Portugal UK double tax treaty

Simon Misiewicz

Simon Misiewicz

Expat & Property Tax Specialist

20th June 2022

Portugal UK double tax treaty

The Income Tax convention between Portugal and the UK entered into force on 17 January 1969.

It has been effective in Portugal since 01 January 1970 and in the UK since 01 April 1970 for Corporation Tax.

According to the UK-Portugal double tax treaty, the immovable property gains are taxed in the country where the property is placed.

Capital gains on shares are only levied in the state of residence, meaning that the gains on UK shares are not exempted in Portugal.

Companies, retirees and property investors look to come to Portugal from the UK for a better lifestyle and tax advantages.


 

What are the basics of the Portugal UK double tax treaty?

As property accountants working with 1,000s of UK landlords to help them minimise their tax liabilities, we understand that the Portugal UK double tax treaty can be confusing.

The UK-Portugal double tax treaty is designed to protect against the risk of double taxation where the same income is taxable in both countries.

The UK-Portugal tax treaty provides certainty of treatment for cross-border trade and investment from Portugal to the UK and vice versa.

The double tax treaty between the UK and Portugal also helps to prevent excessive foreign taxation against UK business interests abroad.

Are taxes lower in Portugal than the UK?

With UK tax rates on the increase, many property investors are considering a move to sunnier and more tax-friendly countries.

The UK-Portugal double tax treaty assists this.

Portugal has a non-habitual resident (NHR) tax regime which gives individuals the opportunity to avoid or minimise income tax on certain categories of income and capital gains for 10 years.

This means that under this regime, most non-Portuguese income will not be taxed in Portugal.

An NHR can receive dividends from a UK company tax-free.

This is because the Portugal-UK double tax treaty gives the UK the opportunity to tax dividends paid to a Portuguese resident individual, although it does not do this.

The following non-Portuguese capital gains and income are usually exempt from Portuguese taxation:

* Dividends

* Interest

* Rental income

* Capital gains from the disposal of property

This means that many property investors looking to make a move from the UK to Portugal have significant tax advantages to consider.

Under the tax regime in Portugal, offshore pensions are subject to a flat rate of 10%.

This will typically include UK self-invested personal pension plans (SIPPs).

An individual needs to become a Portuguese resident and cannot have been resident in Portugal in the previous five years to gain NHR status.

Residence can be achieved by living more than 183 days in Portugal during a 12-month period.

Alternatively, NHR status can be gained by owning a property in Portugal with an intention to occupy it as the principal place of residence.
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Can I pay less tax with NHR status in Portugal?

Portugal’s NHR scheme gives special tax benefits to new residents.

It offers a lower income tax rate of 20% if you are employed in Portugal in a ‘high value’ activity and allows you to receive certain foreign income tax-free.

Beneficiaries of the Portugal NHR regime with a foreign income are largely exempt from taxation because of the Portugal-UK double tax treaty.

If income is sourced in a country that has a double taxation treaty with Portugal, such as the UK, this means that the income will not be taxed in Portugal.

The NHR tax regime attracts 1,000s UK residents to Portugal by offering reduced tax rates and full tax exemptions during the first decade.

NHR residents in Portugal are also exempt from paying taxes on global income.

Is Portugal tax-free for ex-pats?

If you’re resident in Portugal for 183 days or more in a calendar year, you will be considered a resident and will need to pay income tax on your worldwide income.

If you live in Portugal for less than 183 days, you will only need to pay tax on income earned in Portugal.

If you work and earn money in Portugal, you will need to pay income tax.

All residents have a general tax allowance of €4,104 a year.

By having a remote job with a UK company you might be eligible for several residence permits in Portugal, such as a D7 Visa.

This is a good option for non-EU citizens with passive income or remote jobs.

These individuals can also opt for a Golden Investor Visa.


 

What is a Golden Investor Visa for Portugal?

The Golden Investor Visa for Portugal is a popular citizenship choice for the investment programme.

It is sought-after due to the lenient residency requirements, low investment options and the allure of an EU passport.

If you receive a Golden Visa for Portugal, you and your family will be able to live and work there, have access to its health and education system and be eligible for a Portuguese passport after five years.

To gain the Portuguese Golden Investor Visa permanent residence, you must make and maintain your qualifying investment for a minimum of five years.

You must also spend a minimum of seven days in Portugal for the first year, then no less than 14 days during each subsequent two-year period.

This is called the stay requirement.

You must purchase real estate worth at least €500,000, and €400,000 if the property is in a low-density area.

From January 2022, you are not able to purchase property in metropolitan areas of Portugal, such as Lisbon, Setubal, Porto, or the coastal Algarve.

The changes come as an effort to increase investment in lower-density areas.

You must have no criminal record, your assets must have been legally obtained, and you must be over 18.

Is buying property in Portugal a good investment?

Buying a property to rent in Portugal is an excellent financial investment.

There is now more demand for accommodation than is available, especially in Lisbon and Porto.

Rental yields during peak tourism season make property rentals there a good investment opportunity.

The UK Portugal double tax treaty is also helping to increase interest in the Portuguese rented property sector as a source of investment options.
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