Renouncing US citizenship is becoming increasingly common among affluent expats residing in the Algarve, driven by tax considerations and policy shifts. Since the implementation of the Foreign Account Tax Compliance Act (FATCA) in 2010, US citizens living abroad, particularly in the Algarve, have encountered significant challenges related to tax compliance and asset reporting.
Under FATCA, foreign banks are required to report the assets of US account holders to the Internal Revenue Service (IRS) in the United States. This has posed obstacles for expats in the Algarve, with banks often hesitant to open accounts due to concerns about non-compliance fees with US tax authorities. Additionally, expats face the burden of filing tax returns in the US despite residing in Portugal, potentially leading to double taxation on assets such as real estate.
However, recent changes in US legislation have made the process of renouncing US citizenship more accessible and affordable. The filing fee for renunciation, previously set at $2,350, is expected to be significantly reduced to $450 later this year, further incentivising expats in the Algarve to explore this option.
The Algarve has already experienced a notable influx of US citizens relocating their residency and tax status, taking advantage of the Non-Habitual Residency (NHR) tax regime and the Portuguese government's Golden Visa residency-by-investment initiatives. Many expats have chosen to renounce their US citizenship, finding it more conducive to their financial and lifestyle goals in the Algarve.
Steve Philp, Director of Portugal Pathways, an organisation assisting expatriates and investors relocating to Portugal, notes a significant increase in inquiries from US-connected citizens considering a move to the Algarve. He emphasises that the continued burden of US tax obligations while living in the Algarve is prompting many to explore alternative citizenship options.
He adds: ‘’In the last two months alone, we have seen an influx of over 500 recent applications for US-connected citizens choosing to relocate to Portugal under the Golden Visa, D7 ‘Retirement Visa’, D8 ‘Digital Nomad’ and D2 ‘Entrepreneur Visa.
‘’More than 40% of them said they were now considering giving up citizenship in the US anyway as they were building a new life in Portugal, which gives them freedom of movement and access to the 27 European Schengen region countries.
He explained: “The continued burden of filing US taxes while living in Portugal is now making less and less sense for those living in a different country and enjoying life in Portugal.
“Having to do tax returns in the US adds an additional layer of bureaucracy, which can throw up plenty of time-consuming hurdles when they no longer live there. Consequently, many are looking to adopt an EU Portuguese passport and then apply, through the usual channels, for a US visa, allowing them to visit family and friends regularly anyway.
“Once someone has been living or working in Portugal for five years with a residency visa, they will be eligible to claim Portuguese citizenship through the naturalisation programme.”
Brooklyn Johnson, a US-connected citizen based in Lagos, Portugal, said: “Portugal is a perfect place for those seeking an EU passport and access to the Schengen area.
“Its visa schemes provide a pathway to citizenship if that is what is desired, and the quality of life here is second to none.
“But while there are plenty of attractions to obtaining Portuguese citizenship – such as holding an EU passport – anyone considering renouncing their US citizenship should remember that they are making a permanent life choice.
“However, they will need to settle any outstanding tax monies due to the US government before being able to do so. There are specialist professionals who can help you restructure your income and assets so they are more aligned and tax-efficient for life in Portugal.
‘’We were able to get advice both from a US and Portuguese tax perspective with the help of Portugal Pathways, and we have changed certain things around and can see a clear path to our financial as well as lifestyle goals for the future.’’
Expats in the Algarve are attracted to the region's quality of life, access to the European Schengen area, and favourable visa schemes offering pathways to citizenship. Despite the appeal of obtaining Portuguese citizenship and the associated benefits, individuals contemplating renouncing their US citizenship are advised to consider the permanence of this decision and settle any outstanding tax liabilities before proceeding.
Aziz Bharmal at Europe Living, an international cross-border expert in Portugal who works with many US-connected citizens in terms of visa residency, restructuring their income, assets and tax affairs once settled in Portugal, added: ‘’This is a changing world where people want to make life and financial choices and Portugal Pathways have connected us with many US-connected citizens in recent months that are now looking at relinquishing US citizenship and do not see this as a major hurdle that it once was.’’
In response to the growing interest in tax optimisation and investment strategies among US-connected individuals in the Algarve, Portugal Pathways is hosting a webinar titled "How US-connected citizens in the Algarve can optimise their investments and income."
Scheduled for April 24 at 4:30 PM Lisbon / London Time, the webinar will feature experts in international tax planning, wealth management with over $300 billion under management, and regulatory compliance, offering insights tailored to the needs of US expats in the region.
