Working from Portugal

[prcsc]

You need to check with a Portuguese accountant. But before you do that, seriously, I recommend you download and read the dual tax treaty between UK and Portugal. The tax treaties are written in fairly plain English and pretty easy to understand. It sets out who has the right to tax what money under which circumstances. It's not rocket science, start from the principle that Portugal and the UK are mature western economies and both have well established tax codes which means it is nigh on impossible to work in either country without paying tax on your earned income. Once you have read the treaty and understand this, I expect you to conclude your plan won't work. Now, if you want to retire to Portugal and have your pension paid there, that's a different story. But again,take note that a UK state penson is generally taxable in the UK anyway. This is all generalisation, but I believe it to be pretty accurate. I have looked at retiring to Porto, though it is not presently on the cards. HTH.

Thanks Fred, going through the tax treaty now.
I might ask for some help if it's not clear. Will also reach out to Portuguese accountants. Does anyone recommends a PT accountant with experience on this? Thanks!

[prcsc]

You need to check with a Portuguese accountant. But before you do that, seriously, I recommend you download and read the dual tax treaty between UK and Portugal. The tax treaties are written in fairly plain English and pretty easy to understand. It sets out who has the right to tax what money under which circumstances. It's not rocket science, start from the principle that Portugal and the UK are mature western economies and both have well established tax codes which means it is nigh on impossible to work in either country without paying tax on your earned income. Once you have read the treaty and understand this, I expect you to conclude your plan won't work. Now, if you want to retire to Portugal and have your pension paid there, that's a different story. But again,take note that a UK state penson is generally taxable in the UK anyway. This is all generalisation, but I believe it to be pretty accurate. I have looked at retiring to Porto, though it is not presently on the cards. HTH.

Hi Fred - so I looked into the legislation instead of just asking people (actual accountants), as I have on the last few weeks but I'm getting mixed answers. Let's forget the LLP now. Me being a self employed:

This is the NHR legislation clause that applies to me as my income is considered foreign income in Portugal (as it's income from the UK):

Foreign-sourced income from independent personal services is IRS exempt (without progression) in Portugal, provided that it derives from high value added activities of a scientific, artistic or technical nature, as defined by Ministerial Order, and is potentially liable to taxation in the source State (i) under the rules of an existing DTT or (ii) in the absence thereof, under the rules of the OECD Model Tax Convention, if such income is not deemed to arise from a State, region or territory included in the Portuguese tax havens’ blacklist nor from a Portuguese source under the IRS Code territoriality rules.

This means my income is clearly exempt from tax in PT.
Now, the bold park is key for the second part below. Note that on the NHR legislation, for the other types of income it says instead: it is effectively taxed in the source State. So, "potentially liable to taxation in the source State" means that I could potentially also not be taxed in the source state and still be exempt in Portugal.


On the DTT you have the following:

Article 14
Independent Personal Services
(1) Income derived by a resident of a Contracting State in respect of professional services or other independent activities of a similar character shall be taxable only in that State unless he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities. If he has such a fixed base, the income may be taxed in the other Contracting State but only so much of it is as attributable to that fixed base.

I fall into the latter part - I have a fixed base regularly available to me in the other Contracting State (UK).
Thus I can be taxed in the other state (UK) as highlighted,but the UK choses not to tax me as I am not a resident in the UK.

Am I missing something here? Shouldn't that mean that I'm exempt in both countries?

[Fred Bloggs]

The massive elephant in the room here is that you are sitting in Portugal earning the money. It's paid to you by a British client. But, if you pass the statutory residence tests such that you are not British tax resident, as seems the case, then because you are sitting in Portugal doing the work, that means it is Portugal income, not British income. You have to be tax resident in one or the other or both. It seems you are tax resident in Portugal, provided you pass the aforementioned residency test in the UK.

Here's another example. I was British, working for a UAE company. Living in Korea while working for them. I passed the statutory residence test for the UK so didn't pay UK tax on that income. UAE has no income tax, so I didn't pay there either. I was living and working in Korea for the UAE company. Did I pay tax? Yes. Where did I pay it? Not UK, not UAE. I paid it in Korea because that's where I was sitting while being paid by the company in the UAE.

Sounds familiar to you now?

[WTFH]

Now, the bold park is key for the second part below. Note that on the NHR legislation, for the other types of income it says instead: it is effectively taxed in the source State. So, "potentially liable to taxation in the source State" means that I could potentially also not be taxed in the source state and still be exempt in Portugal.

I don’t think so.
You are doing the work in Portugal, earning the money in Portugal, sure the client might be based elsewhere, but you’re doing the work in Portugal. Reading the NHR, it’s clear that the zero rate applies to foreign earnings. The only way you could make it foreign earnings is if your personal limited company was based abroad. The NHR examples for what it considers “foreign earnings” and these are things like income from rentals or income from investments/shares/pensions.

But, there is some light at the end of the tunnel for you - under NHR you would pay a reduced tax rate on your local income

[prcsc]

The massive elephant in the room here is that you are sitting in Portugal earning the money. It's paid to you by a British client. But, if you pass the statutory residence tests such that you are not British tax resident, as seems the case, then because you are sitting in Portugal doing the work, that means it is Portugal income, not British income. You have to be tax resident in one or the other or both. It seems you are tax resident in Portugal, provided you pass the aforementioned residency test in the UK.

I don’t think so.
You are doing the work in Portugal, earning the money in Portugal, sure the client might be based elsewhere, but you’re doing the work in Portugal. Reading the NHR, it’s clear that the zero rate applies to foreign earnings. The only way you could make it foreign earnings is if your personal limited company was based abroad. The NHR examples for what it considers “foreign earnings” and these are things like income from rentals or income from investments/shares/pensions.

Ok, to be clear.
For you to be under the NHR status you must to be a tax resident in Portugal.
Then on the NHR legislation, there is this clause in my previous comment, which clearly says "Foreign-sourced income from independent personal services is IRS exempt". In the Portuguese legislation (I speak Portuguese) it's even more obvious that is this definitely referring to contractual work, and not dividends, rentals etc - and furthermore, these incomes have their own separate clause.

Now, my point is - of course there is a type of contractual income that would be tax exempt in Portugal while you being a Portuguese tax resident, otherwise why would there be this clause in that legislation.
The question is then - What kind of income falls under the NHR legislation being classified as "Foreign-sourced income from independent personal services"? - unless it's work I would do if I would go to other country for a short period of time, and would do it in that country (while still being a tax resident in PT)? Which is confusion because it also says Foreign-sourced which in my simple brain means from a foreign source - and nothing related to where I'm located when I'm doing the work.

Here's another example. I was British, working for a UAE company. Living in Korea while working for them. I passed the statutory residence test for the UK so didn't pay UK tax on that income. UAE has no income tax, so I didn't pay there either. I was living and working in Korea for the UAE company. Did I pay tax? Yes. Where did I pay it? Not UK, not UAE. I paid it in Korea because that's where I was sitting while being paid by the company in the UAE.

Well you are missing the big point that Korea doesn't have (I assume) a similar status to the Portuguese NHR status, which says that independent Foreign income is tax free in that country (Korea)... That's the point of the whole conversation.
And to be clear, NHR status doesn't apply to everyone that lives in Portugal. Or course it wouldn't be as easy as working to an abroad client and you are now tax free (as your situation). You need to be under the NHR status, which as qualifying criteria (and I qualify to).

[Fred Bloggs]

OK, I give up. If the OP is quite happy that he has no tax residency in either the UK or Portugal, then that's mighty fine by me. Go fill your boots everyone, free money to be had in Portugal guys

[prcsc]

OK, I give up. If the OP is quite happy that he has no tax residency in either the UK or Portugal, then that's mighty fine by me. Go fill your boots everyone, free money to be had in Portugal guys

Listen, I totally agree with you that it's unreasonable to think that one would be tax-exempt in a modern country like PT.
And to be clear, I'm not talking about tax residency - the residency is clearly Portugal. I'm talking about where is the tax paid.

I just cannot find anyone to tell me where the legislation says where I need to pay tax that's all, this includes accountants. You give up because you cannot either.

I have found English and Portuguese accountants, which are setting up Brits this way (free of tax) in Portugal for years!
You can find one here for example (quite detailed): NHR: residency in Portugal for foreign nationals - live tax-free in Portugal

Now, again, I agree with you and find it hard to believe that this is the case, thus why I haven't just started to set this up with one of those accountants.

Edit: I really appreciate your input regardless. And I understand it's a complex topic, here might not be the Forum I guess and needs to be sorted by an accountant . My issue is that I'm getting mixed answers, that's all.

[BR14]

Edit: I really appreciate your input regardless. And I understand it's a complex topic, here might not be the Forum I guess and needs to be sorted by an accountant . My issue is that I'm getting mixed answers, that's all.

I think your issue is that you're not getting the answer you want.

[prcsc]

I think your issue is that you're not getting the answer you want.

And the answer is that I pay tax in...?

[prcsc]

If anyone is interested, this applies to dividends:

For example, take the double taxation agreement between the UK and Portugal.

If you reside as an NHR in Portugal but you receive dividends from the UK, according to Article 10 of the DTA, the English government is able to tax those dividends, but in reality, they do not do this if you are not a resident there. Therefore, in Portugal, you will not be taxed on your English dividends as an NHR, since the UK would theoretically have the right to do so.

Therefore, as a non-habitual resident in Portugal, you can receive tax-free dividends from England.

NHR: residency in Portugal for foreign nationals - live tax-free in Portugal