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NHR and UK dividend tax

hazmog
#1
I read this article which seemed to say as a company director I would end up paying little to no tax on my income which is largely dividends based, meaning the move to Portugal would save us money. I then spoke to my accountant and he says I would still be taxed in the UK, but just not in Portugal. Then after 10 years, I'm then taxed again in Portugal, meaning actually I will end up paying more tax than before.

Can someone clarify please?
See also
G
#2
Have you considered talking to an international tax advisor (e.g. BDO) about his matter. I assume that they have been confronted with the topic quite frequently.
hazmog
#3
Thanks for the reply.

I haven't as yet. I was hoping someone here might have direct experience they could relay. I'll research some more.
TonyJ1
#4
If you receive a salary, it will be taxed in Portugal, though might be a favourable rates. However, if you are running your company from Portugal, you might be at risk of establishing a 'permanent establishment' (aka branch) and therefore subject the company's operation to some tax risk in Portugal - this depends on how the company is organised, if has a fixed establishment in the UK, has employees, where are the customers / clients, organisation of the company, probably OK. Being a director by itself is not a problem, but running a company from Portugal ie signing contracts, attending meetings and making decisions remotely - might be. Of course, then there is a risk the the dividend benefit under the nhr might be subject to tax under the argument that it is effectively from a Portuguese source.

In respect of salaries - I suggest you and your accountant study the provisions of article 15 of the Portugal UK double tax treaty - taxable in the UK only if you spend more than 183 days per tax year in the UK - which in effect means that you are tax resident in the UK in any event
hazmog
#5
Thank you for the reply Tony.

You seem to know about this stuff.

Would article 15 mean effectively I would not pay UK tax at all if I live in Portugal the vast majority of the time? If so, how would a base salary and dividends be taxed?

I spoke to my accountant and he seems to think I would pay the exact same tax as I do now. I was hoping there might be a reduction, since everyone talks about the NHR as a really beneficial thing, but his understanding is, it just gives you 10 years BEFORE Portugal tax you on top of the UK.
TonyJ1
#6
Salary would be taxable in Portugal. Directors salary 20% under the nhr rules - though with the warnings of turning your UK company into a Portuguese company (Permanent Establishment) under the management and control rules - suggest you read up a bit on this concept. UK has this as well.

Dividends would be OK - but provided company not deemed to have a PE in Portugal
hazmog
#7
Thanks for this.

I have no plans of making it a Portuguese company. Whilst I'm a director, the vast majority of work is done without me now.

In the UK you get 12k of salary tax free then dividends at 7.5%.

Are you saying if all of my income was dividends, it would be tax free?
TonyJ1
#8
You misunderstand - if you run a foreign company from Portugal, it would mean it has a permanent establishment in Portugal - aka branch, this would mean it is subject to Portuguese tax law. Most countries have similar rules - this is why directors tend to fly back and forth across the world to formal company meetings to avoid these deeming provisions.
TonyJ1
#9
If the work is done without you (careful with the word 'majority'), then under the nhr rules, and provided the dividends are not from a country in the Portuguese black list, then not taxable in Portugal for a period of ten years - must apply for the nhr status - it is not automatic
hazmog
#10
My plan is to fly back once a month for that kind of stuff.

So if I am a tax resident in Portugal, I would not pay UK tax?
hazmog
#11
Also, just to say again, thank you. I've really struggled to find this information anywhere else in a way that my non accountant brain can understand.
1 member reacted to this post
Cynic
#12

hazmog wrote:

My plan is to fly back once a month for that kind of stuff.

So if I am a tax resident in Portugal, I would not pay UK tax?


Depends.  You need to read the tax-treaty between Portugal and the UK.  If you live in Portugal for the majority of the tax year (so > 183 days), then you will be assessed there on your world-wide income; however, things like UK Government pensions are specifically included in the tax treaties and will always be taxed at source (i.e. UK), but you won't be taxed on them again.  The other thing to watch out for are social taxes, these generally fall outside the remit of the tax-treaties.

1 member reacted to this post
slugsurmamates
#13
Required reading for the amateur looking for accurate information.##

https://www.blevinsfranks.com/buy/livin … s/61/order


This was the basis of my move, residency, tax understanding and NHR application.

###Suggest you ring HMRC with any specific questions once you filter out the chaff.

Complete an HMRC "DT-Individual" form, appy to them or download.

#Notes with it may provide details.

Good luck.
slugsurmamates
#14
Ex.

If you "remit" income such as state pension, personal pension, drawdown, company pension income to Portugal, and stay within UK HMRC rules, then you pay no tax on these or bank income, share dividends etc to UK.
(Public Sector Pension Income is not included!).

Thereafter, you need to declare this annually to Financas/Poruguese Tax Authorities, but if you are awarded NHR , then Portugal waives (or now reduces tax?) to 10% of those incomes.
This situation lasts up to 10 years if you meet criteria.

Income from property rental in UK etc is ONLY taxable in UK, cannot be remitted, but can be offset against your annual UK Tax allowances which can be retained even though you are no longer a UK Tax Resident.
ie. If you rent out your home for 12 months x £1000/month, no tax payable in UK or Portugal.
(UK Personal allowance about £12,500 this year?)

Regards.
1 member reacted to this post
hazmog
#15
Awesome, cheers everyone.

I'll check that book out too.
TonyJ1
#16
Not necessarily - on a £12000 salary, there would be some taxes. The dividend would be tax free on your plan.
TonyJ1
#17

hazmog wrote:

Also, just to say again, thank you. I've really struggled to find this information anywhere else in a way that my non accountant brain can understand.


For one of two reasons:

Made hazzy so that your apply for a consultancy

The source of the post did not know how to explain it in simple terms

TonyJ1
#18

slugsurmamates wrote:

Ex.


Income from property rental in UK etc is ONLY taxable in UK, cannot be remitted, but can be offset against your annual UK Tax allowances which can be retained even though you are no longer a UK Tax Resident.
ie. If you rent out your home for 12 months x £1000/month, no tax payable in UK or Portugal.
(UK Personal allowance about £12,500 this year?)

Regards.


The rent is not entirely accurate - this only endures whilst on the nhr - post 10 years the rental will be taxable in Portugal as well - credit given for the tax paid in the UK up to the Portuguese tax charge (on the rent).

Whether the rent is remitted or not, it is still subject to the rules as above.

1 member reacted to this post
TonyJ1
#19

Cynic wrote:
hazmog wrote:

My plan is to fly back once a month for that kind of stuff.

So if I am a tax resident in Portugal, I would not pay UK tax?


Depends.  You need to read the tax-treaty between Portugal and the UK.  If you live in Portugal for the majority of the tax year (so > 183 days), then you will be assessed there on your world-wide income; however, things like UK Government pensions are specifically included in the tax treaties and will always be taxed at source (i.e. UK), but you won't be taxed on them again.  The other thing to watch out for are social taxes, these generally fall outside the remit of the tax-treaties.


In general your comments above are correct - but also some exceptions - if a taxpayer has Portuguese nationality and does not have UK nationality, then this rule does not apply - but this is digging in to the details of the double tax treaty - ie exceptions to the exceptions etc. Some income can be taxed at source and in Portugal if not specifically excluded under the nhr provisions (or in terms of the dta as is the case for government pensions (civil pensions))

J
#20
Forgive me for being late to this but have been researching taking dividends from a UK company while in Portugal under NHR, and it sounds more complicated than many articles tell you.

1) under the double tax treaty, Portugal is not supposed to tax UK sourced dividends because they are "capable" of being taxed in the UK

2) under HMRC rules, if you have left the UK properly, you are not taxed on dividends

3) BUT - a Portuguese tax advisor told me that NHR rules are applied quite randomly at a local and national level in Portugal and that if you have paid zero UK tax on a dividend, some Portuguese tax districts have taxed UK dividends at 28% under NHR

I would comments from NHR expats who have successfully - or not - paid 0% on UK dividends please? And whether there are any legal "tricks" in the paperwork you need to observe to make sure you get 0%
TonyJ1
#21
The legislation is clear - there is no ifs or buts - this is what is in the law:
Article 81 - 5 - 3
a) Possam ser tributados no outro Estado contratante, em conformidade com convenção para eliminar a dupla tributação celebrada por Portugal com esse Estado; ou

The  wording does not say if the country of source has to tax, but the wording used is 'possam' which is conditional -  'may'.
If the tax authority imposes a tax not in accordance with the law, then the taxpayers defence is appeal and eventually the courts - on average, taxpayers win more than 70% of cases taken to court - of course also requires a competent lawyer to argument this type of issue if it comes to it.

Without further research, I am not aware of any specific ruling about dividends received without being taxed at source - there are plenty other rulings on capital gains on fixed property, which comes under the same subsection of the legislation, and under similar wording - in any event, the final arbiters are the courts.
J
#22
Thanks for your reply. I'll try to get the case.

70% win for taxpayers, when the law is "100% clear" isn't a good risk!
JohnnyPT
#23
Additional Info.
NHR in Portugal: Passive incomes (interest, dividends and royalties) obtained outside Portugal, may be taxed in the countries of origin, but tax must not exceed the reduced rates established in the tax agreements signed between Portugal and the respective countries that vary between 5% and 15%.

https://info.portaldasfinancas.gov.pt/p … belas.aspx

Select "Quadro resumo das convenções 2020", then in the PDF search for UK/ "Reino Unido".

UK taxation for dividends can vary between 10% and 15%:
10% When the beneficiary owner is a company that controls 25% or more of the share capital.
15% In all other cases.
TonyJ1
#24
Cases that do go to court are usually where the both the tax authority and the taxpayer think that they have a case. In this case, the language is quite simple (but no guarantee that there is no issue). In the calculation you have made, you are presuming that every similar case will be challenged and lands up in court - as you yourself have said, apparently 'some' offices are challenging this - not all, and have never hear or seen such a challenge - obviously if this happened, then it should be properly argumented at that stage, and it should die there
J
#25
I asked the person who told me about this case yesterday to send it to me and will publish the reference here if I get it.

This is a murkier world than people know.
TonyJ1
#26

JohnnyPT wrote:

Additional Info.
NHR in Portugal: Passive incomes (interest, dividends and royalties) obtained outside Portugal, may be taxed in the countries of origin, but tax must not exceed the reduced rates established in the tax agreements signed between Portugal and the respective countries that vary between 5% and 15%.

https://info.portaldasfinancas.gov.pt/p … belas.aspx

Select "Quadro resumo das convenções 2020", then in the PDF search for UK/ "Reino Unido".

UK taxation for dividends can vary between 10% and 15%:
10% When the beneficiary owner is a company that controls 25% or more of the share capital.
15% In all other cases.


The withholding can exceed the double tax treaty (and often does) - it is up to the tax payer to take this up with the 'other' tax authority. The double tax treaty provides for the maximum rate, but obviously the treaty partner may forego withholding taxes if it wishes.  What this also means is that in the case where a taxpayer is subject to tax on dividends (and taxpayers with the nhr are not), is that the PT tax authority will not grant tax credits greater than the 5%-15% (as may be applicable).

TonyJ1
#27
I have seen other parts of the nhr being misapplied - so it is entirely likely what you say, and only the courts can resolve this. However, through personal knowledge, in respect of the dividends, I have never seen it applied in the way described
TonyJ1
#28
Another issue in the 'dividend' game, is that it is likely in the majority of 'personal' companies, that these are not properly set up to resist challenges - ie if they are managed and controlled from Portugal, then effectively they are run from Portugal and should not benefit from the nhr provisions. If properly set up - eg a proper business set up in the UK with say 4 shareholders, 4 directors, staff etc in the UK and one shareholder lives in Portugal and receives dividends -unlikely to be challenged. If it is a personal company, with no staff, no office, no minutes of meetings, no other directors - run from Portugal - in my opinion high risk of being challenged (on the basis that it is managed and controlled from Portugal). Other set ups - depends how it is done, and what 'defences' have been set up.
J
#29
Apparently one can't get transcripts of court cases in Portugal - so I can't get the case of the Portuguese fiscal authority v the NHR resident who took the dividends out.

The taxpayer lost and paid 28% Portuguese tax on his UK dividends.
TonyJ1
#30
Superior court cases and arbitration court cases are generally published - but there is not an easy to use overall database - at least free. I monitor all nhr cases taken on arbitration (really tax court) using search words, though I have not done this for 3 months or so.  At  the time I did not spot any of this - but as mentioned previously, I suspect that the issue was that it was a management control issue, rather than a 'proper' dividend, or else a clued up lawyer was not used to argue case, or else the tax payer felt that he did not have a proper case. Without reading the case, very difficult to make conclusions one way or another.
J
#31
I've just been looking at the legal system and there does appear to be a separate fiscal court. The case was apparently bought in 2016 or 2017 relating to a 2014 NHR return. I don't have much information but as I said earlier, apparently an NHR individual was charged 28% on UK dividends because the Portuguese authorities said they couldn't that any UK tax had been paid on the dividend, and therefore Portuguese tax was payable.
TonyJ1
#32
There is a tax court though it is not called such, but it is in effect one, though taxpayers have the option of using it or go through normal courts. If a taxpayer invokes this arbitration, the tax authority has to accept its rulings expect in rare circumstances. Though the court was up and operating in 2014 - it was not generally accepted / known at that stage. It was created only a few year before 2014.

As to the specific case, without reading the case cannot determine any issues about it.

I have read some other cases in the arbitration court, and in every case where it involved nhr issues where it has gone against the taxpayer - the taxpayer was bring to be 'clever' - plans / structures that would not withstand any scrutiny - and they did not ie badly executed structures / plans. There are some basic rules, and if these are not adhered to, and if at sometime they are subject to scrutiny, then the tax payer must not expect that the courts will aid
J
#33
Can you go to their decisions in 2016 or 2017?
TonyJ1
#34
I have done a check on all the decisions in the arbitral court relating to non habitual status - no cases have come up relating to UK dividends, one case with Brasilian dividends which went against taxpayer - did not present adequate proof (original return incorrectly completed)
J
#35
Thank you very much. This seems to point to the fact that the more I look at this area, the murkier it is, given that I was told yesterday by a Portuguese tax advisor about the UK dividend case.
TonyJ1
#36
There is a way around it if you still have not become a tax resident - you can set out your case and request a prior tax ruling
J
#37
I have NHR - but haven't taken it up in the last year as Covid struck just as I was about to move. So I'm not sure where that leaves me as I'm still a UK tax resident.
TonyJ1
#38
Have you changed your tax address to the UK?
J
#39
No
J
#40
So I I need to tell the Portuguese that I have been non resident since shortly after getting my NHR - and then change back again at the right time

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