Portugal tax resident under NHR + US LLC

[Speedrunner]

Hey there,

SWIM is a Portuguese tax resident under the NHR scheme and lives in Portugal for at least 6 months a year. SWIM is doing independent advisory work for companies outside of Portugal to the tune of 6 figures USD per year.

How viable is it for SWIM to set up an entity such as Delaware (Or Wyoming) to issue the invoices for services rendered, and then later cash out to Portugal through dividends paying 0% due to NHR tax benefits? I know PE-related questions can be problematic but are they really? Is it ever enforced? What are the major risks?

Thank you.

 

[Sols]

It's technically tax evasion but Portugal is not currently enforcing its tax laws (against wealthy foreigners).

You'll probably be fine as long as you don't draw attention, stick out, or the Portuguese decide to change their minds.

 

[Speedrunner]

It's technically tax evasion but Portugal is not currently enforcing its tax laws (against wealthy foreigners).

You'll probably be fine as long as you don't draw attention, stick out, or the Portuguese decide to change their minds.

Sorry to only circle back to this just now.

Why would it be considered tax evasion? Wouldn't it fall under tax optimization?
I've also heard about a setup similar to this: The Tax treatment of US LLCs in Portugal
Under NHR and a similar setup, this would be considered foreign-sourced income and under NHR would be taxed at 0%. There is a ruling that sets this precedent.

What are your thoughts? On a scale of 1 to 10, how risky would you say that is for SWIM?

 

[Sols]

Why would it be considered tax evasion? Wouldn't it fall under tax optimization?

Well, tax evasion is a crime. Tax avoidance isn't. If you break the tax law — even if it's not being enforced — what you're doing is tax evasion.

What are your thoughts? On a scale of 1 to 10, how risky would you say that is for SWIM?

I'd be careful with Portugal now. There is big popular dissatisfaction with how the tax schemes panned out. It's not like in Malta or Cyprus where the locals generally are ambivalent, disinterested, unaware, or even supportive. In Portugal, the people are actively against it.

The original NHR ended in January 2024 in no small part because of public outcry. The new NHR is a slightly watered down version.

 

[Speedrunner]

Well, tax evasion is a crime. Tax avoidance isn't. If you break the tax law — even if it's not being enforced — what you're doing is tax evasion.


I'd be careful with Portugal now. There is big popular dissatisfaction with how the tax schemes panned out. It's not like in Malta or Cyprus where the locals generally are ambivalent, disinterested, unaware, or even supportive. In Portugal, the people are actively against it.

The original NHR ended in January 2024 in no small part because of public outcry. The new NHR is a slightly watered down version.

Where are you on the stance that salary can be received in crypto assets, such as stablecoins, and then held for >365 days to then be sold to fiat under long term capital gains? (0% tax)

 

[Sols]

Where are you on the stance that salary can be received in crypto assets, such as stablecoins, and then held for >365 days to then be sold to fiat under long term capital gains? (0% tax)

Income is taxable when earned or received. If you don't declare it and pay income tax, you've committed tax evasion. Whether there is capital gains on cashing out crypto is a separate issue from the income tax.

Imagine you go to the store and steal an apple. Then >365 days later, you eat the apple. Sure, you didn't pay for it. But it's still going to make you sick. The two things are completely unrelated. (Not my best analogy, but I'm sure you see my point.)

Whenever I'm unsure about tax law, I try to locate one or two reputable lawyers that specialize in tax and ask them. If I can't get clarity based on a couple of emails/calls, I pick the best one and pay them for a legal opinion.

You can also try to get an advance ruling from the tax authority.

Legal opinions and/or advance rulings can make a huge difference in case of a dispute, or even make the dispute go away entirely. Just make sure to get the legal opinion updated if the law changes.

All that said, what you're proposed has been deployed successfully by people in recent past in Portugal. In other words: yes, other people are committing tax evasion in Portugal at the moment doing this. And currently, Portugal isn't doing much if anything to go after tax dodgers. But as I mentioned, the attitudes are changing in Portugal. Politicians might want rich people to move to Portugal. But politicians also want to stay in power. They can't do that if the local population vote them out and vote in someone who will change or scrap the tax incentives for wealthy foreigners.

So keep your eyes open and just be prepared for changes to happen quickly. It won't be overnight. You'll probably have at least a year to pick up and leave.

 

[LibertyGuy]

Income is taxable when earned or received. If you don't declare it and pay income tax, you've committed tax evasion. Whether there is capital gains on cashing out crypto is a separate issue from the income tax.

Imagine you go to the store and steal an apple. Then >365 days later, you eat the apple. Sure, you didn't pay for it. But it's still going to make you sick. The two things are completely unrelated. (Not my best analogy, but I'm sure you see my point.)

Whenever I'm unsure about tax law, I try to locate one or two reputable lawyers that specialize in tax and ask them. If I can't get clarity based on a couple of emails/calls, I pick the best one and pay them for a legal opinion.

You can also try to get an advance ruling from the tax authority.

Legal opinions and/or advance rulings can make a huge difference in case of a dispute, or even make the dispute go away entirely. Just make sure to get the legal opinion updated if the law changes.

All that said, what you're proposed has been deployed successfully by people in recent past in Portugal. In other words: yes, other people are committing tax evasion in Portugal at the moment doing this. And currently, Portugal isn't doing much if anything to go after tax dodgers. But as I mentioned, the attitudes are changing in Portugal. Politicians might want rich people to move to Portugal. But politicians also want to stay in power. They can't do that if the local population vote them out and vote in someone who will change or scrap the tax incentives for wealthy foreigners.

So keep your eyes open and just be prepared for changes to happen quickly. It won't be overnight. You'll probably have at least a year to pick up and leave.

We're deciding to relocate to Portugal under D7 visa with worldwide rent income and stocks dividend income - do you think It would be better to stay away and choose, for example. Argentina? We're too late for NHR, started the process and got our visas in 2024

 

[Propeller]

It's technically tax evasion but Portugal is not currently enforcing its tax laws (against wealthy foreigners).

You mean if you have sufficient with money to take to Portugal they want care about taxes?

 

[Sols]

We're deciding to relocate to Portugal under D7 visa with worldwide rent income and stocks dividend income - do you think It would be better to stay away and choose, for example. Argentina? We're too late for NHR, started the process and got our visas in 2024

If you're going to commit tax evasion, Argentina is probably less likely than Portugal to catch you. So you'll probably be able to get away with it for longer there, especially if Portugal realizes it has to start enforcing its laws.

But why not consider Uruguay, Costa Rica, Panama, or other countries in that region that have (to varying degrees) territorial taxation?

You mean if you have sufficient with money to take to Portugal they want care about taxes?

Sort of. I mean that Portugal is currently not doing much at all to combat tax evasion committed by wealthy foreigners. A poor foreigner who takes a job at a restaurant and gets paid under the table is at greater risk of enforcement than a foreigner who buys a villa and gets paid a large amount of money in dividends from foreign companies.

 

[JackAlabama]

Where are you on the stance that salary can be received in crypto assets, such as stablecoins, and then held for >365 days to then be sold to fiat under long term capital gains? (0% tax)

doesn't matter how you receive a salary.
You could be getting gold bars, any foreign currency known to man (like botswana pula), or free food/accommodation, its still the same, a salary.
Lets say you get bitcoin for your work and hold it you pay only income tax, but not cap gains (time received until sold being 365 days over).

The thing is it being very easy to do p2p without intermediary, so they gonna have a hard time chasing you down.
In the end, smart govs will change their policies into indirect taxation forms, more "challenged" ones will try to chase down things which cannot be stopped.

 

[Speedrunner]

doesn't matter how you receive a salary.
You could be getting gold bars, any foreign currency known to man (like botswana pula), or free food/accommodation, its still the same, a salary.
Lets say you get bitcoin for your work and hold it you pay only income tax, but not cap gains (time received until sold being 365 days over).

The thing is it being very easy to do p2p without intermediary, so they gonna have a hard time chasing you down.
In the end, smart govs will change their policies into indirect taxation forms, more "challenged" ones will try to chase down things which cannot be stopped.

If you were looking to be as close to fully compliant as possible, while optimizing for as reduced of a tax burden as SWIM could possibly wish for under the NHR, how would you go about this if you were to receive 6 figures EUR in salary and bonuses every year?

 

[LosAngeles]

We're deciding to relocate to Portugal under D7 visa with worldwide rent income and stocks dividend income - do you think It would be better to stay away and choose, for example. Argentina? We're too late for NHR, started the process and got our visas in 2024

What is the tax rate on dividends in Portugal? And you mean with NHR application?

 

[Belfort]

What is the tax rate on dividends in Portugal? And you mean with NHR application?

28% for portuguese citizens.

 

[LibertyGuy]

If you're going to commit tax evasion, Argentina is probably less likely than Portugal to catch you. So you'll probably be able to get away with it for longer there, especially if Portugal realizes it has to start enforcing its laws.

But why not consider Uruguay, Costa Rica, Panama, or other countries in that region that have (to varying degrees) territorial taxation?


Sort of. I mean that Portugal is currently not doing much at all to combat tax evasion committed by wealthy foreigners. A poor foreigner who takes a job at a restaurant and gets paid under the table is at greater risk of enforcement than a foreigner who buys a villa and gets paid a large amount of money in dividends from foreign companies.

We need new passports + family resettling to safe country. So 5 years of tax residency, paying taxes and leaving after while waiting for passports or going to Argentina straight away going completely cardless to get passports in 3 years - that's the decision we need to make.

 

[disagree]

NHR guy + foreign-owned LLC here.

The problem with this setup right now is:

As the LLC is a transparent entity, and you're resident in Portugal, basically you're working/managing the company from Portugal – so the "dividend" you want to get from that LLC is truly internally-source within Portugal, as you're doing the work from there.

You can make this fully compliant by putting systems in place that allow you to prove that your LLC is actively managed in US, and all the decisions and work is being made in US.

Like for example having a manager there or renting a real physical address.

Now I'm in this situation where I would like to understand more about this.

For what I understood until now, renting a real physical address (instead of the usual virtual address to receive mail) can be a taxable event that would make IRS want to tax your LLC in US federal income tax.

For the manager in US: you can do this by having a freelancer doing this, so you don't have to have a US employee that do this (super taxable event lol)

But yeah, as other guys said in this thread, this system is widely used alongside with NHR becuase Portugal tax authority are not so into checking "low volume" people. Like under 1 mln/year for what I heard until now.

If anyone knows better about this and can help.

 

[Speedrunner]

NHR guy + foreign-owned LLC here.

The problem with this setup right now is:

As the LLC is a transparent entity, and you're resident in Portugal, basically you're working/managing the company from Portugal – so the "dividend" you want to get from that LLC is truly internally-source within Portugal, as you're doing the work from there.

You can make this fully compliant by putting systems in place that allow you to prove that your LLC is actively managed in US, and all the decisions and work is being made in US.

Like for example having a manager there or renting a real physical address.

Now I'm in this situation where I would like to understand more about this.

For what I understood until now, renting a real physical address (instead of the usual virtual address to receive mail) can be a taxable event that would make IRS want to tax your LLC in US federal income tax.

For the manager in US: you can do this by having a freelancer doing this, so you don't have to have a US employee that do this (super taxable event lol)

But yeah, as other guys said in this thread, this system is widely used alongside with NHR becuase Portugal tax authority are not so into checking "low volume" people. Like under 1 mln/year for what I heard until now.

If anyone knows better about this and can help.

So how do you manage with having foreign (US?) owned LLC + NHR? I'm curious if you experienced any problems around "permanent establishment" or substance

 

[MarkusCostigan]

NHR guy + foreign-owned LLC here.

The problem with this setup right now is:

As the LLC is a transparent entity, and you're resident in Portugal, basically you're working/managing the company from Portugal – so the "dividend" you want to get from that LLC is truly internally-source within Portugal, as you're doing the work from there.

You can make this fully compliant by putting systems in place that allow you to prove that your LLC is actively managed in US, and all the decisions and work is being made in US.

Like for example having a manager there or renting a real physical address.

Now I'm in this situation where I would like to understand more about this.

For what I understood until now, renting a real physical address (instead of the usual virtual address to receive mail) can be a taxable event that would make IRS want to tax your LLC in US federal income tax.

For the manager in US: you can do this by having a freelancer doing this, so you don't have to have a US employee that do this (super taxable event lol)

But yeah, as other guys said in this thread, this system is widely used alongside with NHR becuase Portugal tax authority are not so into checking "low volume" people. Like under 1 mln/year for what I heard until now.

If anyone knows better about this and can help.

What about hiring a manager in a low tax/cheap white list country? (Bulgaria?)

 

[lory]

28% for portuguese citizens.

Well, you pay 28% tax on dividends when receiving them on your personal bank account ?

 

[disagree]

What about hiring a manager in a low tax/cheap white list country? (Bulgaria?)

Could be an idea to proceed, do you have experience in this being right?

So how do you manage with having foreign (US?) owned LLC + NHR? I'm curious if you experienced any problems around "permanent establishment" or substance

Still into trying to fix this

 

[Speedrunner]

Could be an idea to proceed, do you have experience in this being right?


Still into trying to fix this

Keep us posted, if you can and willing