The devil is in the details
Portugal became a fashionable destination over the last decade. The country earned top travel awards, and special programmes and tax schemes were created to attract new residents and investors.
Many rushed to Portugal to grab the Non-habitual Resident (NHR) status, guaranteeing they would be tax-exempt for 10 years.
However, a lot has changed since then, and this attractive status is no longer available to newcomers. The same goes for the Golden Visas. Once an excellent opportunity for those looking to invest in Portugal and bagging themselves a passport in the process, this advantageous programme has also changed.
To clarify the current situation, Essential Algarve spoke to Howard Bilton, Chairman and Founder of The Sovereign Group, one of the world’s largest privately owned consultancies, which, on top of many other services, assists aspiring residents with visa applications and ongoing tax and accounting.
A qualified Barrister, Howard Bilton is a proud Yorkshireman, art collector, wine producer, and philanthropist. The multifaceted man started his company in Gibraltar in 1987 and expanded to Portugal in 1990, opening an office in the Algarve.
Howard Bilton started his company in Gibraltar in 1987
Much has evolved since then. Today, The Sovereign Group employs 600 people in 20 jurisdictions. In Portugal, he explains that their services have “morphed more into an accountancy practice, in which [they] act as fiscal representatives for many thousands of people, look after the filing of their tax returns, and give them tax advice”.
They also do some planning for Brits living in Portugal “because there’s often a lingering liability to UK inheritance tax, which many don’t realise”.
He explains that Brits are still liable to UK inheritance tax unless they have not been resident in the UK for 10 tax years.
Like many professional firms in Portugal, Sovereign became involved in Golden Visa applications over the last decade. Recently, this advantageous scheme underwent various changes.
Can you still apply for a Golden Visa?
“The ability to get a Golden Visa still exists, but you can no longer obtain it by investing in property, which was the most popular route,” explains Howard. These days, “you can get it by investing half a million euros in an authorised fund, which is much simpler”.
The Golden Visa’s great advantage is that it can be maintained by spending only seven days a year in Portugal.
Other forms of visa require 180 days of residency in Portugal, and after five years, it makes the holder eligible to apply for Portuguese nationality.
“It’s highly desirable for those who want to remain in their own country and qualify for a passport without moving. So, for those who fear what will happen politically in their country, such as China, South Africa, and anywhere where there is instability. It’s for people who want the ability to live in the EU if they want to but don’t necessarily want to do it now.”
In a nutshell, the Golden Visa isn’t a product required or suitable for people who want to live in Portugal.
There are better and easier ways to obtain a visa. “You can apply for an employment visa, a retirement visa, a D1, D3, D7 and all sorts of different visas that don’t require that level of investment.”
Is it a “fast track” to Portuguese nationality?
It is undoubtedly the most flexible route. The Golden Visa is the only visa that enables you to qualify for nationality without living most of your time in Portugal.
“All other visas carry the condition of residing in Portugal for six months of the year. Therefore, the Golden Visa is distinguished by the absence of that requirement,” highlights Howard.
What about the NHR status?
“The NHR never was an immigration status. It’s a tax status you can apply for if you come and live in Portugal and have not been a tax resident in Portugal in the previous five tax years,” the consultant explains.
And for those who did get it, Howard has a few words of warning: “Many people who obtained NHR status, haven’t planned things very well and are about to get some nasty surprises. The issue with the NHR is that there is a condition attached to it: only income which has been taxed (or is liable to tax) in another jurisdiction is tax-free.
Otherwise, it’s taxed in Portugal at the normal rate of up to 48%.” However, apart from very restricted circumstances, it is no longer generally available to new residents applying now.
Launched in Hong Kong in 2003, The Sovereign Art Foundation is a non-profit organisation that promotes contemporary art talent through its international art prizes, whilst raising
Without tax exemption status, how can you be tax-efficient in Portugal?
“As we all know, to be competitive in business, you need to keep your costs down, and your major costs are rent, salaries and tax. So, if you’re inefficient in any of those, you can’t compete and are likely to go out of business. So, tax planning isn’t just a nicety. It’s a necessity,” insists Howard.
“Many people here have offshore accounts in Switzerland or the traditional offshore islands of Jersey, Guernsey and Hong Kong where wealthy people traditionally bank. And their income, which is generated on that, and their capital gains, are tax-free. However, in Portugal, this untaxed income and gains are taxable. The law says that you must declare your total worldwide income and then claim an exemption for any income that isn’t taxable in Portugal because it has been subject to or taxed in another place. So, judicially, the desired plan would be to set up a structure in Cyprus or Malta, where there is a little bit of tax payable, and Portugal has not blacklisted the jurisdiction.”
What must be declared on Portuguese tax returns?
When dealing with the Portuguese tax authorities (AT), dot your i’s and cross your t’s. “If there is one institution in Portugal that is quite efficient and clued up, it’s the tax department,” warns Howard.
“Many people are aware of this but choose to ignore it and are not filing a proper tax return declaring this [offshore income], assuming that’ll be ok. But it won’t. Because there’s a piece of legislation the world applies called the Common Reporting Standard, CRS for short.
That means that every financial institution in the world that is banking for a Portugal resident automatically reports details of that account to Portugal,” he explains.
“Another widely held belief was that the AT would leave NHR status holders alone,” says Howard.
“However, we’re already seeing ‘NHRs’ having their tax return questioned and, quite often, with details of what they haven’t declared. The traditional way the AT pursues people is by telling them their tax return is inaccurate and asking them to file an amended one declaring all their income, without telling them what they found out. The wisest thing to do is to declare the lot. Otherwise, it becomes a criminal matter. It becomes tax evasion rather than avoidance,” he warns. “It’s not quite as straightforward as people believe.”
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