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Income taxes in Portugal

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missymess
6/21/2019 10:02 EST

I found this website that really explains the income tax situation for expats in Portugal. Very informative.

https://www.taxesforexpats.com/portugal/us-tax-preparation-in-portugal.html

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missymess
6/21/2019 10:03 EST

Sorry, specifically Americans

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dancebert
6/22/2019 06:46 EST

Thanks, Unfortunately it didn't have what I've been looking for, which is information about 401k, IRA, Roth IRA, and if the Portuguese define any of those as a pension.

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tomonoak
6/22/2019 08:53 EST

This is going to be a completely unsatisfactory reply, but... I did my Portuguese IRS in May, and I included my mandatory IRA withdrawal from 2018 in the same category (category H) as social security. At the time, I looked around the web and found support for this, but stupidly I kept no notes. I have since received the "situacão: SALDO NULO EMITADO" status from the AT, so if they were paying attention, they had no problem with it. Anyhow, if I did wrong, and you do it the same way, I guess we can hang together.

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dancebert
6/22/2019 09:57 EST

If we hang, we won't be the only ones. One FB poster received tax advice from Eurofinesco stating IRAs are category H. They're the only firm I've found on the net that addressed US retirement accounts by name, in their document(1) S82A - Taxation of Pensions for US Citizens resident in Portugal. A quote:

"Private pensions paid in the USA - occupational pensions, IRAs, 401ks, annuities, etc. - now become solely taxable in your country of residence (Portugal). These rules allow you to take advantage of beneficial elements of Portuguese fiscal legislation such as the NonHabitual Residency regime 10-tax holiday or appreciable exclusions routinely available on many forms of private pension income."

Those exclusions exempt 85% of pension distributions from taxes. But they didn't say which forms of pensions. I emailed them asking for clarification. They countered with an offer to Skype with the President of their board, who is also an American citizen. He said IRAs were category H.

(1) Eurofinesco has scores of downloadable documents of interest to those with tax, finance, and real estate interests in Portugal. They're free. However, download enough and you have to register to continue.

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greencarder
7/3/2019 07:03 EST

Thanks, Unfortunately it didn't have what I've been looking for, which is information about 401k, IRA, Roth IRA, and if the Portuguese define any of those as a pension.


Though this will be important, will there not be more of a stumbling block at the US end?

I would expect the financial institution holding the 401k/IRA to take a witholding from distributions.
Would there then be a difficulty claiming this back on your 1040 form?

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Countga
7/3/2019 09:16 EST

Hello Greencarder,
My Portuguese accountant treats IRA withdrawals the same as Social Security income under the Category H - Rendimentos De Pensoes. This is on the page titled "Rendimentos Obtidos No Estrangeiro" (Income Obtained Abroad) The income is shown in euros. The exchange rate used is set at year end by Financas.
I am also registered as NHR (Non-Habitual Resident).
As far as I know your US Institution will not withhold taxes from your IRA withdrawals unless you tell them to. As you know at age 70 1/2 you have to start minimum distributions in any case.
Hope this helps.

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dancebert
7/3/2019 10:59 EST

Agreed, no withholding on IRA distributions unless you choose it.

>My Portuguese accountant treats IRA withdrawals...
Traditional IRA, Roth IRA, or both?

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whatsnext
7/3/2019 12:45 EST

"Private pensions paid in the USA - occupational pensions, IRAs, 401ks, annuities, etc. - now become solely taxable in your country of residence (Portugal). These rules allow you to take advantage of beneficial elements of Portuguese fiscal legislation such as the NonHabitual Residency regime 10-tax holiday or appreciable exclusions routinely available on many forms of private pension income."

Thank you for this. However, "now become solely taxable in your country of residence (Portugal)." confuses me. I was under the impression that, as US citizens, if we didn't pay a tax in PT due to the NHR, then we would simply end up paying on the amount to the US (which may be at a lower rate than PT.) This statement suggests that the US can't tax you on this income, even if you don't pay on it to PT due to NHR status.

So, I guess my question is: Does PT tax residency with NHR shelter some income from US taxation, even though we have to file US taxes and show what we have paid in PT?

Thanks for any clarification anyone can provide about this.

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realspear
7/3/2019 13:43 EST

There's some really misleading information in the Eurofinesco document, at least as applies to US citizens. US citizens are ALWAYS taxed on worldwide income. It does not matter where you are a resident. The tax treaty with the US and Portugal means that you only pay the difference between the US tax rate and the Portuguese tax rate for taxes in Portugal. NHR status means you don't pay taxes on SOME of your income. Certain things are excluded from the NHR relief.

If you really want to know where you will be tax-wise, consult a tax professional in Portugal who deals with US citizens.

If you are not a US citizen, it's different depending on what country your citizenship lies.

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missymess
7/3/2019 17:18 EST

Green carder:. We have had to take money from our 401k and taxes were withheld. When we filed it was treated as any other taxes withheld and credited against your tax bill.

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dancebert
7/4/2019 03:49 EST

> US citizens are ALWAYS taxed on worldwide income. It does not matter where you are a resident.

From Article 20 of the double taxation treating between the US and Portugal, with my clarifications in braces:

"(b) social security benefits and other public pensions paid by a Contracting State [USA]
to a resident of the other Contracting State {Portugal] or a citizen of the United States may be taxed in the first-mentioned State {USA]."

I'm not a tax professional, nor do I recall you claiming to be one. Seems to me "may be taxed" does not mean 'must be taxed' or 'will be taxed'. If my income is enough to owe taxes in the US if I was living there, I'm going to use professional advice.

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realspear
7/4/2019 06:46 EST

Well it's always best to talk to tax professionals and after having discussed this with numerous professionals in both countries who deal specifically with these problems, I have been told by everyone that I have to pay US tax on the social security in the US first.

However, there is a source from the Portuguese finanças that deals with this, it can be found here - http://info.portaldasfinancas.gov.pt/pt/apoio_contribuinte/Folhetos_informativos/Documents/IRS_RNH_EN.pdf What is says (Section B3) is that you won't be taxed in Portugal if you have been taxed in the US on pension (includes SSI here) income, you won't be taxed in Portugal. That makes it pretty clear that you will be subject to potentially much higher rates in Portugal if it hasn't been paid in the US.

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dancebert
7/4/2019 07:49 EST

> What is says (Section B3) is that you won't be taxed in Portugal if you have been taxed in the US on pension (includes SSI here) income, you won't be taxed in Portugal

Try reading B3 again, this time considering the 'or' between B3A and B3B

Speaking of tax professionals, compare the Deloitte translation of B3A to the translation by a government employee of unknown job motivation and unknown abilities in both English and tax law:

PT Government:
"a) They are taxed by the source State/nation, according to the convention to eliminate double taxation held by Portugal and the source State; or"

Deloitte:
"- Subject to tax in the source country (in accordance with the applicable Tax Treaty) or"

https://www2.deloitte.com/pt/en/pages/tax/articles/residentes-nao-habituais.html

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greencarder
7/4/2019 10:40 EST

Many thanks for the replies; I find it difficult to negotiate the US tax system, so every piece of information helps.

Countga: thanks, this was very helpful.
So for the PT tax return, you do all exchange calculations with just one rate, regardless of the date you received the income.
Is this because you lump all the separate foreign income together, and just enter one value?

Thanks, missymess - so a 401k distribution is treated differently to that of an IRA, and you would have to claim back the tax.

I expressed my original post badly, as what I was trying to say was that the US tax authorities might want to still claim jurisdiction.
This was better expressed by whatsnext and realspear.

Will this not become clear when someone sends their US tax return without payment for 401k/IRA, and it is accepted/rejected?

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missymess
7/4/2019 11:44 EST

Greencarder:. With 401k withholding was mandatory as it was not taxes previously.

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dancebert
7/4/2019 11:56 EST

> what I was trying to say was that the US tax authorities might want to still claim jurisdiction.

Perhaps the Finanças document used in Portugal to prove that you're both a resident and a tax resident would also prove to the US IRS that jurisdiction is based on the tax treaty.

https://www.lisbob.net/en/blog/how-to-obtain-proof-address-certificate-fiscal-residence-portugal

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greencarder
7/9/2019 13:03 EST

>
Perhaps the Finanças document used in Portugal to prove that you're both a resident and a tax resident would also prove to the US IRS that jurisdiction is based on the tax treaty.
<

If this is valid on the US side, then how would you claim the exemption on your US tax return?

Would you simply leave the IRA section blank?

Or would you enter the IRA value, and fill in another tax form to reclaim?

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tmac100
7/10/2019 08:00 EST

Messymiss, you shouldhave stated that the link you provided was only "useful" for you, and some other US Citizens.

There are other nationalities, like myself who find such "helpful links" a total waste of time because US taxation laws do not apply to them.

My advice is: spend some money and get a GOOD financial specialist who is knowledgeable with USA and Portuguese tax legislation and filing returns.

Every person's tax situation is as different as different marriages. If the financial specialist you hired, screws up, then they are on the hook.

Just my humble opjnion.

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missymess
7/10/2019 09:28 EST

Lots of Americans read these postings. As always, articles are just a starting point, however they highlight questions that must be asked of professionals. I do not apologize for attempting to help.

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wilsonworld
7/10/2019 09:29 EST

I'm not sure how this could have been misinterpreted.

The link that was posted says;
us-tax-preparation-in-portugal

Clicking the link it's titled -
Simple Tax Guide for Americans in Portugal
US Expat Taxes - Portugal

It seemed overly clear to me.

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tmac100
7/11/2019 05:42 EST

Yes, my bad. I should not have just read the title and the first sentence before clicking on the link. I just clicked and assumed the title and first sentence would provide good info.

My bad. It was addressed to USCs. No apologies needed for the OP's making a "helpful" suggestion.

Next time I won't bothe with looking at such postings as I already have the appropriate tax people in Canada and Portugal. Now that I have put out this fire, lets move to a different topic.....

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wilsonworld
7/11/2019 06:38 EST

But I bellive this information only apply to someone who had secured NHR status.

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wilsonworld
7/11/2019 06:43 EST

Sorry, I should have added that my comment was on Realspear post below......


However, there is a source from the Portuguese finanças that deals with this, it can be found here - http://info.portaldasfinancas.gov.pt/pt/apoio_contribuinte/Folhetos_informativos/Documents/IRS_RNH_EN.pdf What is says (Section B3) is that you won't be taxed in Portugal if you have been taxed in the US on pension (includes SSI here) income, you won't be taxed in Portugal. That makes it pretty clear that you will be subject to potentially much higher rates in Portugal if it hasn't been paid in the US.

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dancebert
7/11/2019 09:56 EST

>What is says (Section B3) is that you won't be taxed in Portugal if you have been taxed in the US on pension (includes SSI here) income, you won't be taxed in Portugal. That makes it pretty clear that you will be subject to potentially much higher rates in Portugal if it hasn't been paid in the US.

Try reading B3 again, this time considering the 'or' between B3A and B3B

By the way (not that anyone cares), if anyone has found an official Portugal government source stating that any or all of SS, IRA, Roth IRA, and 401ks are 'pensions', then no one has ever claimed to see it on the 2 forums, 3 FB groups, and any googleable source I've searched.

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Fredonia
7/17/2019 13:56 EST

Oh, TMAC, your passive-aggressive attitude, arrogance, and "helpful" quotation marks can go screw themselves! btw, are you sure that you are Canadian?

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greencarder
7/19/2019 10:27 EST

>
If this is valid on the US side, then how would you claim the exemption on your US tax return?

Would you simply leave the IRA section blank?

Or would you enter the IRA value, and fill in another tax form to reclaim?
<

I found this interesting piece of information on the goldinglawyers.com website:

if you want to claim benefits as a resident of a foreign country, attach form 8833 to form 1040NR US dual-resident taxpayer

(I was unable to copy the exact text).

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