Portugal Forum

garbonzobean
Joined 2020
Posts: 10

3 years ago

Tax consequences in USA to PT residency

3 years ago

First, this site is a great resource and I have learned a lot already.

I am USA citizen and lucky to have income from myriad of sources such as dividends, capital gains, w-2 sources, etc.

I am planning on retiring to PT incrementally over the next few years (perhaps 60 days a year) but not fully retire until about 5-7 years. I considered getting an early start on residency to make the transition easier but the more I look into the tax consequences, it makes me more concerned about this approach.

Sorry that this post is somewhat long and detailed but I hope someone can clarify any of my misperceptions.

I am laying out hypothetical scenario and wonder if anyone can validate this assumed scenario:

Please understand that this isnt meant to be exact, but rather to show a potential general outcome.

Current example income sources:
1. W-2 income from USA sources of $100,000 taxed at 32%
2. Qualified dividend income from USA sources of $50,000 taxed at 20%
3. long term capital gains of $50,000 taxed at 20% from USA sources

So, as USA citizen/resident on income of $200,000 my tax burden would be $52,000. (ignoring any margin bracket issues for simplicity).

In Portugal resident, I understand there is a 48% tax rate over 80,000 euros. Ignoring these marginal rates again, on $200,000 income I would about $96,000 in taxes in PT.

As USA /PT dual resident because of dual taxation treaties, I believe that PT will not double tax this income. So i would still owe the $52,000 to the USA, but I would also owe an additional $44,000 to PT. Ouch!

Now, Portugal has provided in some situations a NHR tax scheme. As I understand NHR, it would eliminate the $44,000 otherwise owed to Portugal for a period of 10 years. But I believe I would still owe the $52,000 annually to the USA during this 10 year period.

I read somewhere that even the NHR scheme would not eliminate taxes on capital gains so it seems that it is even more complex than first appears.

If my understanding is even generally correct, it would be financially punitive for me to seek residency before I am actually ready to retire, particularly because I would use up most of my 10 year NHR period without spending much time in the country.

Could anyone help me understand if I am more or less correct in my interpretation of these tax laws in PT?

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