Dirk Andreae-Nehlsen, member of the Paris Bar and founder of the Paris law firm ANDREAE ASSOCIATES looks at the tax advantages of investing in Portugal. He is developing a wealth tax consultancy business in an international context. He works in French, German and English.
A fiscally attractive investment for retirees wishing to settle in Portugal
With the decree of September 23, 2009, the Portuguese government introduced theadvantageous "non-habitual resident" status ". The advantages of this system, which the beneficiary can enjoy for 10 years, are manifold.
The Portuguese regime is open to anyone who has not been taxed as a Portuguese tax resident in the previous five years. Also, you must have resided in Portugal for more than 183 days during the year in question. Alternatively, it is sufficient to have a habitual residence in that country on December 31 of the tax year, although this is likely to be criticized by the French tax authorities. The scheme is applicable on specific application to the Portuguese authorities.
Benefits for French-source income, particularly retirement pensions
Professional income from non-Portuguese sources is exempt in Portugal, provided it is taxed in France.
Retirement pensions paid by a debtor domiciled in France to a Portuguese tax resident are not taxable in France under article 19 of the CFI. At the same time, such pensions may be exempt from taxation in Portugal insofar as they are not received on Portuguese territory. Passive income received by a Portuguese resident, notably dividends and interest from financial investments in France, is exempt from Portuguese tax if it is taxed in France by means of a withholding tax. In the case of dividends, Article 11 of the CFI provides for a reduced withholding tax of 15%. As for French-source interest, the usual withholding tax of 25% is reduced to 10% or 12% according to article 12 of the CFI.
Advantages in terms of wealth tax
The tax treaty between France and Portugal makes no provision for the taxation of wealth. Domestic legislation is therefore fully applicable. However, France only taxes the wealth of a non-French tax resident on the amount of his or her French real estate assets. Portugal has no wealth tax.
Benefits when passing on assets to heirs
In Portugal, gratuitous transfers (gifts or inheritance) between spouses, life partners, ascendants or descendants are exempt from stamp duty. It should be noted, however, that there is no tax treaty between France and Portugal on inheritance and gifts.
Depending on the situation of the taxpayer and his heirs, there may be a risk of double taxation of the real estate inheritance, which needs to be analyzed and optimized in advance.
A tax-efficient investment for investors who remain French residents
Under article 6 of the CFI, income from real estate located in Portugal is taxable only in that country. The same applies to capital gains realized on the sale of real estate.
Under article 24 § 1 a of the CFI, this income must be kept outside the French tax base. While this income may be taken into account when calculating the tax rate in France, it is excluded from the French income tax base and taxed by means of a withholding tax at the rate of 25% in Portugal. As a result, property investment in Portugal can be attractive for French tax residents taxed at the marginal rate in France.
Portugal, on the other hand, has just announced changes to its real estate taxes.
If the tax value of an owner's total real estate assets exceeds 600,000 euros, a rate of 0.3% will be levied on the portion above this threshold, according to the draft budget. Portugal's Socialist government is keen to cover its deficit and appease Bruxelle....