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Income Taxes

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Posts: 52
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Topic starter
(@bdgfn)
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Joined: 2 years ago

Hello all. I'm not sure if this is the right place or not, so if not, please move it to the proper area. My wife is doing a bit of pre-planning and budgeting and was wondering how much we would be paying in income tax from our American retirement plan (401K). I am a bit confused on the rates. It was my understanding that once we arrive we can sign up for NHR status, and with that our retirement income would be tax-free for ten years then a flat-rate 10%. Is this correct? If not, what percentage can we look to pay the first several years we are living there? Thank you in advance.

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Posts: 1980
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(@old-bloke)
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Joined: 13 years ago

NHR only lasts for 10 years, previously the tax rate was 0% on pensions but it has been changed and new entrants to the scheme will have their pensions taxed at 10%. (I can't remember if the change came into effect last year or comes into effect for new entrants after 01/04/21).

When your NHR expires you will be taxed at standard rates, the 2021 rates can be found on this link.
https://info.portaldasfinancas.gov.pt/pt/apoio_contribuinte/tabela_ret_doclib/Pages/default.aspx

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Premium Member
(@bdgfn)
Joined: 2 years ago

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Posts: 52

@old-bloke I assume if we do not immediately apply for NHR my pension would be taxed at the standard rate? Thank you for the response!

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VIP Member
(@old-bloke)
Joined: 13 years ago

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Posts: 1980

@bdgfn

You have until the 31st March of the year following the year you become resident to apply for NHR. So if you become resident during 2021 you have to apply for NHR before 31/03/22.

If you don't apply for NHR as above your pension will be subject to standard PT IRS tax rates forever owing to having missed the time limited window of opportunity to submit the NHR application.

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Premium Member
(@bdgfn)
Joined: 2 years ago

Trusted Member
Posts: 52

@old-bloke Excellent, thank you!

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Posts: 288
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(@jeanne)
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Joined: 1 year ago

RE the new 10% tax rate on foreign pensions, does anyone know whether one could then claim that amount as a Foreign Tax Credit for the purpose of USA income taxes? I've read the IRS regulations but it is still not clear to me.   The same question for ROTH withdrawals - I 'd Have no problem paying those taxes to PT if I can get a tax credit for them in the USA.  

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 Bert
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(@bert)
Joined: 2 years ago

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Posts: 201

@jeanne While I have not yet filed through the dual tax treaty agreement my understanding is that what you owe/pay in one place is credited in the other so that you are not doubly taxed. Who gets credited for what in the paperwork is up to my account to fill out. I am told you do not pay tax on the roth IRA because you paid tax on that money before it ever went into the Roth account. The accountants and tax attorneys have the best information on this and would consult yours for the best info. 

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Posts: 3
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(@vikinghouse)
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Joined: 3 years ago

Has anyone found a tax consultant in Portugal who can provide information to US residents about US And Portuguese pension taxation under Portuguese/US tax laws and treaties?  Given the volume of immigrants to Portugal I have to believe some resourceful accountants/lawyers have developed this expertise, but I've spent considerable time looking without success.  My stateside contacts only provide a very general overview of Portuguese requirements, and the same is true for Portuguese consultants regarding US taxes.  We want to understand the total tax responsibility before making a residency change.

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 Bert
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(@bert)
Joined: 2 years ago

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Posts: 201

Not sure where you are located but there are many Portuguese people in the Boston, New Bedford area, New Jersey, Central California in Turlock and Modesto. Looks for an accountant there if you haven't already found one. My understanding as said before is that once under the NHR your taxation rate in Portugal would be applicable to that, 10% over 10 years. In the US uncle Sam gets his coming and going. So, your taxation rate would be based on your own personal financial circumstances and the dual taxation treaty would prevent you from being double taxed. Many/most accountants in the US I have contacted(even my inquiries to international tax accountants) are not familiar with the whole Portugal scene so you may want to look at one of these place where many Portuguese people live to find a resource to query for yourself because they have many clients who are dual citizens or are like us and have that information. 

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Posts: 288
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(@jeanne)
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Joined: 1 year ago

I believe that the new 10% rate applies only to "pension" income.  But then the question remains, what is considered to be "pension" income under Portuguese tax law?  I am still researching this, but at the moment I think both social security and 401k distributions would fall under that term.  But as to Roth withdrawals, I'm not sure yet.  The Roth was not yet in existence at the time the current US/PT double taxation treaty went into effect, so the treaty does not address it directly.  If I get any clarification on this I will certainly add it to this thread. 

I don't think that any Portuguese residing in Boston or other US locations have to deal with any of this stuff.  The U.S. continues to tax its citizens regardless of where they reside (e.g. PT ), but as far as I know, Portugal does NOT tax its citizens who reside/work abroad.  I've always read that the only two countries who do that are the USA and Eritrea.  If I'm wrong about this, I'm happy to be corrected. 

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