Income tax implications for Canadians moving to Portugal

Hi Marie,
I hope this helps. This is a treaty between Canada and Portugal made in 2001. No, i'm not a tax expert and we are planing to move to Portugal too. Couple of questions though, are you planing to work, run a business or just retiring in Portugal? Any of these situations might effect your taxes.

Have fun reading.

IV. Methods for Prevention of Double Taxation
Article 22
Elimination of Double Taxation
1. In the case of Canada, double taxation shall be avoided as follows:

(a) subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions -- which shall not affect the general principle hereof -- and unless a greater deduction or relief is provided under the laws of Canada, tax payable in Portugal on profits, income or gains arising in Portugal shall be deducted from any Canadian tax payable in respect of such profits, income or gains;

(b) where in accordance with any provision of the Convention income derived by a resident of Canada is exempt from tax in Canada, Canada may nevertheless, in calculating the amount of tax on other income, take into account the exempted income.

2. In the case of Portugal, double taxation shall be avoided as follows:

(a) where a resident of Portugal derives income that, in accordance with the provisions of this Convention, may be taxed in Canada, Portugal shall allow as a deduction from the tax on the income of that resident an amount equal to the income tax paid in Canada; such deduction shall not, however, exceed that part of the income tax, as computed before the deduction is given, that is attributable to the income that may be taxed in Canada;

(b) where in accordance with any provision of the Convention income derived by a resident of Portugal is exempt from tax in Portugal, Portugal may nevertheless, in calculating the amount of tax on the remaining income of such resident, take into account the exempted income.

3. For the purposes of this Article, profits, income or gains of a resident of a Contracting State which may be taxed in the other Contracting State in accordance with this Convention shall be deemed to arise from sources in that other State.

Hi,

I would just retire - not work or run a business.

Thanks for the information!
Marie-Josée

Hi Marie-Josee,
We're in a similar boat (Canadian and Australian) except we're already non-resident of our respective countries.  For Canada, you should need to pay a flat tax of 25%, then if the Portuguese NHR applies to you, you should have to pay 10%/20% depending on the type of income.   Pension usually fit in the 10% category.

FlamurB wrote:

Hi Marie,
I hope this helps. This is a treaty between Canada and Portugal made in 2001. No, i'm not a tax expert and we are planing to move to Portugal too. Couple of questions though, are you planing to work, run a business or just retiring in Portugal? Any of these situations might effect your taxes.

Have fun reading.

IV. Methods for Prevention of Double Taxation
Article 22
Elimination of Double Taxation
1. In the case of Canada, double taxation shall be avoided as follows:

(a) subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions -- which shall not affect the general principle hereof -- and unless a greater deduction or relief is provided under the laws of Canada, tax payable in Portugal on profits, income or gains arising in Portugal shall be deducted from any Canadian tax payable in respect of such profits, income or gains;

(b) where in accordance with any provision of the Convention income derived by a resident of Canada is exempt from tax in Canada, Canada may nevertheless, in calculating the amount of tax on other income, take into account the exempted income.

2. In the case of Portugal, double taxation shall be avoided as follows:

(a) where a resident of Portugal derives income that, in accordance with the provisions of this Convention, may be taxed in Canada, Portugal shall allow as a deduction from the tax on the income of that resident an amount equal to the income tax paid in Canada; such deduction shall not, however, exceed that part of the income tax, as computed before the deduction is given, that is attributable to the income that may be taxed in Canada;

(b) where in accordance with any provision of the Convention income derived by a resident of Portugal is exempt from tax in Portugal, Portugal may nevertheless, in calculating the amount of tax on the remaining income of such resident, take into account the exempted income.

3. For the purposes of this Article, profits, income or gains of a resident of a Contracting State which may be taxed in the other Contracting State in accordance with this Convention shall be deemed to arise from sources in that other State.

You have to read the specific article on pensions - in the Portugal / Canada treaty, the relevant article is article 18.

Actually if you become NHR in 2020 there is NO tax on pension, dividends or interest from your savings, but 28% tax on capital gain if you sell a stock or fund...

The treaty between Canada and Portugal indicates a 15% withholding tax on pension.

If you become RNH in 2021 there will be a 10% tax in Portugal on top of the 15% withholding tax on pension. The tax on capital remains the same 28% - but of course if you have losses to offset your gains it might be wise ... Losses can be carried forward for 5 years.

Also if you do not want any tax issues with Canada... it might be better to transfer your stocks or bonds etc to an international discount broker like Interactive Brokers UK . IB will apply your withholding tax according to your new fiscal residence and if you fill in the right forms when opening the account you withholding tax will be 15% for Canada or the USA.

Sorry but I can't help you with Australian tax rules. But if you are a non-resident there and become resident in Portugal the end result should be the same ...

The tax on pensions apply to new residents who register as such from 1 April 2020. If registered as a taxpayer between 1 January and 31 March, 2020, the 'old' rules apply. Still has to formalise application for the nhr status on or before 31 March 2021 (if the taxpayer became/es resident in 2020).

TONY

It is no doubt confusing...
From January to March 2020 it was for the 2019 tax year it seems
From the French speaking Portugal forum it seems that during all of 2020 one can settle in Portugal and fall under the "old" rule of no tax on pension IF one files before end of March 2021 for the NHR status.
Have a great day

Link to the file in French

Tout étranger ou portugais qui vient ou revient s'installer au Portugal avant la fin du mois de décembre 2020, pourra faire la demande de statut RNH jusqu'au 31 mars 2021 et être imposer à la taxe de 0% ou 10%. à vous de choisir. Alors attention à votre déclaration 2020 que vous devrez envoyer en 2021.
Faut juste reunir les conditions nécessaires pour l'avoir, à savoir,ne pas avoir vécu au Portugal les 5 dernières années (attention à l'adresse qui figure sur votre NIF).
Cordialement
Irene Marques
https://www.expat.com/forum/viewtopic.php?id=898657

New residents as from 1 January 2020 could apply for the nhr, and as long as they became resident taxpayers (the date of residence on the tax database) is on or before 31 March 2020, the old rules will apply. The new rules apply for those who became 'tax resident' ( as evidence on the tax database - it is date sensitive) on or after 1 April