The financial complexities of moving to Portugal for US Citizens

Written By Sam Daynes

Portugal remains one of the most popular locations for US citizens looking to move abroad. Not only is Portugal a beautiful place to live, but it has also offered many tax benefits and a very popular Golden Visa scheme.

So why is Portugal such a popular destination for US citizens? Well, firstly Portugal has a lower cost of living than the United States. Although this varies from place to place, it remains, on average, around 40% lower, with rental costs over 50% less.

Portugal also offers safety, often cited as one of the main reasons that US citizens look to relocate. If you add this with an excellent health service, a fantastic climate, and a relaxed lifestyle, it is no wonder that Portugal remains one of the top destinations for US Citizens.

In addition to the above, one of the main drivers for people looking to relocate to Portugal has been the political stability and a very favorable tax system for new residents. However, this has been turned somewhat on its head with the events in Portugal over the last year.

This started back in February 2023 when it was announced that the Portuguese government would tackle the housing issues in the country. Prime Minister António Costa stated that there would be changes to the Golden Visa Programme as part of these efforts.

This resulted in property being removed as a qualifying factor in obtaining a Portuguese Golden Visa, which was traditionally one of the main routes to Portuguese and EU residency. This was followed on October the 2nd 2023 with the withdrawal of the Portuguese Non-Habitual Residency (NHR) scheme.

Want to become part of the large community of US expats in Portugal? Sign up for Holborn Assets’ live webinar on the challenges facing US connected clients moving or living in Portugal. Find out all about the financial perks of moving to Portugal and have all your burning questions answered. The event is scheduled for May 16 at 5 pm (Lisbon Time) / 12 pm EST. If you would like to schedule a one-on-one call instead, you can book one here.

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The Non-Habitual Residency (NHR) Scheme Updates for 2024

This scheme was another main factor in people relocating to Portugal. If this wasn’t enough political change in one year, António Costa was forced to resign in November due to a raid on his official residence and a potential criminal Investigation.

With all this change affecting Portugal, it is no surprise that people are having to think longer and harder about making their choice to relocate. To make it even more difficult, US-connected individuals have a lot more to think about financially before making this move.

So, what makes US-connected individuals have to think harder about making this move?Not unique to US individuals but nonetheless a high factor to consider in moving to Portugal is the withdrawal of NHR. Now in a Grandfathering period, NHR remains out of the reach of most people looking to relocate. This means tax benefits such as a 10% flat rate on pension income, or a flat rate of 20% income tax, have now been replaced by a much harsher tax regime for most people.

You may still qualify for NHR if you fit into the below Grandfathering rules:

  • Promissory employment agreement or promissory secondment agreement (or employment or secondment agreement) signed by 31 December 2023 to perform activities in Portugal or
  • Lease agreement or other agreement granting the use or possession of property located in Portugal and concluded before 10 October 2023 or
  • Reservation or promissory contract for the acquisition of property located in Portugal concluded before 10 October 2023 or
  • Enrolment or registration for dependents at Portuguese educational establishment by 10 October 2023; or
  • Residence visa or residence permit valid by 31 December 2023; or
  • The procedure, initiated by 31 December 2023, is for granting a residence visa or residence permit with the competent entities in accordance with the current immigration legislation (e.g., visa appointment in 2023).

There will be a new regime replacing NHR which will aim to attract foreign talent and investment to Portugal. This is aimed at people who are employed and in roles such as scientific research, technology, start-ups, or higher education. There will be a 20% flat rate on employment income for qualifying people, but this is likely to be less beneficial than the previous regime.

The 2024 general tax rates for personal income in Portugal are as follows currently:

Up to €7,703 13.25%

€11,623 –€16,472 23%

€16,472 –€21,321 26%

€21,321 –€27,146 32.75%

€27,146 –€39,791 37%

€39,791 –€51,997 43.5%

€51,997 –€81,199 45%

Over €81,199 48%

What to Consider: US Connected Citizens 

If this alone is food for thought, there is even more to think about for those US-connected clients. Firstly, all US-connected citizens are required to file a US tax return if living outside of the United States, as their worldwide income is subject to income tax regardless of where they live.

In fact, the United States is one of only three countries that insist on this reporting. The other two are North Korea and Eritrea. If filling out these forms is not a burden enough, if your financial assets are not set up in a compliant manner for both Portugal and the United States, it could lead to some nasty surprises from the IRS.

Portugal has, for a long time, had some very effective wrappers that prove very effective in reducing taxes after set periods of time. These wrappers will often not provide the same level of benefit for US-connected clients.

Many US citizens hold pension and investment products such as 401k’s, IRA’s, defined benefit pensions, and many other types of holdings. These need to be carefully structured when making the move to Portugal to ensure that they are tax compliant with the Portuguese tax system. An example of this would be to avoid Passive Foreign Investment Companies (PFIC’s).

The right advice is also essential for anyone looking to move outside of the United States. Cross-border regulation is essential and often cannot be provided.

Whatever your situation, it remains that Portugal is one of the most beautiful places in the world to live. No change in a political regime or a tax break can alter this. It is just more essential now, more than ever, that the right advice is sought to put you and your family in the best position possible.

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  1. I am 75 and having income from 2 sources, Social security income amount of 42000 annual and public (state of California) retirement income of 18000. Both are fully taxable in the us. What I need to know is if I become a prtugal (full year) resident. Will my us restrement be taxed in Protugal


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