Tax implications of US/Portuguese dual citizenship

I am about to begin the process of Golden Visa application to Portugal, but want to clarify how I would ultimately be taxed as a dual US/Portugal citizen before going ahead with it. I understand there is a tax treaty with Portugal, and I anticipate that I would get NHR status prior to becoming a tax resident, whenever that ultimately takes place. My question is regarding how my IRAs and capital gains from investments in the US would be taxed after NHR status expires. Does anyone know specifics on this? I’d like to avoid paying tax on my already taxed ROTH distributions as well as any other additional taxation.

Great questions for your accountant / tax pro!

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From what I know (and I am not an accountant), Portugal will honour the tax treaty with the U.S. in as much as U.S. will get the first right to tax your withdrawals, and Portugal will apply its tax afterwards.

For regular IRA, you will be taxed in the U.S. as ordinary income. You will have to pay the Federal and no state tax if you are residing in Portugal. Portugal will then give you the credit for you income taxes paid in the U.S. and will charge you according to their “ordinary income” rates. These can be NHR (20% flat) for the first 10 years, and then regular sliding scale afterwards (you can find the latest ones on-line). If your U.S. taxes exceed the Portuguese, Portugal will get nothing.

For Roth IRA, U.S. will not tax the withdrawals, but Portugal will consider them as “pension” and would apply 10% tax.

Again, that’s my understanding when explained by tax accountants in Portugal. Some things could have been lost in translation, so this please take it at your own risk and as a starting point. If you find something different, please share.

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To clarify, PT only taxes you if you live there >6 months yeah?

PT also taxes you if your primary domicile is in PT.

For example, if you only own/rent long term property in PT and live as a nomad the rest of the 8 months you’re out of PT, they can also deem you liable for PT taxes.

I think state taxes may depend on which state you leave. If you go directly from California to PT, CA may still try to get a taste.

For this reason I think people who live in RVs often set themselves up in a state like Nevada (no income tax) before living in their RV full time.

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Please correct me if I’m wrong on any of the following:

After looking at some sources, it seems non tax-residents of Portugal only pay tax on income sourced within Portugal (I assume this excludes capital gains and IRA distributions from US held accounts?). Obtaining citizenship via GV does not mean you become a tax-resident. You only become a tax resident if you stay in Portugal >183 days/year or own/rent property that you use for your primary residence (does this exclude rentals that are only for a couple months?).

If correct, it seems Portuguese tax is irrelevant for non-Portuguese sourced income until one becomes a tax-resident, at which point one could obtain NHR status (prior to becoming a tax-resident) for 10 years. However, I understand that NHR status does not exempt one from tax on retirement distributions (are there other non-Portuguese income sources that are exempted from NHR exclusion?).

From there, it seems the question becomes what US taxes would look like once one becomes a Portuguese tax-resident.

Yes, they are, to the best of my knowledge. And certainly after you receive your residency card.

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Well, I moved to PT from CA. My accountant is now my tax representative in CA and the U.S. According to him, we will be no longer “eligible” for CA taxes since we have moved our primary residence to PT. I sure hope he is right… :slight_smile:

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Good luck!

Just to clarify that NHR is obtained after becoming a tax-resident in PT.
The deadline for obtaining NHR is 31 March of the year following the year of becoming the PT tax-resident.

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Thanks for the correction. After digging more I see there’s conflicting info on that, but it seems broadly recognized the deadline is the year after getting tax residence.

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I would call it ‘official’ rather than ‘broadly recognized’ :sunglasses:

Prazo: O pedido de inscrição, como residente não habitual, deverá ser efetuado
até 31 de março, inclusive, do ano seguinte àquele em que se torne residente no
território português.

or the same here on the Portal das Financas FAQ, question 2:

https://info.portaldasfinancas.gov.pt/pt/apoio_contribuinte/questoes_frequentes/Pages/faqs-00506.aspx

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Careful here. Obtaining permanent residency via GV does not mean you become a tax-resident; but citizenship is different. And there is another trigger on the tax residency based on a habitation.

I’m not sure why anyone would go for citizenship, TBH.

I was under the impression that only the USA taxed every citizen, regardless of where they live?

How do you mean “citizenship is different”

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well, sure, that’s the habitation clause in the @skunther 's post above, no?
And how do you mean citizenship is different?
Surely citizenship is not equal to tax residency, although there are DTT tests for example where citizenship is considered.

My understanding was that if you have a permanent place of habitation in Portugal on any day of the tax year you may be a tax resident, even if your primary residence is elsewhere. Then you get to the DTT and maybe it is the center of vital interests, and citizenship clouds that.

Sounds like a lot of vague nonsense. I’ll talk with my lawyer about it when the time comes

See comments in-line.

Whereby lies one possible answer as to why people ‘go for citizenship’.

Thanks, helpful. What I was thinking was that if one has a residence in the US, and a residence in PT you move to vital interests. If one is a citizen of the US, and only a right of residence in PT, the needle might lean towards the US and help with other factors. If one is a citizen of both, it might be neutral and point possibly to being indeterminate where vital interests are. Then you drop to citizenship, but if you are a citizen of both, then you drop immediately to what the countries agree.