I'm self-employed in the UK currently in the 40% income tax bracket. What would you do?

[totlori9]

Have to be honest with you. This Non-Habitual/Non-Reguular Residency is probably the most complicated and strict non-dom scheme I have ever encountered in any country that offers one. The main benefit is that you don't actually have to spend any time there (do note that you still can't be on paper for more than 183 days in another country).

This is also a good read if you're interested:
http://info.portaldasfinancas.gov.p...olhetos_informativos/Documents/IRS_RNH_EN.pdf

 

[blackeyes]

I was about to add exactly that same link

I'm liking Portugal as it close to Spain (I'm Spanish), which could allow me to stay let's say 5 months of the year on Spain while not being forced to spend the rest 7 months of the year in Portugal (which in any case could be a good idea, the country is nice).

And actually, could I benefit from the same Non Regular Tax Regime's tax exemption treatment if I simply work as self-employed in Portugal with NO UK company? According to page 8/14 of that document, 2 - Income in category B (Self Employment) is exempt if b) They can be taxed in another country.

So now the question is: is simply invoicing a USA or EU company from my self-employed business in Portugal an income that "can be taxed in another country"? I can't figure out this myself, what is your opinion?

 

[jackfrost]

Do what all Englishmen do, relocate to Malta and do the proper setup. No tax evasion, no shady s**t, proper tax certificates, EU company, 5% Done. English speaking, Sun, etc pp. It is hugely popular with people from the UK.

Alternative - Cyprus.

Would wait for final 2019 atad legislation to come out though in a month or so. It is looking good though.

And actually, could I benefit from the same Non Regular Tax Regime's tax exemption treatment if I simply work as self-employed in Portugal with NO UK company? According to page 8/14 of that document, 2 - Income in category B (Self Employment) is exempt if b) They can be taxed in another country.

So now the question is: is simply invoicing a USA or EU company from my self-employed business in Portugal an income that "can be taxed in another country"? I can't figure out this myself, what is your opinion?

Just like in the UK this crap does not fly in Portugal. Portugal is very strict about CFC etc and as multiple people have said: completely forget about fake invoicing in the EU!!!

 

[totlori9]

And actually, could I benefit from the same Non Regular Tax Regime's tax exemption treatment if I simply work as self-employed in Portugal with NO UK company? According to page 8/14 of that document, 2 - Income in category B (Self Employment) is exempt if b) They can be taxed in another country.

So now the question is: is simply invoicing a USA or EU company from my self-employed business in Portugal an income that "can be taxed in another country"? I can't figure out this myself, what is your opinion?

It is simple to decide. Look up the double tax treaty between USA and Portugal and the EU country you want and Portugal. Then look the local income tax act of USA and the EU country you are interested in. If you find that according to the double tax treaty your business income could be taxed in the source country, but you find in the local income tax act that they don't apply any tax to that particular income then the answer is YES you can do it without a UK entity (LLP is a partnership, not a company don't mix this up - just saying, also the income that is distributed to you via the LLP is not a dividend but business income).

Just like in the UK this crap does not fly in Portugal. Portugal is very strict about CFC etc and as multiple people have said: completely forget about fake invoicing in the EU!!!

He didn't mean fake invoincing!

 

[blackeyes]

I wouldn't like to relocate to Cyprus or Malta because of distance (including the ability to go by car of by cheap and regular flights) to visit friends and family. UK, Ireland, Portugal, Andorra are all acceptable though.

He didn't mean fake invoincing!

Exactly. And yes I meant no UK LLP.

I also found this, there is a Simplified Regime for freelancers in Portugal that can apparently be quite appealing by itself: Freelancers: NHR and the Simplified Regime

Or maybe not so much: The Simplified Regime gets more complicated in 2018

It is simple to decide. Look up the double tax treaty between USA and Portugal and the EU country you want and Portugal. Then look the local income tax act of USA and the EU country you are interested in. If you find that according to the double tax treaty your business income could be taxed in the source country, but you find in the local income tax act that they don't apply any tax to that particular income then the answer is YES you can do it without a UK entity (LLP is a partnership, not a company don't mix this up - just saying, also the income that is distributed to you via the LLP is not a dividend but business income).

I'll try to figure that out, thanks.

 

[totlori9]

I gave this another round of thought.

If either the UK LLP or the LLP-less with a non-dom residency routes don't work out for you, you can just simply receive dividens from a hungarian company.

Most tax-optimizing software developers I know use a hungarian company because there is 4.5% tax on IP income, and instead of invoicing software developement, they invoice contractual user IP licence rights to the software they developed (this is completely legal).

You also have to pay 15% dividend tax to Hungary (goes down to 10% after two years).

Note that in order for this to stay at 4.5+15 (4.5+10) the country you reside in doesn't have to be offering a non-dom scheme, just has to tax foreign source dividends with 15% or less (or 10% or less) and have a DTA with Hungary.

Still a lot better than being in the 40% income tax bracket in the UK.

 

[Martin Everson]

I would always say keep it simple. Avoid anything in the UK altogether.

 

[totlori9]

I would always say keep it simple. Avoid anything in the UK altogether.

I would agree. I just don't see if it is truly possible without a UK or Ireland LLP with the Portugal NHR schem and that is the country he seems to prefer.

 

[blackeyes]

I'll like to keep it simple as well.

Managing a Hungarian company seems a little bit complicated as I also need a bank account and Hungary is maybe too far to my liking in both distance and language should I have any issue, but I will see if there are any decent intermediaries who could take care of everything. Not sure about who much will they charge me though.

What I like about having the business entity (LLP or alike) in the UK is that I can create it easily from here as I'm now living here, and dealing with UK HMRC is much easier to me than dealing with the bureaucratic burden that I will probably find in other EU countries such as Spain, Portugal or Hungary.

At the same time I kind of liked the idea of avoiding a company and going for a UK Partnership or LLP instead, as I believe this means my tax bill will be more flexible: if I happen to not have a lot of income during one tax year, I will probably not need to pay any tax, because Income Tax is generally zero rated or very low rated for low incomes.

Also, do CFC rules even apply to Partnerships? For example, I see that a UK "regular" partnership (not limited) doesn't even have to register in UK Companies House, meaning the information of its members is not public. Maybe I could form a regular UK partnership with my girlfriend (so I don't need a nominee resident UK director anymore) and both live in Portugal, me as NHR? That way my invoices will come from a UK entity which is great, while at the same time paying 0% tax in Portugal as it's foreign income.

 

[totlori9]

See my posts above about the effective place of management and control has to stay in the UK for the partnership to be deemed UK tax resident if challanged by for example the portugese tax authorities.

Accounting and other stuff in Hungary is cheap. I can ask around for you if you decide on this route and have specific needs. However I still prefer the partnership route for you, for obvious reasons. You still have to check though if you can set it up so that it's management and control stays in the UK/Ireland, and is not subject to Portugese CFC, and provides an income that is non taxable under Portugal NHR (I would contact their tax authority straight away and ask about the last two).

 

[Jav]

Hungary is not so cheap anymore. I used to leave there few years ago and even than it wasn't cheap. However to contribute a bit I can say good things about Bulgaria with a 10% flat tax and definitely cheaper than Hungary in terms of rent, cost of living, accounting, set up etc.

 

[totlori9]

I find accounting and business lawyer type services to be a lot cheaper in Hungary than in the UK where OP is currently, but I don't have experience in Bulgaria...

 

[prcsc]

I'm on a very similar situation.

Originally Portuguese, living and working in the UK for more than 5 years.
Going back to PT in 2019 and will keep working for the same employer.

I have been giving the choice to work as an independent. I also qualify for NHR as the criteria is simply not have been a tax resident in PT for the last 5 years.

Now, I have raised this with various accountants/tax advisors and I'm getting conflicting answers. Specifically if being tax-exempt in both countries is a possibility simply by obeying the following criteria:

• NHR status
• Independent income
• Income is foreign-sourced

Here is my exact confusion - if someone is king enough to explain:
(these are extracts of the legislation (NHR and UK-PT DTA) that apply to people that fall into the criteria above)

--------- NHR legislation (PT) ---------
4* - Aos residentes não habituais em território português que obtenham, no serviços de elevado valor acrescentado, com carácter científico, artístico ou técnico, a definir em portaria do membro do Governo responsável pela área das finanças, ou provenientes da propriedade intelectual ou industrial, ou ainda da prestação de informações respeitantes a uma experiência adquirida no sector industrial, comercial ou científico, bem como das categorias E, F e G, aplica-se o método da isenção desde que, alternativamente:
a) Possam ser tributados no outro Estado contratante, em conformidade com convenção para eliminar a dupla tributação celebrada por Portugal com esse Estado;
---------

Obviously is in Portuguese (you can use the Google translator if you want) - but it basically says: Any foreign-sourced independent work (contractor/freelancer), classified high value (scientific, artistic, technical), as well as dividends and rental income are tax free in PT, if alternatively:
a) You can be taxed in the other contractual state as per the DTA

I'm exempt if I can be taxed in the UK - as per the conformity with the DTA.
The highlighted "You can be taxed" is very important, as some of the other types of income (eg. salary) says that you are exempt in Portugal if you are taxed in the other state and not "can be".

--------- DTA English ---------
(1) Income derived by a resident of a Contracting State in respect of professional services or other independent activities of a similar character shall be taxable only in that State unless he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities. If he has such a fixed base, the income may be taxed in the other Contracting State but only so much of it is as attributable to that fixed base. (2) The term "professional services" includes, especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.
---------

Now, as per the DTA, I need to be taxed in Portugal, unless I have a fixed base regularly available to me in the UK, which I do. Therefore I can be taxed in the UK.

Concluding, as I can be taxed in the UK, I'm exempt from being taxed in PT under NHR. For the UK side, the UK chooses not to tax me, because I'm not a tax resident in there.

Is there a mistake in my interpretation? This way I wouldn't even need a LTD or LLP, am I wrong?

 

[prcsc]

Regarding the "you can be taxed" here is a Deloitte document that makes the same reference now in english:
https://www2.deloitte.com/content/dam/Deloitte/pt/Documents/tax/rnh-flyer-pensioners2016-eng.PDF

 

[totlori9]

http://www.oecd.org/tax/transfer-pr...to-permanent-establishments-BEPS-action-7.pdf

The words 'fixed base' and 'permanent establishment' are to be treated interchangeably in this context since from the early 2000s OECD treaties have morphed the articles discussing 'independent professional services' into 'business income' and thus the former 'fixed base' is treated as 'permanent establishment'.

 

[prcsc]

Tha

The words 'fixed base' and 'permanent establishment' are to be treated interchangeably in this context since from the early 2000s OECD treaties have morphed the articles discussing 'independent professional services' into 'business income' and thus the former 'fixed base' is treated as 'permanent establishment'.

Thanks!
So, permanent establishment/fixed base - that refers to the place where I work and not where I live, is that correct?

 

[totlori9]

It has nothing to do with your residence, see further:

Permanent Establishment under the OECD Model Tax Convention

 

[prcsc]

It has nothing to do with your residence, see further:

Permanent Establishment under the OECD Model Tax Convention

Thanks again.
Ok so me having my clients office, which I actually will work from for a week 4-5 times a year.
Could this be considered as a permanent establishment since I will be carrying part of business in there?

 

[totlori9]

If the work you carry out there is not
complimentary on auxiliary on nature. The first link I have sent you discusses this.

...complementary OR auxiliary IN nature...

 

[blackeyes]

@prcsc From the UK-PT DTA you cited, it seems to me that, strictly speaking, only income that is attributable to the fixed base in the UK can be taxed, which in my mind means only the small percentage of income proportional to the days you work in the UK during the full tax year can be taxed. This would mean only this small part of income generated in the UK's office would be tax-free in PT.

Now I may be wrong of course, definitely not an expert, just how it sounds to me. And in any case this is probably a matter of risk and you could probably get away with it. But I'm starting to think that the PT NHR is in essence thought to make only passive income tax-free (i.e. not income generated with your current work or earned income). Most typical case being pensioners.

I also found this video however, and the guy affirms that earned income can usually be re-structured in a way that complies with the PT NHR:

However in their website they really only give the example of pensioners:
Tax-free EU citizenship by investment
It may we worth contacting them, though.

I have actually already sent them a message, I'll post their answer here when they get back to me.