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Roth IRAs - How does Portuguese IRS view these?

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JAfan333
3/21/2017 18:38 EST

(Have asked this before, but it's buried in a thread mostly consisting of speculation about tax on social security payments.)

Do we pay tax to the Portuguese IRS on the earnings from Roth IRAs?

Roths are funded with after-tax money and earnings (interest) is also tax-free in the US. Suppose as a US citizen/Portuguese NHR you cash out a Roth which was funded prior to your residence in Portugal. The principal is pretty certainly tax exempt, what about the earnings?

(This should make it clear that it would REALLY help to get someone with substantial hands-on experience filing US citizens' returns in PT to offer to be contacted.)

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dancebert
6/13/2017 09:28 EST

For the countries I've considered, this sort of question is never answered by someone who claims to have paid taxes in the country. I figure the pros who do taxes don't respond because people pay for those answers, and the people who paid for those answers don't respond because why should somebody get it for free? Arrgh. I want to know the answer.

Hmm... You don't report Roth contributions to the IRS. You do report amount withdrawn, even though there is no tax. Short of an audit where you produce statements showing amounts contributed, how could one know what, if any, are the earnings?

Anyway, I interpret the 'tax regime for non-habitual residents', also known as 'non-regular tax regime for non-regular residents' as saying that for retired people there is zero tax on all incomes for which "They cannot be considered to have been obtained on Portuguese territory as per Art. 18, paragraph 1 of the CIRS." Still, I'd like to hear it from a tax pro.

From: http://info.portaldasfinancas.gov.pt/NR/rdonlyres/D0C80C76-3DA8-4B90-A1E4-FF53BD34EF95/0/IRS_RNH_EN.pdf

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craigandmicki
6/13/2017 09:56 EST

How PT views your Roth IRAs depends on too many factors personal to you...if you are a NHR, if you are on an XX visa, if you are pulling out payments from a Roth and how old you are. That is why the answer isn't a simple one. You might choose to ask at the FB group "US Expat Tax Questions", a group monitored by at least two exceptional tax experts.

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drewmckee
6/14/2017 06:52 EST

Good question, I would like to know the answer as well. My plan was to live on savings in Portugal for 10 years (from 50-years-old until 60-years-old) and then begin withdrawing from the Roth. So, I will be outside the 10-year period for the NHR once I begin taking money from the Roth.

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dancebert
6/15/2017 00:45 EST

Seeing as you know how PT treats Roths, here are my details:
Visa - 4 month residence visa, then get a residence permit.
NHR - Yes
Age 63
Withdrawing from Roth - yes, for some years of my retirement.
Citizen of a non-EU country - USA

In other words, a generic expat seeking to retire in PT. Your answer here could serve as a FAQ.

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dancebert
6/15/2017 00:48 EST

Oops. My last message was directed at craigandmicki.

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dancebert
6/18/2017 03:54 EST

craigandmiki wrote:
> You might choose to ask at the FB group "US Expat Tax Questions", a group monitored by at least two exceptional tax experts.

Many different people respond to questions. I can't see any way identify who are the experts, How do you do that?

As I suspected, a general US expat tax group had few posts about Portugal. Searching returned 4. One wasn't answered, the other 3 were about real estate. One response said read the treaty. IMHO the entire point of asking an expert is for him, at the very least, to explain the legal language of such documents in understandable language, but preferably to answer the question. In the other 2 questions the people asking the questions knew more about US tax law than those who responded. Of the responders who indicated which countries they've lived in, none had lived in Portugal.

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MariaandJim
6/18/2017 11:28 EST

This question is not an easy one. I practiced international tax law for 40 years. The treaty between the US and PT talks about "income" earned. The US does not consider payments from a Roth as income....does PT.? Only PT tax expert can answer that as we cannot read and understand the PT law very well. If such distributions ARE considered income then the treaty says it may be taxed in PT unless the income is deemed to "arise" in the US (Article 24). Bottom line is that this is not clear cut to us and cannot be decided in an internet blog. Talk to a PT tax attorney or accountant. I bet they know the answer.

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Countga
6/18/2017 12:31 EST

Not trying to be a naysayer but I imagine it will be difficult to find a PT tax accountant that knows USA taxes in relationship to PT taxes. It seems to me most are acclimated to EU tax regimes, not US. For example, I went to a Blevins & Franks tax seminar in January and they appeared clueless about IRA accounts. I do not know how something called an Individual Retirement Account can be deemed income. And, a Roth IRA has already had taxes paid on the income input into the account, right? So, if somebody finds a PT tax expert who is also an expert on USA taxes then please let us all know.

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croonerjim
6/19/2017 13:23 EST

The tax lawyers at the Edge law firm in Lisbon would know the answer I am sure. I met with them...they are very knowledgeable...if a bit expensive.

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dancebert
6/20/2017 09:08 EST

Hey croonerjim
Have you used Edge for your Portugal taxes?

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MariaandJim
6/20/2017 09:33 EST

No...too expensive. When it is time to file, will use an accountant recommended by other expats.

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drewmckee
6/21/2017 07:54 EST

MariaandJim,

Who is a good US/Portuguese tax person in Algarve? I need to make an appointment and talk some stuff thru as well.

Thanks,

Drew

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croonerjim
6/21/2017 09:22 EST

Have not used one in Algarve yet. Friend gave me the info on an accountant there tho...I'll have to find it....will send when I do. The Edge law firm does have an office in the Algarve.

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JAfan333
7/12/2017 05:10 EST

Dancebert -
Am pretty sure you are wrong about there being no breadcrumb track to show how much after-tax money was contributed to Roth accounts - notice that your brokerage/financial advisor makes sure these are in separate accounts from any other type of investment? (Worse still, notice the byzantine, non-standardized gyrations some traditional IRA fund management firms put you through for rollovers?) I and a few million others would be in trouble if we had to prove every when penny went into and was withdrawn from tax-sheltered accounts. Fund managers get paid largely for tax record keeping and reporting.

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JAfan333
7/12/2017 05:11 EST

Dancebert -
Am pretty sure you are wrong about there being no breadcrumb track to show how much after-tax money was contributed to Roth accounts - notice that your brokerage/financial advisor makes sure these are in separate accounts from any other type of investment? (Worse still, notice the byzantine, non-standardized gyrations some traditional IRA fund management firms put you through for rollovers?) I and a few million others would be in trouble if we had to prove every when penny went into and was withdrawn from tax-sheltered accounts. Fund managers get paid largely for tax record keeping and reporting.

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dancebert
2/12/2018 22:09 EST

I have yet to find an answer. But I did forget I'd contributed to this thread.

@JAFan334 said
>Am pretty sure you are wrong about there being no breadcrumb track to show how much after-tax money was contributed to Roth accounts

You missed the context. I wrote:
>Short of an audit where you produce statements showing amounts contributed, how could one know what, if any, are the earnings?

My context was the Portugal IRS. I can't see how yours was anything but the US IRS.

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AnalogKid84
2/26/2018 12:32 EST

I'm eager to know as well. I may withdraw some Roth contributions (a tax-free act in the US) in order to buy an apartment here, but if the Portuguese tax man is going to tax that withdrawal at god-knows-what rate, I'll probably opt for a mortgage instead. Nothing irks me like the idea of paying taxes on already-taxed money.

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hodgegw
3/1/2018 18:51 EST

JAfan333,

You do not pay any tax on income for the first 10 years. This is my understanding and my spouse is Portuguese, but I am a US citizen. Below is link that might help more. But, it doesn't mention the 10 year (grace period, I'll call it). An excerpt from this post is as follows:

* Foreign pensions, including private and personal pensions in the UK. While the pension income may be taxed at source, it may also be possible to transfer the pension to a jurisdiction which means tax is also not deducted at source.

* Investment income, such as dividends and capital gains and rental income. Royalties which are received in another country may also be exempt under a Non-Habitual Residence status.

* Income from foreign employment, provided it is taxed at source under double tax treaty agreements.

Here is the link:
https://www.expertsforexpats.com/expat-news-and-opinion/latest-expert-opinion/non-habitual-residence-regime-in-portugal/

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dancebert
3/2/2018 20:47 EST

@hodgegw

>You do not pay any tax on income for the first 10 years.

That part is both clear and widely known. The OP's question was, and is, does the Portugal IRS (PT-IRS) consider Roth any or all of distributions to be income?

>* Foreign pensions, including private and personal pensions in the UK.

Roths are US specific, so no idea why you thought UK info was useful in any way. No idea why you thought a UK specific site could be helpful. Can you enlighten us?


>* Foreign pensions, ...
>* Investment income, ...
>* Income from foreign employment, ...

Describing 3 sources of income is useless without the preceding line from the linked page:
"There are a number of foreign income sources which would be exempt from tax, both at source through tax exemption double treaties, and in Portugal. These include income from:"

Which still leaves the questions: Does the PT-IRS consider a Roth to be a pension? Are distributions from a Roth considered to be dividends or capital gains?

On the plus side, bravo for linking to a site that sells answers to expats.

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