Last year, fewer British holidaymakers chose Portugal as a tourist destination, less 111,667 than in 2017. Despite the drop, the overall number of foreign tourists grew by 0.4% last year, enough to reach a new record high at 12.76 million. This increase was mostly due to a 20% jump in American tourism, accounting for an additional 135,000 US visitors in 2018.
In the first six months of 2018, holidaymakers in Portugal spent almost 7 billion euros, corresponding to 38 million euros per day. The figures represent an increase of 14% as compared to the same period last year. In the first half of 2018, Portugal received 9.6 million visitors. British, German and French continue to be the primary national groups to visit the country.
A common situation arises where a UK employee wishes to continue to receive a salary from a British-based company but would prefer to provide the services virtually via the internet while residing in Portugal.
Unfortunately, there are significant obstacles to this type of arrangement:
- As an employee of a UK-based company, you cannot enrol nor make contributions to Social Security (National Insurance) in Portugal.
- If you continue to declare as a UK resident but, in fact, are living and working in Portugal, you will fail to meet the criteria of the UK Statutory Residency test requirements.
- To be employed by your UK company in Portugal, the Company would need to set up a subsidiary or branch office in Portugal. While this is possible, the process involves both initial start-up costs as well as ongoing overhead to the Company. This solution is unlikely to be cost effective for just one employee.
- Once a branch office is in place, Portuguese personal income tax (“IRS”) on a modest salary (€35,000) would be ±25%. In contrast, as a freelancer in Portugal, taxation on a similar amount would be just ±5% in year one, ±7.5% in year 2 and ±10% after that.
- Post Brexit (March 2019?), requirements could become more complicated. While not even insider political negotiators know how Brexit will turn out, there is no reason to expect anything less than a more complex state of affairs for UK individuals wishing to work abroad.
Working as a PT freelance contractor to the UK Company
The best solution to the dilemma is to be a Portuguese-based freelancer, contracting with the UK Company, rather than continuing to work as a UK salaried employee. By being registered as providing “other support services” from Portugal, you will be assessed on just 35% of your gross invoicing to the Company under the Portuguese “Simplified Regime”. Social Security deductions will be made on a similar reduced basis. As already mentioned above, the final tax due should be substantially lower.
The Company should also find this arrangement to be advantageous by eliminating UK National Insurance obligations, thereby lowering overhead. Payment of freelancer invoices can continue to be made to the sole trader’s local UK bank account if so desired.
The Company hires on a project-by-project basis; the freelancer earns more; the Company lowers risk. Shifting to an independent worker status based in Portugal can create a win-win situation for all concerned.
The 15% drop in the Pound after the UK decided to leave the European Union is contributing to a significant reduction in British visitors to the Algarve. In July alone, hotels registered 56,000 fewer English guests than a year earlier. Concern about the impact of Brexit would be even greater were it not for the crisis in Eastern Mediterranean which enhances Portugal’s appeal to other nationalities.
UK nationals continued to invest heavily in residential real estate in Portugal in 2016. Brits made up the largest group of foreign investors with a 31% share of transactions carried out by non-residents. France (19%) and the Benelux and the Scandinavian countries (17%) were the other two most significant buyers in the Algarve.