In the last few years, the number of American expats in Portugal has increased dramatically to approximately 10,000. Many of the American expats are still working and the majority of them are taking advantage of the NHR scheme, which offers lower taxation for some professions as well as pensions and no tax for some types of foreign-sourced income.
Many Americans who are already in Portugal or are on their way to Portugal have been eagerly awaiting to see how the tax authorities will treat capital gains by US citizens.
The NHR regime offers an exemption from tax in Portugal for some categories of income, including capital gains, if the income could be taxed in the other country.
Under most double taxation treaties that Portugal is a party to, only Portugal can tax its tax residents for capital gains realised when they live in Portugal, but this is not the case for US citizens. In the double taxation treaty with the United States, the US retained the right to tax capital gains, based on the so called “saving clause” which is part of the agreement.
It has therefore been widely expected that the NHR exemption will apply to US citizens living in Portugal, but the tax authorities have nevertheless ignoring taxpayers’ requests to apply an exemption on their capital gains.
In March 2022, a Portuguese arbitration court has issued a detailed and reasoned ruling in favour of a taxpayer, applying the law and nullifying a tax assessment for capital gains tax. It has therefore again been expected (and hoped) that the authorities will respect the law and the ruling and will apply the exemption.
However, this does not seem to be the case.
Fresh Portugal is an expat-focused tax consultancy that works with many of the Americans on tax matters and confirms that the authorities have been applying the tax this year. Fresh Portugal intends to dispute some of the larger tax assessments on behalf of their clients and are optimistic that the assessments will be nullified.
We previously reported here that this firm previously pioneered the first NHR tax return service specifically designed for expats, as well as an automated bot (Joana the tax bot) offering free tax advice and has recently announced hiring of a US tax lawyer in its Lisbon office and early access to the first combined service of an integrated tax return in Portugal and the US.