So here is a wishful scenario that I’ve conjectured up in the shower and I am hoping people can poke holes in it —
Hypotheticals
I currently own stocks or stock options in a private company in the US. I am an employee of the company, working in a directorial/managerial capacity.
I am currently legally residing in the US, but not a citizen of the US.
I’ve gotten my GV and my NHR at year 0.
I’ve been living in the US for the past 12 years but after I got my GV, I decided to pack up all my stuff and move to Portugal at year 0.
Subsequently, I continue to work for my existing company remotely in PT as an independent contractor, earning regular “wages” or payment to my invoices whatever you want to call it.
I carefully plan my visit to the US so that I will FAIL the Substantial Presence Test during the NHR window.
In year 6, I dispose of my stock holdings and/or exercise my options, yielding 100 million dollars in net proceeds.
Wishful Thinking
Is my 100 million dollars tax-free as far as cap gain is concerned from both Uncle Sam and PT government?
Thanks for your help in advance.
P.S. I am also consulting with tax lawyers but starting with some crowd-sourced intel and open questions.
My limited understanding[1] of how capital gains are taxed under NHR depend upon the existance and nature of a double tax treaty with the country where you are subject to taxes on the sale of shares.
Without such a treaty, capital gains can be treated in Portugal as ordinary income. Because of their progressive tax rates, it’s better to choose the optional rate of 28% on capital gains.
With large amounts be very careful with how you do this. You may be subject to the alienation clause of the US Portugal tax treaty. In other words subject to EU capital gains when you transfer the assets to the US.
Here is a non-expert opinion just based on wading through taxation rules like this off and on for years: There is little to no chance that you are going to escape the Capital Gains Tax in question in both jurisdictions. You will be paying in either one country or the other, or some amount in each country, due to a tax treaty and one of the countries have a higher tax rate for your situation.
It’s always nice to fantasize though; I tend to do my fantasizing about such thing while I’m bed.
I have read many times that NHR status does not exempt one from Capital Gains Tax on the sale of securities. Sadly, many professional-looking websites run by law firms do not make this clear. Instead they mislead people, screaming out false propaganda and always referring to Capital Gains generically. If one seeks out more detailed, more reliable sources, it is easy to discover the CGT on the sale of securities is not a form of CGT that we can escape from. CGT on disposal of property, yes, but CGT on the sale of stocks, no. We cannot escape from it by being under the NHR regime, regardless of whether the securities are held in Portugual or abroad.
The below is from the Global Citizens page on NHR. Thankfully, they make it utterly clear no one can escape from CGT on the sale of securities even if one is under the NHR regime.
For example: 09-3303 What are the gains that constitute capital gains in category g? (19)
Capital gains included in category G are gains obtained that, not being considered business and professional income, capital or property, result from:
· Onerous alienation of rights in real property and allocation of any private property to the business and professional activity carried out in an individual name by its owner;
· Sale of shares for consideration, including their redemption and amortization with a reduction in capital, and of other securities, the extinction or delivery of shares of companies merged, split off or acquired in the context of merger, spin-off or exchange of shares social benefits, as well as the value attributed as a result of the sharing under the terms of article 81 of the IRC Code;
· The repayment of bonds and other debt securities and the redemption of units in investment funds and the liquidation of these funds;
· Onerous alienation of intellectual or industrial property or of experience acquired in the commercial, industrial or scientific sector, when the transferor is not the original owner;
· Onerous assignment of contractual positions or other rights inherent to contracts relating to immovable property ;
As per my understanding the wrinkle here is if the sale of stocks is done in a US tax-free (Roth-IRA) or tax-deferred (IRA, SEP-IRA) retirement account. In these cases the sale of stocks within the accounts has no capital gains impact, however, once you distribute from the accounts that distribution is counted as income. As I understand it if you are a US citizen or GC holder residing in PT under NHR you will only be liable for US federal income taxes on the distributions and will owe PT zero.
