Portugal's NHR program and foreign income from offshore company

[glengoolie]

Portugal's 10 year non habitual resident program excludes foreign income from taxation(excluding 10% for pensions). But I have read that if the income has not been taxed in the country of origin, Portugal will tax it locally. Which I understand. But I am still uncertain about a situation where I would have an offshore company, most likely in Cyprus(so not a tax heaven or a blacklisted country), and I would want to withdraw the taxed profits at the end of the year as the owner. Usually, taking out profits from your company means they are subject to income tax and will be taxed as such and that also usually entails required healthcare and social security "taxes". So I would like to know what is the situation in Portugal under NHR? My confusions stems from the fact that yes, when you withdraw taxed profits from your company, this is usually personal income to be taxed but Portugal's NHR program specifically states that no foreign income will be taxed. That is the whole point of the program(it is essentially temporary territorial tax regime). So what is the reality then?

 

[Martin Everson]

Do yourself a favour and avoid Portugal's NHR. The program is of short duration and is complicated when you examine it in detail. Your profession plays a part and also CFC rules applies.

If you have read the details of the program and are still interested then I don't know what to say. Tax exemption depends on DTA's Portugal has with other states and the theory the offshore company can be subject to tax with a partner state. But then there is the possibility of blacklisting. As Portugal can add countries to its blacklist spontaneously. Remember Cyprus was on Portugal's blacklist up until 2011 until it was found to be in breach of EU law to include Cyprus....lol.

I think we discussed Portugal NHR in another thread if you search forum. That thread may answer much of your questions. The program is however garbage compared to others.

 

[marcomar]

Do yourself a favour and avoid Portugal's NHR. The program is of short duration and is complicated when you examine it in detail. Your profession plays a part and also CFC rules applies.

If you have read the details of the program and are still interested then I don't know what to say. Tax exemption depends on DTA's Portugal has with other states and the theory the offshore company can be subject to tax with a partner state. But then there is the possibility of blacklisting. As Portugal can add countries to its blacklist spontaneously. Remember Cyprus was on Portugal's blacklist up until 2011 until it was found to be in breach of EU law to include Cyprus....lol.

I think we discussed Portugal NHR in another thread if you search forum. That thread may answer much of your questions. The program is however garbage compared to others.

Hey Martin, what's an alternative setup?

I honestly don't see the issue with Malta Holding company and NHR status. Can you enlight me?

Best,

 

[Martin Everson]

I honestly don't see the issue with Malta Holding company and NHR status. Can you enlight me?

A holding company with no economic substance in 2022 is useless unless you live in a tax free country.

Hey Martin, what's an alternative setup?

Relocation to a tax free or low tax country.

 

[marcomar]

A holding company with no economic substance in 2022 is useless unless you live in a tax free country.



Relocation to a tax free or low tax country.

Substance could be given by appointing a local director + having frequent flights to malta?


What are your top picks? Dubai? is there an FaQ section about it?

 

[Martin Everson]

Substance could be given by appointing a local director + having frequent flights to malta?

Partly.

Malta's basically non-existent economic substance rules will not satisfy the Portugal taxman or any foreign taxman. You would need a full time local director on proper salary and not nominees for example. Also a real office and hold meetings and show company local expenses in Malta etc.

Basically if has to pass sniff test. Not be a company with 1 nominee director earning 2,500 euros a year with a C/O address registered to an accountants office.

What are your top picks? Dubai? is there an FaQ section about it?

You need to also consider Portugal's black list countries with no DTA. Income from such countries is not tax exempt as a NHR.

Maybe start a new thread and explain exactly what your situation is or just search the forum first for "Portugal NHR". We have had many threads discussing many of the questions you may have asked even around Portugal and Malta I believe.

 

[Soundpeats]

A holding company with no economic substance in 2022 is useless unless you live in a tax free country.



Relocation to a tax free or low tax country.

So if you live in UAE

can you setup a company in say.. Cayman Islands or BVI, and you wont have any issues with economic substance ?

Regards

 

[Martin Everson]

So if you live in UAE

can you setup a company in say.. Cayman Islands or BVI, and you wont have any issues with economic substance ?

Regards

Below is from UAE government website. So if the BVI is operating in UAE then it would be subject to UAE tax. That is my interpretation of what they have written but I could be wrong. Operating an offshore company from UAE didn't matter so much when UAE had no tax but soon it will .


------

Foreign persons​

01
Will a foreign company or individual be subject to UAE CT?

Foreign entities and individuals will be subject to UAE CT only if they conduct a trade or business in the UAE in an ongoing or regular manner

--------

 

[Soundpeats]

Below is from UAE government website. So if the BVI is operating in UAE then it would be subject to UAE tax. That is my interpretation of what they have written but I could be wrong. Operating an offshore company from UAE didn't matter so much when UAE had no tax but soon it will .


------

Foreign persons​

01
Will a foreign company or individual be subject to UAE CT?

Foreign entities and individuals will be subject to UAE CT only if they conduct a trade or business in the UAE in an ongoing or regular manner

--------

Thank you very much for your answer kind sir.

What about the applicable law in general (not just the tax laws) ?

Say for instance that UAE requires a crypto license to operate with cryptocurrency (buy/sell them) otherwise its illegal.
So someone living in the UAE sets up a company in BVI (or somewhere else where operating with cryptocurrencies is perfectly fine) and they use this company to serve the function of buy/selling cryptos.

When push comes to shove, based on the articles pasted above its clear that the BVI company is likely tax resident in UAE.

The question is. What about the applicable law-. Could you get in trouble for operating with cryptos through a BVI company (that allows this) since you are living in UAE (that does not allow it) - Because the BVI will have to answer to UAE applicable law too ?

I've been researching this lately and cant say that I am sure I know the answer.

 

[Martin Everson]

The question is. What about the applicable law-. Could you get in trouble for operating with cryptos through a BVI company (that allows this) since you are living in UAE (that does not allow it) - Because the BVI will have to answer to UAE applicable law too ?

When you are sat around with a group of Indians sharing a naan bread on a UAE jail cell floor it will all be clear then I think.

 

[Soundpeats]

When you are sat around with a group of Indians sharing a naan bread on a UAE jail cell floor it will all be clear then I think.

legal until caught then

 

[JackAlabama]

Thank you very much for your answer kind sir.

What about the applicable law in general (not just the tax laws) ?

Say for instance that UAE requires a crypto license to operate with cryptocurrency (buy/sell them) otherwise its illegal.
So someone living in the UAE sets up a company in BVI (or somewhere else where operating with cryptocurrencies is perfectly fine) and they use this company to serve the function of buy/selling cryptos.

When push comes to shove, based on the articles pasted above its clear that the BVI company is likely tax resident in UAE.

The question is. What about the applicable law-. Could you get in trouble for operating with cryptos through a BVI company (that allows this) since you are living in UAE (that does not allow it) - Because the BVI will have to answer to UAE applicable law too ?

I've been researching this lately and cant say that I am sure I know the answer.

There are local crypto exchanges in Dubai neatly integrated with the local banking system, so what are you trying to achieve with this overcomplicated setup?
You need licensing when you take on third party funds or are an exchange.

 

[Soundpeats]

There are local crypto exchanges in Dubai neatly integrated with the local banking system, so what are you trying to achieve with this overcomplicated setup?
You need licensing when you take on third party funds or are an exchange.

Interesting, so what if you had an ecommerce business selling goods and only taking crypto as payment, or what if you had a NFT project and were selling NFTs. With UAE latest rule changes wouldn't you need a license ?

The setup in question was not really the point. It could be pharmaceuticals or P**N. What I was asking was whether companies offshore get to keep the applicable law of their country of incorporation even if they wont end up being tax resident of said countries.

 

[JackAlabama]

Interesting, so what if you had an ecommerce business selling goods and only taking crypto as payment, or what if you had a NFT project and were selling NFTs. With UAE latest rule changes wouldn't you need a license ?

The setup in question was not really the point. It could be pharmaceuticals or P**N. What I was asking was whether companies offshore get to keep the applicable law of their country of incorporation even if they wont end up being tax resident of said countries.

That of course is unlikely to work. Also "taking crypto as payment", "selling nfts" is not trading on the local exchanges actually very far from it.

Equal crypto with stock trading on IB for example.

 

[Soundpeats]

That of course is unlikely to work. Also "taking crypto as payment", "selling nfts" is not trading on the local exchanges actually very far from it.

Equal crypto with stock trading on IB for example.

Thank you for your answer. So its unlikely to work because UAE would apply their law on the offshore company then ?

With all the new regulations announced in UAE and VARA being implemented may I know how are you are so confident that dealing with crypto as a whole isn't potentially problematic. Perhaps not selling/asking for cryptocurrency as payment, perhaps not even selling NFTs you bought.
But what if you were a NFT creator selling a collection, couldn't that be dodgy right now (while still not being exchanges) unless you consider that taking third party funds ?

Genuinely curious if there is any source or first hand contact/experience.

 

[mallshtow]

Any tax law company from Portugal around who has knowledge on frequency that Portuguese tax authorities challenge those kind of Malta + NHR set ups and the economic substance of the Maltese commpanies?