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Portugal NHR - Software


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Jun 14, 2023
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I (privately) own the IP of some software that I developed and that I'm licensing to some clients, I do no active work on the software, this is passive income. I'm a tax resident in Portugal under the NHR schema and I intend to live in Portugal while I have NHR status.

I have a UK LTD with a nominee shareholder & director (set-up to avoid PE and arms-length pricing discussions) that I'm using to invoice my clients. This shareholder/director is a friend of mine who is a UK resident.
The LTD pays me royalties (most of the income of the LTD) at a 5% WHT, which is tax-exempt in Portugal under the NHR scheme.
Recently, I've had some struggles with my friend, making me more uncomfortable with the set-up, so i'm thinking for longer-term alternatives and could use some inspiration or input. Main goal is to be able to report it in Portugal under NHR as passive income (either dividends, or royalties).

I'm aware there will be more exposure to potential PE and transfer pricing issues, and that it might be relying on Portugal not being very aggressive in its taxation enforcement.

On top of my mind:
  • Finding another nominee shareholder and/or director for the UK LTD. Is this doable and reliable these days?
  • Becoming shareholder/director in the UK LTD (or a new LTD) myself - but then i'm paying royalties to myself
  • US LLC with pass-trough taxation and declare as dividends (technically not compliant, i know)
Other potential options (not all researched into detail) based upon reading here:
  • Bulgaria (10+5 %) - pretty 'high' taxation but also very compliant (except PE rules).
  • Estonia company and pay wages (i could declare them otherwise in Portugal, that part is mainly creating paper proof).
  • Malta resident non-dom
    • might be hard to claim residency in Malta when not residing there myself? probably would need maltese director?
    • I can invoice my clients as I want, so I can make abstraction of the licensing deal and invoice them as work done outside of Malta.
    • Would this make it tax-exempt when not remitted into Malta, and being able to send as a dividend at 0% taxed? Or will the distribution be considered remitting?
  • Any other (creative) ideas?
I believe the "typical" NHR is to have a company in Cyprus or Malta, which pays dividends.
I would discuss this with a Portuguese tax lawyer, they can usually help with the whole structure.

Otherwise your UK setup sounds quite good, too.
No idea how easy or difficult it would be to find another nominee - but you'd probably already have to declare you're the UBO? If you can find a "professional" nominee at least, I would definitely expect that to be the case.
You could just become shareholder/director yourself - then I would be more worried about the UK side than the PT side.

Otherwise Poland also has some IP tax incentives, I could imagines that nominees are a bit cheaper there.
Currently I'm not the UBO, as my "friend" is the shareholder and director (there is some risk obviously for a hostile action, but the company is basically an empty box where income is directly distributed as royalties). He didn't explicitly say that he wants to stop our agreement, but after our gentleman's agreement he now wants it into a contract (I don't mind) and given our current relationship status, its feeling uncomfortable to keep relying on it when he could change his mind again in the future.

If I would become a shareholder/director myself, I assume the UK side (if they notice) wouldn't think paying royalties to myself is very compliant, that is indeed my worry about that way of working.

I don't really like those IP tax incentives, since most of the time they require actual work (investments/wages paid/...), in order to be applicable, and this is passive income. I don't think I could take my existing personal IP and just claim the IP regime in Poland for instance).
Currently I'm not the UBO

Yes, you are. Nominee shareholders don't change that. I understand you didn't declare your ownership, but you probably should have if you wanted to be compliant.

I don't think I could take my existing personal IP and just claim the IP regime in Poland for instance).

No idea, that would be a question for a Polish tax lawyer.

I would probably just consult with a PT tax lawyer, even if there is a risk that they want to sell you a new structure involving CY/MT.

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