early, ideally within the first seven years of their status, to minimise future taxes by strategically restructuring their income and assets for optimal tax efficiency.
Peter Marshall, a UK expat residing in the Algarve under the NHR tax regime, shares his experience. Initially unaware of the need for tax planning, he faced potential tax rates of 48% on his pension. Fortunately, seeking professional help ensure a smooth transition after his NHR tax status ended.
Paul Stannard Chairman at Portugal Pathways, an organisation that advises and supports wealthy expats in Portugal said:
“Many affluent expats have been rightly enjoying their life in Portugal and blissfully unaware that they need international cross-border structuring of their assets early on in their NHR tax life so that they don’t fail of unnecessary progressive tax rates at the end of their NHR tax status.
“Once the NHR tax incentive period expires, a large majority of expats become subject to Portugal's progressive tax system and can end up with taxes as high as 48%, at the top end, if they don’t take early actions to stop this.
"Too many don’t realise these benefits are temporary and need structuring early on in their tax status life in Portugal.
“These recent cases should serve as a wake-up call for NHR tax holders in Portugal. But the good news is they can mitigate this though better structuring of their income and assets if they act early on advice."
According to a recent survey of wealthy expats in Portugal, a staggering 73% of NHR tax holders were unaware of the risk of high taxes if they fail to plan and act early.
To ensure a smooth transition after your NHR tax status period ends, one must consider strategies such restructuring your investment portfolio towards options that minimise tax liabilities.
Additionally, take full advantage of all available tax deductions and credits offered by Portugal's tax system.
Most importantly, seeking professional guidance from qualified advisors can help you optimise your tax situation for the long term, giving you peace of mind as you navigate beyond the NHR benefit period.
NHR tax status holders should act early and get peace of mind for the future. Portugal Pathways offers an initial no-obligation discovery call and guidance with relevant professional supply chain partners who are experts at structuring overseas assets, income, and pensions for the long term, pre and post NHR tax status.
