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Retired US citizens navigating Portugal taxes
Well now that we have obtained our temporary residence it is time to move on with another lovely topic. Taxes are right up there with immigration law. We cross reference all our advisors and do our own research to be informed.
We feel pretty good about it since we had a consultation with Ricardo Chavez from All Finance Matters | Expats Portugal and he confirmed what we suspected. We just haven't gotten to the point of where the NHR kicks in versus the double taxation treaty.
This ultimately determines if we live in Portugal when the NHR ends or not.
We have read at length the US and Portugal double taxation treaty and the follow-up technical explanation found here.
We will update this post as we flush out information.
We welcome any sage advice from Expats Portugal members.
What have you concluded regarding if/how (during the NHR period) retirement income from USA 401(k), Roth, and Social Security will be taxed? I have read conflicting opinions on these, all from supposedly qualified "experts".
After the expiration of the 10-year NHR arrangement, your full income will be taxed at the same rate as all other Portuguese taxpayers. You will, however, be able to claim foreign tax credits against any USA tax liabilities. This may mean that you build up lots of foreign tax credits that you will not use - as I recall, such credits expire after ten years.
Hoping for clarity on if Portugal taxes you for the entire year that you became a tax resident or only on the portion of the year you were a tax resident.
I have seen some wording about proration based on when you became a tax resident during the year, but it was not clear.
I too, have gotten some conflicting information from "experts" so I'll be following this thread closely.
On the topic of Roth IRAs, I've been told PT doesn't have/recognize them so it is up to the tax filer to designate the appropriate 'bucket' (e.g., pension income, etc.) to report them on the return. This seems odd to me but hopefully we can get some clarity before we have to file. Of course, the US will have already taxed them, perhaps years ago, so it will be interesting to see how these are handled with PT (NHR and non-NHR) tax rules.
If we pay US tax on US social security/401k/IRA distributions, even if these are all considered pensions by Portugal, might we still owe the 10% Portuguese tax during NHR status? Or would the higher than 10% US tax paid on this “pension” income protect it from this new 10% tax? Double taxation?
If the 10% is in addition to US taxes, can be a significant burden.