Why financial planning for US Expats is Key to a Long, Happy Life in Portugal

Why financial planning for US Expats is Key to a Long, Happy Life in Portugal

Before any overseas move, many of us create checklists of tasks or goals that we need to complete in order to prepare for the move.

These goals cover many areas of life, from storing or selling furniture to preparing our pets for the overseas travel. One area that frequently gets overlooked in the planning is preparing to live in a different tax jurisdiction.

While Portugal has the very friendly Non-3Habitual Residency (NHR) regime, preparing to take advantage of the benefits of NHR can save you time and money in the longer term.

When you are a US citizen or green card holder, you are liable to pay US taxes regardless of whether you live in the US or abroad. This makes the tax planning and optimisation different for a US citizen under NHR than it would be for other nationalities.

One of the most advantageous benefits of NHR is the 10% tax rate on pension income. This applies to qualified account (401k, IRA, 403b) distributions as well as defined benefit or Social Security income. While the 10% tax rate is a significant discount from Portuguese income tax, you may also have a US tax liability if your federal income tax rate is above the 10% you’ve paid to Portugal. You can essentially become a ‘net US tax payer’, and pay the difference for any tax owed above 10% to the US.

Once the 10 years of the NHR regime have passed, all the pension income or distributions are then taxed at Portuguese income tax rates, which go up to 48%. This is more than any US taxpayer would owe in federal income taxes, so the situation switches, and you become only liable for high Portuguese income taxes. Clearly, this is a life changing event, if you go from a 22% top tax rate to a 48% top tax rate (at only around $75k of income).

With the right financial and tax planning, you can optimize your finances for your entire life in Portugal, not just the first decade under NHR. There are also other important factors – like Roth accounts not being recognised in Portugal – that require careful planning and consideration.

If you are considering a move to Portugal, or even if you already have, please feel free to get in touch with us for a free initial consultation about how we can help you with financial planning.

Chase Buchanan is an international wealth management company with comprehensive accreditations and authority to provide professional financial management services across Europe. With offices in the USA, Canada, Canary Islands, Cyprus, Belgium, Malta, Portugal, Spain, and our UK Administration Centre, our highly qualified advisers are committed to ensuring all clients, existing and new, have the knowledge and tools they need to make sound choices for the future.

We do not provide tax, accounting or legal advice. You should always consult with a with a qualified professional in those specific areas before implementing any portion of the plan. There is no guarantee that any goals will be achieved or plans of action will be successful.

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