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Reporting Income in Portugal

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obr1gad
5/4/2019 10:43 EST

I am a USA citizen and I am living in Portugal for the whole year.

I work as an independent contractor for 5+ USA companies.

Is it true that I have to report my income to the Portuguese government every month?

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realspear
5/7/2019 13:14 EST

The top OECD personal income tax marginal rate is in Sweden. Other countries that exceed Portugal are Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Israel, Japan, and the Netherlands.

The top OECD marginal rate including social security is in Belgium. As you would expect, there are others that exceed Portugal.

The top OECD statuatory personal income tax rate is in Sweden. As you would expect, there are others that exceed Portugal.

VAT is higher in other countries than Portugal also.

If you follow the law, you won't have fines.

If you qualify for NHR (easy to do if you haven't lived here before), you may qualify for significantly reduced tax rates in Portugal.

It's important not to take advice from people who get basic facts wrong and apparently hate the country that is the subject of the forum.

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obr1gad
5/7/2019 17:16 EST

Yes, I already have NHR. And I'm a contract software developer for US companies so I think I can do the 20% flat tax. I will be living in Portugal for more than half of 2019.

Do I just pay 20% to Portugal and no US tax for 2019?

And my initial question, is it necessary to report my income to the Portuguese government every month? I am using some local Portuguese tax people and they are charging me 25 euros a month to report my income every month. So I just wanted to double check if that was necessary.

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SummerFest
5/7/2019 19:32 EST

NHR does not apply to people with active income.
Educate yourself first before spamming this forum with useless advice.

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realspear
5/8/2019 02:27 EST

"The non habitual resident regime is special personal income tax regime for new residents in Portugal that offers excellent tax opportunities for passive income, foreign pensioners, employment and independent personnel services (Self-employed)." Source: http://www.pintoleitemachadovaz.pt/en/servicos/regime-dos-residentes-nao-habituais ("personnel" is a typo, it's "personal") Note that it apples to employment and self-employment.

"A – PORTUGUESE SOURCE INCOME
Net income of category A (employment) and B (self-employment) obtained from the
high added value activities, of scientific, artistic or technical nature mentioned above,
by non-regular residents on Portuguese territory are taxed at the special rate of
20%, in case the aggregation option is not exercised – Art. 72, paragraph 6 of the
CIRS." Source - https://www.livinginportugal.com/fotos/editor2/irs_rnh_en.pdf (This is the English version of the Finanças document.)

Individuals who have become tax resident in Portugal for a year and have not been taxed as resident for any previous five-year period may apply for the special tax regime for non-habitual tax residents (NHR). NHRs are taxed at a flat rate of 20% in respect of self-employment income (Category B). NHRs have the right to be taxed as such during a period of 10 consecutive years. An application for the NHR tax regime must be submitted electronically at the Portuguese government’s Portal das Finanças. The retention percentage for contractors operating via the NHR regime is between 70-75%. Source - http://www.portugalglobal.pt/PT/PortugalNews/Paginas/NewDetail.aspx?newId=%7BBEAE8028-6536-441B-A08F-8F22249EC5F0%7D (That retention rate statistic is interesting, obviously most people aren't "running" from Portuguese taxes.)

There's a lot more sources on this. There are some restrictions on which professions get the special taxation, but unless you're a service, agricultural, or industrial worker, it's unlikely to affect you.

And don't worry about that "highest taxes in OECD" thing either. People move here, work, enjoy life, and don't "run, run, run."

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Bemadam
5/8/2019 11:09 EST

@obr1gad, normally you will pay your US taxes on your global income, then you must file an annual income tax return in Portugal. The deadline for 2018 returns is June 30 2019. Since there is a double taxation treaty between the two countries, Portugal can only charge you the difference between what you would normally pay in Portugal on your global income, minus what you've already paid in the US. Since you have the NHR status, you won't have anything further to pay in Portugal, but you must file an annual income tax return, showing details of your global income, and how much income tax you've already paid abroad on your foreign income.

There is no obligation to report income monthly to my knowledge. Quit paying these people EUR 25 per month for this. My local tax adviser charges me EUR 25 for a meeting that can last up to 90 minutes, so you're being ripped off. Find out what your reporting requirements are, but I'd bet they're not going to be monthly.

Beware of scammers who prey on unsuspecting foreigners not knowing their way round the Portuguese administrative system.

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craigandmicki
5/8/2019 11:13 EST

To Summerfest: We were dismayed to see your post about NHR and comments to 'realspear' about the data he provided to a person asking about NHR and reporting Portuguese income.. "Realspear' is a consistently accurate, detailed, conscientious and resourceful member of this forum and was, in his post about NHR, completely accurate.

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obr1gad
5/8/2019 16:23 EST

Okay so regarding reporting income, it may not be necessary to do it every month.

But now I feel like I don't understand what exactly I have to pay.

Assume I have NHR 20%. Let's say that in 2019 I live in Portugal for 265 days and I live in the US for 100 days. And I make $100,000 working as an independent contractor for US companies in 2019. Do I:

a) just pay Portugal $20k

b) pay my normal US taxes(let's call that $x) on the $100,000 and pay Portugal $20k - $x if $x is less than $20k

c) something else. If so what?

I thought it was a) but one of the responses here makes it sound like it's b).

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Bemadam
5/9/2019 06:03 EST

The tricky thing is establishing how much of that $100,000 income is Portuguese, and how much is 'foreign'. You could pro-rate it, so the Portuguese part would be 265/365 x 100,000 = $72,603, leaving $27,397 of foreign income.

You declare $100,000 of income to the US since they tax your global income and don't care which country it comes from. Let's say you must pay $15,000 in US income tax that's €13,393 based on an exchange rate of 1.12.

Then you declare €64,824 (=$72, 603/1.12) of Portuguese income and €24,462 (=$27, 397) of foreign income on the same tax declaration, to Portugal.
Remember to declare the amount of income tax paid to the US, which is €13,393 in this example.

Portugal will disregard your foreign income, though you still need to declare it, and your €24,462 of Portuguese income will be subject to the special NHR rate of 20%. I'm not sure if there is a personal tax allowance applicable, or whether you pay a flat rate 20% tax on your income.

It seems to me that you will have nothing further to pay to Portugal since your US income tax totally swamps what you'd be liable to pay in Portugal.

****disclaimer. I am not a tax advisor, but think very logically and rationally about things. I also have a lot of experience of filing my own income for tax in a number of foreign countries. For best advice, please seek professional assistance from a qualified tax advisor. Normally you will pay only a small charge for advice, usually well below €100, so it's worth getting advice.

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Bemadam
5/9/2019 06:13 EST

Sorry I made a mistake in the last few sentences. You declare €64,824 of Portuguese income, not €24,462 (that's your 'foreign' income). Let's say it's a straight flat rate 20%tax on that, so you're liable for €12,965. This income has already been taxed in the US since they tax your global income, not just the US part of it, so since you've already paid €13,393 and this is more than you're due Portugal, you should have nothing further to pay.

The two figures are close together, and my figures are based on pure guesswork, so you might in reality end up having a small amount of income tax to pay in Portugal. Tax is high in Portugal, and an income of €64,824 is also considered very high. Even half of that would be considered a good income.

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