Moving to Portugal - unrealized capital gains

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Topic Author
potz
Posts: 7
Joined: Mon Feb 01, 2021 1:11 am

Moving to Portugal - unrealized capital gains

Post by potz »

Seeking some advice regarding capital gains before I make a major move.

Some background:

Our family will be moving from Asia to Portugal under their Golden Visa program in early 2022.

I am currently living tax free in Asia and have had a simple 3 ETF portfolio (IWDA, IGIL, EIMI) since 2017. This portfolio is self managed with Interactive Brokers and NOT under any sort of retirement structure.

Separate from our residency under the Golden Visa program, I intend to take advantage of Portugal's Non Habitual Resident tax regime, which will offer very low tax for me for a period of 10 years. This low or no tax rate is applicable to many things including pension income, dividends, royalties, real estate income. This will allow me to receive passive dividend income from investments I have made in private companies and rental real estate at a very low, or 0% rate.

After obtaining advice from two different tax attorneys in Portugal, capital gains on sale of securities do not qualify for the NHR tax regime breaks and are taxed at the standard 28%.

My questions:

I had originally thought that my capital gains on my ETF portfolio that have accumulated from 2017 to date would not be an issue in Portugal as the clock would start ticking as far as capital gains calculation, when I become a tax resident in Portugal, and not before. The current advice I have received is that this may not be the case, and I may be taxed on the TOTAL capital gains accumulated, regardless of previous residence, if I sell these ETFs while a Portugal tax resident.

Does anyone have any insight on this? If this is the case, and I am liable for the 28% tax on ALL of the accumulated capital gains for the portion of the ETFs I may sell, should I consider realizing all these capital gains to date BEFORE I move? While I am still living tax free? and then re-purchase the same portfolio to restart the clock? I would then only lose out on the fees associated to selling and then re-purchasing the same positions.

Any thoughts appreciated.
TedSwippet
Posts: 3565
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Moving to Portugal - unrealized capital gains

Post by TedSwippet »

potz wrote: Tue Apr 06, 2021 9:11 pm Does anyone have any insight on this? If this is the case, and I am liable for the 28% tax on ALL of the accumulated capital gains for the portion of the ETFs I may sell, should I consider realizing all these capital gains to date BEFORE I move? While I am still living tax free? and then re-purchase the same portfolio to restart the clock? I would then only lose out on the fees associated to selling and then re-purchasing the same positions.
Personally I would definitely sell and repurchase before making the move you describe.

It may seem unreasonable that countries do not 'step up' the cost basis of anything you have held long before moving there -- and actually, it probably is unreasonable in many cases -- but while some do, a lot do not. It appears that Portugal falls into the latter category, in which case sell and repurchase is the way to defuse this.

If moving from a country with no capital gains tax, the cost of doing this is tiny relative to the downside of having to pay tax to some country later on gains that accrued long before even setting foot in that country.
unikat
Posts: 1
Joined: Wed Apr 07, 2021 3:08 am

Re: Moving to Portugal - unrealized capital gains

Post by unikat »

Have you heard that Portugal have a special program called Portugal Non-Habitual Residency Tax Regime (NHR) that was created to attract foreign investors, highly skilled professionals and retirees.

I'm not a lawyer myself so not sure if I understand the content correctly but I think depending of your country of origin and if the Portugal has a double taxation treaty with it you might be tax-exempt on financial assets.

More information you can read here: https://www.portugal-golden-visa.pt/por ... regime-nhr

Specifically read the "Taxation treatment under the NHR regime" section and the "Non-Habitual Residency requirements" to see if you qualify at all.
DJN
Posts: 799
Joined: Mon Nov 20, 2017 12:30 am

Re: Moving to Portugal - unrealized capital gains

Post by DJN »

Hi,
the NHR scheme in Portugal was "recently" (2020) revised after pressure from the "Nordics" and the high tax countries in the EU. The capital gains of equities are now taxable. probably at 28% I also understand that a 10% tax rate is applicable on pensions, you need to research that more. You need to remember that there is a blacklist of countries where investments are not tax exempt.
Probably best to sell everything and repurchase after you have landed as noted already with records of all purchases.
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
CCD
Posts: 83
Joined: Wed Mar 09, 2016 10:17 am

Re: Moving to Portugal - unrealized capital gains

Post by CCD »

This a topic I'm very interested on. I think it also depends on Portugal having a Double Taxation Agreement with the other country. It seems like if a DTA exists then you are taxed at the rate of the country housing the investments rather than in Portugal. Following this and looking for answers on other forums.
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BeBH65
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Re: Moving to Portugal - unrealized capital gains

Post by BeBH65 »

CCD wrote: Wed Apr 07, 2021 9:35 am It seems like if a DTA exists then you are taxed at the rate of the country housing the investments rather than in Portugal.
Quite the opposite. Most taxation is based on (tax)residence. The country where you have your tax-residence will tax you.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
DJN
Posts: 799
Joined: Mon Nov 20, 2017 12:30 am

Re: Moving to Portugal - unrealized capital gains

Post by DJN »

Hi,
just for your information I think that the scheme in Malta for tax residency for non Maltese is now superior to Portugal from the taxation point of view.
See the Bogleheads Wiki page on non habitual residency (notwithstanding recent comments on the accuracy of some of the information its worth a read at least to see what different schemes are available):
https://www.bogleheads.org/wiki/EU_non- ... _residence
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
assyadh
Posts: 319
Joined: Tue Sep 18, 2018 12:44 pm

Re: Moving to Portugal - unrealized capital gains

Post by assyadh »

I also was wondering if Portugal stepped up the cost basis when moving countries and it does not. Actually, a few country do (Canada, Australia).

I read the Portugal tax code section on capital gains and came up to the same result. I wanted to be sure and wrote to an attorney specialized in such matters and here is his response:
In a nutshell, no. Portugal does not rebase asset values to the day you become resident, so, if you were to avoid capital gains tax on the prior gains you would have to restructure the portfolio prior to becoming resident.
So you would have to sell and rebuy whatever assets you have
CCD
Posts: 83
Joined: Wed Mar 09, 2016 10:17 am

Re: Moving to Portugal - unrealized capital gains

Post by CCD »

This really diminishes the value of the NHR program if you retire early and plan to live out off your investments. I know the value for people already collecting "pensions" or renting property.
assyadh
Posts: 319
Joined: Tue Sep 18, 2018 12:44 pm

Re: Moving to Portugal - unrealized capital gains

Post by assyadh »

CCD wrote: Wed Apr 07, 2021 9:19 pm This really diminishes the value of the NHR program if you retire early and plan to live out off your investments. I know the value for people already collecting "pensions" or renting property.
Yes, if Portugal amended its rules and allowed for a stepped up cost in basis it would be a game changer (for me at least) as one wouldn't have to move around to avoid capital gains.
Topic Author
potz
Posts: 7
Joined: Mon Feb 01, 2021 1:11 am

Re: Moving to Portugal - unrealized capital gains

Post by potz »

assyadh wrote: Wed Apr 07, 2021 1:38 pm I also was wondering if Portugal stepped up the cost basis when moving countries and it does not. Actually, a few country do (Canada, Australia).

I read the Portugal tax code section on capital gains and came up to the same result. I wanted to be sure and wrote to an attorney specialized in such matters and here is his response:
In a nutshell, no. Portugal does not rebase asset values to the day you become resident, so, if you were to avoid capital gains tax on the prior gains you would have to restructure the portfolio prior to becoming resident.
So you would have to sell and rebuy whatever assets you have
Appreciate all the feedback!

I too have consulted two tax attorney's in Portugal and they basically told me the same thing. Sell the assets, realize the capital gains while tax free, then repurchase before becoming a Portugal tax resident.

In parallel, I am also re-structuring some corporate holdings out of a Portugal classified "tax haven", to a EU country with very low tax, so the dividends I receive from these holdings will be tax free. I am looking into this new EU country holding company opening a brokerage account and holding some or all of my portfolio. The capital gains would be at a much lower rate (low single digits) and the corporate dividends paid to me personally would be 0%.
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