Working from Portugal

[prcsc]

Hi there,

I will be moving to Portugal in 2019.
They have tax incentives for foreigners which I will make use off. The status is call "Non-habitual resident" (NHR).

The clause that interests me is the fact that foreign-sourced revenue is totally tax-exempt (i.e UK state pension), including dividends.

Now, I'm aware of Brits setting up LLP's in the UK (pass-through tax entity) and thus being tax-exempt in both the UK and PT. However I have some confusion about this which I would like to clarify.

Being the question mainly the fact that the LLP doesn't actually pay dividends, what would you call the income you get from the LLP. It isn't salary either is it?

Anyway, is there anyone here working as a contractor in Portugal and using the NHR status?

Thanks!

[northernladuk]

Will you be contracting in Portugal or will you be just living there and expect to be contracting with UK companies?

I very much doubt you'll get any contracts via an agency with an LLP.

[prcsc]

Will you be contracting in Portugal or will you be just living there and expect to be contracting with UK companies?

I very much doubt you'll get any contracts via an agency with an LLP.

Thanks northernladuk.

I will be contracting UK companies.

To add a little bit more to the background - I'm currently full employed by a UK company. This UK company has about 5 remote employees in Europe (and about 100 working in-office).
I'm in the process of moving to PT and continue to work for my employer, but as a contractor. All the remote employees are as contractors as well, not sure why.
For me to make the best of the Portuguese NHR regime, I would be better off working under an LLP.

Do you see any reason why my employer wouldn't want to work me me under an LLP?

[northernladuk]

With that set up I don't have a clue. Agencies and clients generally won't take LLPs due to the potential tax burden that might fall on them.

In your case its a different country and it's your existing employer so they maybe more flexible.

Obviously you are going to have to ask them.

[Fred Bloggs]

I expect you are going to be disappointed here. If you sit in Portugal working, I think you're going to find out that you need to pay tax in Portugal. You are in Portugal, being paid by a UK client. That makes you fundamentally a Portuguese tax resident not a UK one. By using a corporate structure in the UK but living in Portugal, you will find the corporate entity effectively becomes Portuguese. If you look at this in more detail, you may well find that you pay tax in both jurisdictions, decided by the UK and Portugal dual tax treaty. Pensions, dividend, earned income each has it's own section in the dual tax treaty. Something that applies to a pension is taxed on a different part of the treaty to salary or dividends. But all in all, I have to say, the chances of you legally avoiding your quite legitimate tax obligations is about zero.

[Dom at Fox Bartfield]

Residency

Being the question mainly the fact that the LLP doesn't actually pay dividends, what would you call the income you get from the LLP. It isn't salary either is it?

An LLP is a Limited Liability Partnership, as such you'd receive a share of the partnership profits as set out in any partnership agreement with others. This would then be declared on the tax return for the LLP and your own personal return, depending on your tax residency. If you're tax resident in Portugal, I'd suggest (apologies but I've no indepth knowledge of tax law over there) that any share of partnership profits would be declared on your tax return in Portugal in the same way as you'd be required to declare on a personal self assessment in the UK.

I'd recommend speaking to a specialist in Portugal to clarify, advising them you'd be receiving a share of profits from a partnership and requesting clarification of the tax treatment.

[prcsc]

I expect you are going to be disappointed here. If you sit in Portugal working, I think you're going to find out that you need to pay tax in Portugal. You are in Portugal, being paid by a UK client. That makes you fundamentally a Portuguese tax resident not a UK one. By using a corporate structure in the UK but living in Portugal, you will find the corporate entity effectively becomes Portuguese. If you look at this in more detail, you may well find that you pay tax in both jurisdictions, decided by the UK and Portugal dual tax treaty. Pensions, dividend, earned income each has it's own section in the dual tax treaty. Something that applies to a pension is taxed on a different part of the treaty to salary or dividends. But all in all, I have to say, the chances of you legally avoiding your quite legitimate tax obligations is about zero.

Thanks Fred.
Are you are of the Portuguese tax regime "Non-Habitual Resident"?

[northernladuk]

Quite a few other posts started about this. You can find them here.

NHR site:Forums.contractoruk.com - Bing

[prcsc]

I expect you are going to be disappointed here. If you sit in Portugal working, I think you're going to find out that you need to pay tax in Portugal. You are in Portugal, being paid by a UK client. That makes you fundamentally a Portuguese tax resident not a UK one. By using a corporate structure in the UK but living in Portugal, you will find the corporate entity effectively becomes Portuguese. If you look at this in more detail, you may well find that you pay tax in both jurisdictions, decided by the UK and Portugal dual tax treaty. Pensions, dividend, earned income each has it's own section in the dual tax treaty. Something that applies to a pension is taxed on a different part of the treaty to salary or dividends. But all in all, I have to say, the chances of you legally avoiding your quite legitimate tax obligations is about zero.

Hi Fred, went through some others posts and realised that indeed you are aware of the NHR scheme (it was not clear from your initial post).
OK I will be operating the LLP from PT. But it's a partnership, if my partner is in the UK, would PT still see this company as a Portuguese company?

[Fred Bloggs]

Hi Fred, went through some others posts and realised that indeed you are aware of the NHR scheme (it was not clear from your initial post).
OK I will be operating the LLP from PT. But it's a partnership, if my partner is in the UK, would PT still see this company as a Portuguese company?

You need to check with a Portuguese accountant. But before you do that, seriously, I recommend you download and read the dual tax treaty between UK and Portugal. The tax treaties are written in fairly plain English and pretty easy to understand. It sets out who has the right to tax what money under which circumstances. It's not rocket science, start from the principle that Portugal and the UK are mature western economies and both have well established tax codes which means it is nigh on impossible to work in either country without paying tax on your earned income. Once you have read the treaty and understand this, I expect you to conclude your plan won't work. Now, if you want to retire to Portugal and have your pension paid there, that's a different story. But again,take note that a UK state penson is generally taxable in the UK anyway. This is all generalisation, but I believe it to be pretty accurate. I have looked at retiring to Porto, though it is not presently on the cards. HTH.