Investing as a Portuguese Tax Resident

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An article by Henry Kent, an International Financial Adviser at Holborn Assets.

In my previous articles I wrote about the Golden Visa and the routes into Portugal. If you are now in Portugal, you may be wondering how to ensure that your investments are tax-efficient in your new country of residence. While your investments may have been tax-efficient in your previous country, it’s crucial to review them to ensure that they will also be tax-efficient in Portugal.

Are you looking for the best way to invest as a Portuguese tax resident?

There are several ways of doing so, like directly held stocks and shares, collective investments, trust and pension structures.

One option that is particularly beneficial to use in Portugal is the investment bond, a structure that is widely used across Europe as a whole. The Portuguese Bond is a unit-linked single premium life insurance contract that is invested in a portfolio of assets. It is a form of long-term investment that can mean significant tax benefits in Portugal.

The Portuguese offshore investment bond offers an interesting tax efficient solution for those wanting to both secure capital growth and access those benefits when they choose to do so. This investment vehicle is also perfect for those with changing needs.

One of the major benefits of the investment bond is its ability to help you maximize your gains and minimize your tax liability. How does this happen? Gains within the bond are not taxed until you decide to surrender or make a withdrawal. This way, gains within the investment bond can grow free of tax, known as ‘gross roll up’, allowing you to benefit from compounding. If you’re looking to minimize your tax liability, this is an excellent option.

Taxation of surrender payments in Portugal

The taxation of surrender payments in Portugal is easy. Under Portuguese law, these investments are classified as life insurance agreements. This means changes in the investment funds won’t be taxed as long as no payments are made out of the policy.

Surrender payments, including regular partial surrenders or “taking income”, from life insurance agreements are taxed as Personal Income Tax in Portugal under Category E – capital investment income. The taxable amount is the positive difference between the Surrender Value received and the initial amount invested.

Offshore Bond Taxation Rates:

An example of how a withdrawal works:

Portugal Investment opportunities

 

Other benefits of investment bonds

Investment bonds also bring flexibility and diversification to your investment portfolio.

With income and gains rolling up free of tax within the structure, you are free to seek other investment strategies: there are no constraints on the potential tax consequences of rebalancing or switching between strategies. In addition, these structures accommodate a wide range of currencies, asset classes, and fund management styles, such as discretionary fund management, index trackers, and self-management.

The investment bond offers amazing tax simplification: you only need to report and declare any income and gains when you make withdrawals. This makes local tax reporting very simple.

If you relocate from Portugal you do not have to surrender your investment, as the investment bond structure is also widely recognized in other jurisdictions. Plus, this structure allows the flexible and certain transfer of wealth to beneficiaries, which may not be possible with other investment types and the default “forced heirship” provisions under Portuguese law.

Are you an expat living in Portugal?

If that is your case, investment bonds might be an wonderful option as part of your investment strategy. Remember all the advantages they come with: tax deferral during the accumulation phase, low effective tax rates when withdrawing funds, control of the timing of tax events, investment flexibility and diversification, simplification of tax reporting, portability, succession planning, and estate administration.

At Holborn Assets, our mission is to offer our clients the expert advice they need to put their money in the right place, at the right time. We’re an established firm with multiple international offices spanning the globe. If you’re interested in learning more about Portuguese compliant investments and how they can help you achieve your financial goals, click the banner below to arrange a consultation –

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