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US Expats: Travelling with your pet

17 Monday Aug 2020

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by Suzana Horta Greene

Are you planning to fly with your pet to Portugal? TAP and some other airlines welcome dogs to travel in the cabin or the hold, as long as the owner provides valid documentation and the pet carrier is deemed safe.

Ticket:  Regardless of the status of your dog, you must book your ticket with the airline directly (over the phone). You cannot purchase the animal’s ticket separately. If you are travelling with a Service Dog, you will have to provide a completed form from your personal physician that will be emailed to the airline prior to departure subject to approval. (Due to respiratory issues, flat-faced dogs are not permitted to fly).

Veterinary/USDA: You must book an appointment with your vet. They will facilitate the paperwork to be sent overnight to the USDA for approval. You will have to get a money order for USDA payment and include an overnight FedEx return envelope.

Carrier: You must have an airline-approved carrier, regardless of the status of your dog.

Customs: You will have to book an appointment with the custom’s vet in advance of arrival at Lisbon Airport. There will be a €40 fee.

We do not recommend procuring Emotional Support Animal (ESA) or Service Dog (SA) status if you intend to travel only once.  The airline may prove difficult. You will have to pay for the certification and physician’s sign-off which is similar to the cost of the pet’s plane ticket.

Service Dog status: As there is no accredited entity that supervises Service Dog certification, this status will not be recognized in the EU. Furthermore, there is no legislation that covers ESA so the airline might still charge for the ticket. That said, you can always travel with your dog in the cabin (if the dog falls under the airline weight limit).

Note: To be able to have the dog travel outside of the carrier, it must have the appropriate training (be able to remain calm for the duration of the travel – no barking, no peeing, etc).

Covid-19 restrictions

Currently, US nationals are not able to travel to Portugal simply on a US passport. If you are able to procure an exemption, you will not be allowed to travel with a pet in the hold (in-cabin only, in accordance with weight restrictions). Once the present travel ban is lifted, so will these limitations. If your pet is over the weight limit, it can be transported in the hold.

Advice on pet well-being

  • Be sure to exercise your dog in advance of travel. Fortunately, the US-PT flights are overnight, so the dog should already be primed to sleep for the duration of the flight. If you travel from JFK, Terminal 5 has an outdoor dog run which is right by the Lisbon departure gate. It is well worth it to book this route as it is a long flight and your dog will be stressed from the check-in/security process. The flight itself is 6-8 hours depending on wind. If you add the travel to the airport, check-in and luggage claim, security at departure and arrival with the custom’s vet, the whole procedure adds up to ±12 hours.
  • Do not feed your dog dinner (breakfast only). Use dinner as a slow-feed opportunity to calm your dog at take-off with any relaxation protocols you might already have in place. Toys and treats are very important for the duration of the flight. Bring a water bowl and allow for small amounts of water during the flight, as pets too get dehydrated. Be sure to manage intake since there will be no opportunity for pee breaks. Bring a pee-pad for emergencies to be used in the plane’s WC. It is highly unlikely that the animal will relieve itself in such an awkward setting, but if it is trained to go on command or it is clearly having trouble, this may be very helpful.
  • If you opt to medicate your dog, be sure to do a trial run well in advance of your departure so that you can mitigate any adverse reaction with the assistance of your vet.

Suzana Horta Greene is a dual US/PT national and flies frequently with her dog.

 

US Expats: Tax basics when living abroad

17 Monday Aug 2020

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Tax planning is an essential part of preparing to move abroad. You will continue to have reporting obligations and possible tax liabilities in the States based on your US nationality, in addition to the new requirements founded on fiscal residency in Portugal. As always, the IRS applies harsh penalties for non-compliance. The following is an overview of some of the basics for expats on federal and state taxes as well as estimated payments, penalties and interest. Fortunately, there is a bilateral tax treaty designed to protect you from double taxation. The accord can be used to mitigate or even eliminate assessment in the States while taking advantage of Portugal’s most favorable tax breaks,

Filing a Federal US Tax Return

All US citizens are required to complete an annual return when they live overseas. Other reporting requirements apply to US nationals as well, including FBAR (Foreign Bank and Financial Accounts) and FATCA (the Foreign Account Tax Compliance Act), that are triggered by meeting thresholds in foreign bank accounts and asset holdings.

Filing a State Tax Return

State income tax can also be a problem. Whether you need to file a state tax return depends on the last state where you lived. Some states have more complex residency rules than others, which means that these states may continue to consider you as a resident if in the state you own a property, possess a driver’s license, have bank accounts or an investment portfolio, are a registered voter, keep a mailing address, or have dependents who live in that state.

If you meet these criteria, you may need to submit a state tax return and pay state taxes even if you were absent during the fiscal year. Four of the more sticky states are California, New Mexico, South Carolina and Virginia. On the other hand, seven states charge no state tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington State and Wyoming.

Most of the other states only require a state tax return when you were actually present in that state during the tax year. If you were, income tax is only due on earnings within the state. Because of the variability in different state requirements, you should confirm your own individual circumstances.

Closing or moving bank accounts, selling a property or changing your driver’s license to another state be steps that can help to sever the ties in your former state of residence.

Estimated Tax Payments

The IRS requires taxpayers to make quarterly estimated tax payments if the following conditions apply:

  • You anticipate at least $1,000 in federal tax in the current tax year after federal withholding tax and refundable credits; and
  • Federal withholding tax and refundable credits do not reach 90% of your current tax liability or are less than the total tax you owed in the previous year.

If you must make estimated payments, the reporting schedule is as follows:

Payment Period                         Due Date

January 1 – March 31                April 15, 2019

April 1 – May 31                       June 17, 2019

June 1 – August 31                    September 16, 2019

September 1 – December 31      January 15, 2020

You will not have to make the 4th quarter payment if you file by January 31 and pay the outstanding balance with your tax return.

Penalties

Two types of sanctions can be charged against expats who fail to pay their estimated taxes: “failure-to-pay” and “failure-to-file”. Submitting your federal tax return after the extended deadline can lead to a punitive “failure-to-file” penalty: 5% each month on the unpaid balance.

This charge is ten times the “failure-to-pay” fine. However, penalties are not allowed to exceed 25% of your total tax bill. If you are unable to pay all your taxes when due, reporting by the deadline is always preferable.

The “failure-to-pay” penalty is less severe: 0.5% monthly of the unpaid balance. “Failure-to-pay” fines begin to accrue on the day after the assessment is due. If you owe both penalties in one month, the maximum cumulative penalty in any given month is capped at 5%.

On the positive side, taxpayers living abroad get an automatic two-month filing extension.  Nevertheless, keep in mind that a filing extension is not an extension on paying outstanding taxes.

 

“NHR” under pressure in France and Portugal

20 Monday Jul 2020

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Beneficiaries of retirement pensions from French sources (excluding public sector retirees) who settled in Portugal before 01 April 2020 may benefit from the Non-Habitual Resident scheme, an attractive tax-free regime for a period of 10 years. This favourable assessment results from a combined application of the double tax treaty concluded between France and Portugal and the  “Non-Habitual Resident” tax regime (“NHR”), established by the Portuguese legislator in 2009.

  • The Franco-Portuguese tax convention provides that Portugal alone has the right to tax French retirement pensions (excluding public pensions) received by a Portuguese resident.
  • Under the “NHR” rules, Portugal grants a total exemption for ten years from taxation of pensions to taxpayers settling in Portugal.

Other Tax Authorities in the European Union are concerned by this situation which they consider to be the subject of aggressive tax competition on the part of Portugal. These criticisms have led to regime changes recently introduced by the 2020 State Budget.

In France, the Tax Authority has expressed its intention to monitor these taxpayers closely. In particular, it considers that a taxpayer who pays no tax in Portugal cannot be classified as a Portuguese fiscal resident within the context of the bilateral tax treaty and therefore cannot benefit from the protection of this agreement. The French Tax Authority intends to rule out the application of the tax treaty and regain its right to tax retirement pensions from French sources.

  • French pension beneficiaries who have declared tax residency in Portugal must indicate that they do not benefit from the protection of the tax treaty. These French nationals must declare their retirement pension in France in addition to other sources of income;
  • or by sending a rectification proposal leading to a tax adjustment in France.

French courts have not yet ruled on the treatment of such “NHR” taxpayers. There is little doubt that the outcome will be controversial between the position of the French tax administration and that of taxpayers. In all in cases, any letters received from the tax authorities should not be left unanswered. The response to be made and the arguments to be put forward (scope of the agreement tax, existence of taxable income provided that it is not fictitious, the effectiveness of the Portuguese residence) must be adapted to each particular situation.

The 2020 Portuguese State Budget entered into force as of 01 April 1 2020. It reformed the tax system of NHR beneficiaries, by introducing, instead of a total exemption, a flat rate assessment at the rate of 10% for a period of 10 years on pensions from foreign sources. More specifically, the 10% rate applies not only to pension income paid as a result of retirement but also to other types of pensions such as income allocated in the event of early retirement, as well as other benefits granted under compulsory social security pension schemes, including amounts paid by the employer on life insurance contracts as well as contributions to pension funds, retirement savings schemes or any complementary Social Security plan. If retirement is also taxable in the source country, Portugal will grant a tax credit which may be deducted from the tax due abroad.

With regard to other types of income (dividends, rental income, etc.), no amendment was introduced in the State Budget. In practice, these changes also concern taxpayers who already benefit from the scheme. “NHR” taxpayers who are resident in Portugal and who have already applied for but who have not yet received a response can choose the application of the new regime to their 2020 income tax return.

How to pay Portuguese Taxes while abroad

12 Friday Jun 2020

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If you live in a foreign country or are travelling when tax payments become due, there are two ways to meet your tax obligations: 1) Direct Debit or 2) Bank Transfer. If you choose to use Direct Debit (Standing Order), you must first domicile the IBAN of the appropriate account with a bank located in a country of the Single Euro Payment Area (SEPA). The SEPA countries are the member states of the European Union, Andorra, Iceland, Liechtenstein, Monaco, Norway, San Marino, Switzerland and the Vatican City State.

This foreign bank account must also be registered and confirmed by the Portuguese Tax Authority (Autoridade Tributária e Aduaneira). You must record the account on the Portal das Finanças and send the original of the Entitlement Certificate to the Directorate of Taxpayers Registration to the following address:

  •             Direção de Serviços de Registo de Contribuintes (DSRC)
  •             Avenida João XXI, N.º 76 – 6.º
  •             1049-065 Lisboa, Portugal

Direct Debit payments do not incur any costs as opposed to international bank transfers that do. If you are paying via a bank transfer, provide your bank with the information below so that the bank can forward the essential information to the “AT”:

  • TIN: 600 084 779
  • Name of the creditor: Autoridade Tributária e Aduaneira
  • Bank account number: 83 69 27
  • IBAN: PT50 0781 0019 00000008369 27
  • Bank name: Agência de Gestão da Tesouraria e da Dívida Pública – IGCP, E.P.E.
  • Swift code: IGCPPTPL
  • Your tax identification number (“NIF”) contained in the payment document
  • Reference for payment: Each reference corresponds to a specific number for payment, which is set out in the document.

Please note: Each bank transfer requires its own documentation as opposed to Standing Orders that recur on a regular basis. The payment should be made at least 2 working days before the deadline.

Paying your Portuguese Property Tax (IMI)

To pay directly from your Portuguese bank account, follow these steps:

  • Open and log onto your Portuguese bank account;
  • Click on Payments;
  • Click on State – Pay to the State;
  • Enter the 15 digits of the Reference Number from the bottom left side of invoice;
  • Enter the Amount in Euros;
  • Enter 9 digits of the Fiscal Number (“NIB”) from the top left;
  • Click Next;
  • Verify the information and Pay;
  • Print your Receipt.

To pay from a foreign bank account:

Make a transfer from your overseas bank with the following information:

  • Your Portuguese fiscal number (“NIF”)
  • “Referencia para Pagamento” – the reference number on your bill

To the following account:

  • Creditor´s name:               Autoridade Tributaria e Aduaneira
  •       Bank account number:      83 69 27
  •       IBAN:                               PT500 781 00190 000000836927
  •       Bank name:                       Institudo de Gestão da Tesouraria e do Credito Publico
  •       SWIFT Code:                    IGCPPTPL

For further information, contact:

Centro de Atendimento Telefónico (CAT) of the “AT” (Autoridade Tributária e Aduaneira), through the number +351 217 206 707, every working day from 9H00 to 19H00 or contact the electronic service (e-balcão) on the Finanças Portal.

Duties of a Fiscal Representative

16 Monday Dec 2019

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There are two types of Fiscal Representation in Portugal:

  •       – Fiscal Representation in Personal Income Tax (“IRS”)
  •       – Fiscal Representation in VAT

Appointing a Fiscal Representative

It is mandatory to appoint a Fiscal Representative whenever a third-country national who is not resident in Portugal has income arising in Portugal. Alternatively, although residing in the national territory, an individual is absent for a period exceeding six months and obtains income in Portugal subject to Portuguese taxation. For a non-resident to start the process of appointing a tax representative in Portugal, the taxpayers must have a Fiscal Number (“NIF”) and a password (“senha”) to be identified on the Finanças Portal. Continue reading →

Usucapio – Adverse Possession or “Squatter’s rights”

16 Monday Dec 2019

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Usucapio (adverse possession), from the Latin usucapio: “to acquire by use”, is a form of acquisition of the property rights in function of having used or occupied a property continuously and unquestionably as if the holder were the real owner. In English Common Law, the equivalent of usucapio is commonly referred to as “adverse possession”. Continue reading →

NHR: Changes in value-added professions

14 Monday Oct 2019

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Beginning in January of 2020, a modified catalogue of business activities comes into force, benefiting a favourable tax regime aimed at attracting professionals with diverse skills to Portugal. These occupational profiles are now extended in light of the difficulties experienced by employers in various sectors in hiring workers since the inception of the Non-Habitual Residency Regime 10 years ago. Continue reading →

Redomiciliation Rewards

09 Friday Aug 2019

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When a company redomiciles to Portugal, no assets are transferred: no crystallisation of Capital Gains, no “IMT”(Property Transfer Tax), no Stamp Duty on Real Property. With no chargeable events taking place, only the headquarters and effective management move to Portugal. The assets remain safely within the Company. Thus the alternative term for Redomiciliation: Continuance. Continuance opens attractive opportunities for legitimate tax mitigation.
Updated Basis for Capital Gains Tax
Following Company registration in Portugal, a Balance of Accounts needs to be presented to mark the starting point as a Portuguese resident corporate entity. In accord with most recent legislation (May 2019), this Balance Sheet must be based on net book value, rather than the historical value according to the relevant 2016 EU Directive. Any shareholders’ loans to the Company as well as outstanding bank mortgage show as “Liabilities”. “Capital” is the paid-up share capital as well as Reserves. There is a fresh start. Many historical problems, such as under-declared deed values or lack of bonafide invoices for capital improvements can be mitigated.
Reduced CGT following Redomiciliation
With the move to a Portuguese domiciled entity, Capital Gains Tax on the eventual sale of Company shares reduces to 14%, as compared to 28% that otherwise would be the norm. Further Capital Gains Tax mitigation can take one of two forms. With the uplift in the nominal price of the stock upon registration of the now Portuguese entity, the shares can be sold at full value with little or no gain. Alternatively, the company can be liquidated and the assets distributed to the shareholders. As in the previous instance, with similar values, there should be little or no tax to pay.
Potential Transfer Tax Exemption
If the Company assets include Portuguese immoveable property, the sale of the shares may be exempt from “IMT”, depending on the circumstances of the eventual buyer of the Company. When a shareholder does not exceed a concentration of more than 75% of shares to a shareholder, no Property Transfer Tax (“IMT”) is due on the underlying asset conveyance. If eligible, the buyers may potentially save thousands of Euros, thus making the acquisition more appealing than a purchase in one’s own name.
Reduced Bureaucracy
In contrast, when a property changes hands, many organs of government get into the act. Finanças records the change of ownership and updates the Ratable Value (“VPT”) in a somewhat lengthy and labourious process. The local Council checks to see that current architectural records match the building(s) on site. The Land Registry verifies that boundaries and areas are correctly recorded. In short, a sea of bureaucracy that can be both slow and expensive. The transfer of ownership of Portuguese shares is normally a simple notarial process. While there is some paperwork involved in amending records to reflect the changes of Company domicile, the process is straightforward and does not trigger reevaluations of the underlying assets nor latent licensing problems inherent with many older properties.
While Redomiciliation may not always be a “magic bullet”, this solution can offer significant advantages to many owners who find themselves unwittingly trapped offshore.

Closing your Local Lodging business

15 Saturday Jun 2019

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There may be a variety reasons for you to discontinue an “AL” business: a) you need your place for yourself; b) the property may be up for sale; c) the bureaucracy may be too cumbersome for you; d) competition may have driven down prices and the activity is no longer profitable, e) other. Whatever the motive that you no longer wish to continue to let short-term furnished accommodations to holidaymakers, there are several steps that you will need to take to make the change: Continue reading →

NHR beneficiaries: only 8% have a “value-added” profession

11 Saturday May 2019

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The tax-holiday regime for Non-Habitual Residents (NHR), launched in 2009 to entice wealthy foreigners to participate to Portugal’s economic development in exchange for low or no taxation, reveals a very asymmetrical distribution between the two NHR target groups: “value-added” professionals and pensioners. Amongst the 27,367 beneficiaries of the NHR statute allowing for a partial or complete 10-year tax holiday in Portugal, there are only 2,140 “value-added” professionals (8%). Of these, almost half are senior executives of multinational companies. Continue reading →