Plan retirement (&reduce tax burden)

[pzyn9z]

Hi, I am quite new in this forum so please forgive me some inexperience and absence of knowledge of taxes.
I am spanish (holding an argentinian passport as well) married to a portuguese lady and my tax residence is in Portugal and we are expecting retirement in the next 7 years. We have been quite successful in managing some savings and we have reserved part of it for retirement. Let us assume this amount to be 1M Eur and is placed in a portuguese broker in a actively managed portfolio of listed global stocks yielding on average 5% per year (dividends mostly, seldom Capital Gains form re-balancing - NO withdrawals).

Problem: personal taxation is 28% and we though to get some structure to lower this tax in order to enhance the compounding.
Target: reduce effective tax rate (to optimize capitalization - could live with a 10% ETR) and after 7 years move tax residency to a near zero tax country for 1-3 years and collect the portfolio proceeds.

We have been consulting some lawyers and usually they try to sell some wealth service where you pay someone commissions that make up the previous tax amount.
Having also discussed the issue with a friend with the same problem he told me he was doing:
1) Set-up a LLP in UK with your partner as a finance/investment company as an offshore vehicle, no trading activity there, ie almost dormant. No audits, minimal accounts, fillings and cost. Do it clearly, ie no need to hide;
2) This UK LLP will set-up a trading company in Portugal, where you act as manager, where you put the portfolio and manage it safely. Your current portfolio yield will attract 17% CIT and grab current tax credit of 7% (making a ETR of 10%), pay a local accountant for filling accounts and taxes. Accumulate your results during 7 years.
3) After 7 years, move results into the UK LLP thru dividends (will be have no taxes) and liquidate the PT company (get the original capital back untaxed).
4) Move your residency to some low tax jurisdiction and collect dividends (meaning the accumulated 10% taxed results) from the UK LLP which will attract no taxes.
He told me this would be legit.
Your comments would be very much appreciated.
Thanks

 

[KJK]

So you are already resident of Portugal, on what basis? Are you working there, did you use the NHR regime, something else?

I don't understand why you want to form a Portuguese company, and then wait 7 years which is an absurdly long time. What your friend suggest is definitely legit though it seems unnecessary and there probably will be better solution for you.

Also be careful with "wealth service" and "actively managed portfolio" especially at these times when everyone feels like a fucking genius when stocks just go up,up and up.

 

[Gediminas]

Hi, I am quite new in this forum so please forgive me some inexperience and absence of knowledge of taxes.
I am spanish (holding an argentinian passport as well) married to a portuguese lady and my tax residence is in Portugal and we are expecting retirement in the next 7 years. We have been quite successful in managing some savings and we have reserved part of it for retirement. Let us assume this amount to be 1M Eur and is placed in a portuguese broker in a actively managed portfolio of listed global stocks yielding on average 5% per year (dividends mostly, seldom Capital Gains form re-balancing - NO withdrawals).

Problem: personal taxation is 28% and we though to get some structure to lower this tax in order to enhance the compounding.
Target: reduce effective tax rate (to optimize capitalization - could live with a 10% ETR) and after 7 years move tax residency to a near zero tax country for 1-3 years and collect the portfolio proceeds.

We have been consulting some lawyers and usually they try to sell some wealth service where you pay someone commissions that make up the previous tax amount.
Having also discussed the issue with a friend with the same problem he told me he was doing:
1) Set-up a LLP in UK with your partner as a finance/investment company as an offshore vehicle, no trading activity there, ie almost dormant. No audits, minimal accounts, fillings and cost. Do it clearly, ie no need to hide;
2) This UK LLP will set-up a trading company in Portugal, where you act as manager, where you put the portfolio and manage it safely. Your current portfolio yield will attract 17% CIT and grab current tax credit of 7% (making a ETR of 10%), pay a local accountant for filling accounts and taxes. Accumulate your results during 7 years.
3) After 7 years, move results into the UK LLP thru dividends (will be have no taxes) and liquidate the PT company (get the original capital back untaxed).
4) Move your residency to some low tax jurisdiction and collect dividends (meaning the accumulated 10% taxed results) from the UK LLP which will attract no taxes.
He told me this would be legit.
Your comments would be very much appreciated.
Thanks

Hi,

Partnership in the UK is a tax transparent (non-resident entity) offshore company (limited partner of UK entity) is in the blacklist, plus without substance. I believe Portuguese authorities might try to tax “deemed income” of an offshore company, based on “deemed income” of the UK entity under CFC rule at the individual level. But it should be investigated separately. You need carefully check this with a Portuguese tax advisor. Also ask him her about the risk of the permanent establishment, since the effective place of management of both entities will be in Portugal. As an alternative, you can set up Cypriot company (no capital gains tax on shares, derivatives, etc.) but you need to arrange everything that management of Cypriot company would be from Cyprus.

 

[pzyn9z]

Thanks Gediminas,
I have been told that the non-resident UK entity is not on he portuguese blacklist. Additionally the risk of "deemed income" would be fairly low because there will be no material income during the portfolio compounding period as no dividends would be sent to the UK entity from the PT company.
The UK company is acting just a "sleeping" mother of the PT entity (which is taxed).
After 7 years, UK individual shareholders will leave PT tax residence for some place where UK dividends may be collected with minimal taxation at the individual level and then the liquidation process gets triggered: 1) by sending dividends and capital to the UK entity; 2) by sending dividends to the individuals
Any other thought on this.
Very much appreciated.

 

[pzyn9z]

Dear KJK, we are on the common tax regime (not the NHR unfortunatley). Why the waiting? Part because we do not mind to pay "fair" taxes" and part because we would like to reduce risks of losing control of to complicated structure because we are not experts. We do not consider ourselves genius on portfolio management as well. We both are successful entrepreneurs for some decades now. We have been building up this portfolio for the last 25 years and we both have overcome some ups and downs during this period. Our aim is just to reduce taxation when we liquidate the portfolio which we plan to do in the next 7 years.
Appreciate your comments. Thanks.

 

[bastard]

What you guys say is that it is impossible to reduce the tax burden unless you move abroad is that correct?

I considered to move to the UAE and researched my options, but at the end of the day it wasn't all about taxes and money it was also a question about if I really want to live there! It is difficult to figure out what wights the most Money and Taxes or your live style and where you want to live.

I read the thread about Switzerland / Zug / Lugano and other cantons there, it's nice if you have a million + in euro but otherwise I don't think it is an option.

Now I'm asking if you had 600K euro by hand and you don't had to consider your children, wife or other family but only your self, where would you move to reduce or avoid taxes dramatically?

 

[CaptK]

Problem is nothing is guaranteed in this world.
You could lose the whole amount if we had another global recession. There are many guaranteed schemes but you need one where your funds are ring fenced so at least your capital is safe.
The only country your entire capital is safe is Singapore. With 1M DBS will happily put you in one of their programs at between 5-8%.

Your plan for the LLP is good and will work. I would not tie it to the PT company as that would cause you issues later.

It would be an idea to start your new tax residency now or at least 2 years before you plan to retire as so when you make the move nothing has changed. You could set up your own investment vehicle in a tax free state now. Then keep the interest there until you are ready for it.

 

[aquarius]

Problem is nothing is guaranteed in this world.
You could lose the whole amount if we had another global recession. There are many guaranteed schemes but you need one where your funds are ring fenced so at least your capital is safe.
The only country your entire capital is safe is Singapore. With 1M DBS will happily put you in one of their programs at between 5-8%.

Your plan for the LLP is good and will work. I would not tie it to the PT company as that would cause you issues later.

It would be an idea to start your new tax residency now or at least 2 years before you plan to retire as so when you make the move nothing has changed. You could set up your own investment vehicle in a tax free state now. Then keep the interest there until you are ready for it.

I'm intrigued by what you said DBS is offering at 5-8%. What are they investing your money in?

 

[CaptK]

In the Private Banking department they have a mixed equity product it returns on average 6%. Been running for 2-3 years. I'm not sure of the exact make up of it but a client of mine went in with 10M paid out every July.

 

[rowena]

I have no idea how you optimize your taxes, I'm not an EU person but you should stay away from Wealth Management(also Actively Managed Portfolio). It is a service for people who don't have time to manage their assets and have a net worth of more than $10M. They only interested in sell actively managed portfolios to you. You simply need to open a broker account(trustable one) and prepare a lazy portfolio with passive funds/ETFs.

https://www.thebalance.com/why-index-funds-beat-actively-managed-funds-2466411

 

[aquarius]

In the Private Banking department they have a mixed equity product it returns on average 6%. Been running for 2-3 years. I'm not sure of the exact make up of it but a client of mine went in with 10M paid out every July.

Thank you for the info. I am familiar with the DBS offerings and have never come across anything yielding 6-8%, thus I got curious. Will ask them.

 

[BlueMist]

In the Private Banking department they have a mixed equity product it returns on average 6%. Been running for 2-3 years. I'm not sure of the exact make up of it but a client of mine went in with 10M paid out every July.

Would those be their DPM portfolios? $5M investment minimum and 1.25% per annum management fees. Plus I guess entrance and exit fees.

Also DBS has recently launched something called DigiPortfolio for general audience, as the min. entry criteria are low. They charge 0.75% per annum management fees, apart from any TER fees. There are 2 ETF based portfolios, one in SGD, the other in USD. That's the problem with DBS, if you have EUR, there is not much they can offer.

 

[CaptK]

I dont the product I just facilitated the account opening. He sent me a thank you payment that's how I got to know about it.

 

[Silvio]

Would those be their DPM portfolios? $5M investment minimum and 1.25% per annum management fees. Plus I guess entrance and exit fees.

Also DBS has recently launched something called DigiPortfolio for general audience, as the min. entry criteria are low. They charge 0.75% per annum management fees, apart from any TER fees. There are 2 ETF based portfolios, one in SGD, the other in USD. That's the problem with DBS, if you have EUR, there is not much they can offer.

0.75% per annum for ETF portfolios ... good business.

 

[BlueMist]

0.75% per annum for ETF portfolios ... good business.

I know, right? But no entry or exit (trading) fees and you can just add or withdraw as much as you want. The total expenses including TER shouldn't be above 1%, which seems to be acceptable according to some books authors (e.g. Andrew Hallam). There are many banks that charge 0.50-0.75% annual custody fees in addition to similar trading fees and rebalancing the portfolio is on your end, with DBS it is all included.

We are talking about DBS here, top 15 banks in the world, not some broker or robo-advisor. They won't do things for free, so if you think about it for some total novice investors, it is not that bad actually.

 

[pzyn9z]

Hi CaptK, thanks for your saturdays valuable input !
Why are you concerned with maintaining the PT link?
My purpose was to make it more controllable and legit as linking it to a different country (from current tax resident) would raise questions arising from the CRS reporting.

 

[CaptK]

The non tax residency rules in Portugal are complex and could be an issue. I think you need to be a non tax resident in PT for at least 1 year before you can access it tax free. I have not read them in a while but when I started it gave me a head ache and I stopped, but its great reading if you cant sleep.
Your structure works just confirm there isn't an exit tax and tax hangover.

 

[lory]

Problem: personal taxation is 28% and we though to get some structure to lower this tax in order to enhance the compounding.

did you solve this issue or did you setup something different to solve this?