UK Employee - work remotely from Portugal - NHR opportunities?

Hi,

With everything going on in the world at the moment and no return to the office on the horizon (or ever…?), i was toying with the idea of potentially moving full-time to Portugal (before Brexit) and “working remotely” and continuing in my job as an employee for my UK Employer (mid-sized tech company, HQ-ed in UK).

The following are probably basic questions, but I’m struggling to find answers and wondered if anyone could help:

- would I be taxed by the UK tax authorities or the Portuguese tax authorities?
I would be working remotely for UK company as an employee (not a contractor), but living full-time in Portugal - so which country would charge income tax / social security? I’m not sure which has higher tax/social security levels - so not sure if either is better/worse!

- would NHR be available or offer any advantages? I read something about Portugal’s NHR only charges a flat 20% income tax (i pay 40% tax in UK) - I’m a software engineer so should fall into one of the NHR professional buckets. How would that work? Would I tell the UK tax authorities that I’m a Portuguese tax resident (and register in Portugal etc), my employer would pay me my “gross” salary and Portugal would then tax me at 20%?

This might all be a pipe dream, but thought i’d ask to see if anyone could give me some direction and then i’ll dig into it more.

Thanks in advance!

@sm33 I’m in a similar situation, have you managed to figure this out?

Sort of…! This is the way I understand it - though i could be wrong:

Benefits / Negatives for you - Income Tax & Social Security
If you move and work remotely from Portugal, you can can apply for NHR (reduce your income tax to a fixed 20%), BUT, you will have to pay Social Security, which is pretty high. In the UK, for higher earners, Social Security tax / NI, is capped and so it might only be ~4% of gross income. In Portugal, it isn’t capped, so it really is ~11% of your gross income. If you’re only doing it for 2-ish years, then you can apply to continue paying UK National Insurance (instead of Portuguese Social Security) - as it’s considered to be “temporary”, but i think your employer has to fill in a form to request that.

So, you can save a fair amount on your income tax, but when you factor in the personal allowances you get in the UK (first ~£10k is exempted of income tax in UK) + factor in higher Social Security payments in Portugal, the savings won’t be as much as you first think (at least, it wasn’t for me). Added to that, you can’t come back to UK for more than ~90 days / year (number of days varies on circumstances, but roughly) - that might be fine for you, but just mentioning it… plus, if you sell UK assets (e.g. your main house), you’ll have to pay Portuguese capital gains tax - whereas in the UK as a UK tax payer, that would be exempt as it was your main home.

Impact on Employer

  • Tax: your UK employer will be able to change the UK tax code to a “works abroad” tax code.
  • National Insurance / Social Security - as above, they might confirm you’re only working abroad for a couple of years so you can continue to pay UK National Insurance (instead of Portuguese Social Security)

The negatives for your employer is that (as far as i understand it), if the employer doesn’t fill out the “he’s only there for 2 years, so we will pay UK NI” form, then they will be liable to pay Portuguese Social Security for you, which is much higher for them (i think 5-10% higher from memory). They will also have to make sure that you comply with all Portuguese laws in terms of your employment etc.

Solution 1 - become a contractor
You could become a self employed contractor with them - i.e. you quit your job / no longer are an employee, but they take you on as a contractor. You are then liable to sort out all your tax / social security etc. To me, the issue with this approach is you lose all your protections - e.g. if they want to lay you off, you don’t get redundancy and they can just lay you off for no reason as you’re not an employee.

Solution 2 - use a middle man / “Body Shop”
My company has done this before. Basically, you technically become an employee of a different company (it’s a specialist company, that’s used for this purpose - to act as a middle man) and they take care of tax / national insurance etc, but you continue to provide your services to your original-employer. This middle man / body shop invoices your old-employer (with a slight uplift for their costs) and the middle man/body shop pays you. The benefit is that they take care of local taxes / laws / issues.

Here’s a bit I found about this, which explains it a lot better:
——

BODY SHOP

  1. the person resigns and sets himself up as self employed in the other country, agreeing a contract for services with the UK company. Here they accept total responsibility for conformity with local legislation (tax, social security, immigration, employment law) as well as organising their own life insurance, medical cover, pension etc.

  2. You identify a local “body shop” which employs the person and sets up a contract for services with the UK company. All employment issues are now with the body shop and no longer with you.

Find a Spanish body-shop and transfer his employment contract to this local company, who will bill you for the services of this person (with a mark-up). You will also probably need to give him guarantees concerning future dismissal rights, recognising length of service etc.

As a longstop, he could set up his own business and invoice you, thereby transferring the risks to himself. He will need to charge you an amount at least equal to his salary plus employer’s contributions, plus medical and pension contributions…plus mark-up to cover professional accounting advice and administrative fees.

@sm33 Amazing! Thank yous so much!!! this is incredibly helpful! Please also see this that I found interesting and useful https://www.eurofinesco.com/en/our-publications/nhr/49-e31-nhr-a5-tablet-colour-cover-trams-2nd-08-08-2016/file

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Hi,

I’m on a similar situation. I am a Portuguese national working in the UK. Due to the pandemic I have spent more time in Portugal and now negotiating with the company if I can stay here permanently . They’ve raised the flag that they would have to register the company in Portugal and that would mean severe tax implication on their end and thus I’m trying to find an alternative solution.

  • If I’m employed by them and my salary gets processed by a service provider (who deals with the PT contributions etc.) do they really need to register themselves as an entity in Portugal? Not sure if this relates with the Body Shop example and I wasn’t clear if I would have to be employed by Body Shop.

  • How does the “The employee is working temporary therefore we will register to continue to pay UK NI” actually work? Are there any set of conditions to be met? And how would that look at the eyes of PT tax? If anyone has more info on the matter would be great.

Thanks!

Hi,

I’m no expert at all on this - so this might not be correct (anyone else, please correct me!), but from what I understand:

[I use UK / Portugal for your situation]:

(i) if you use a middle man / body shop (in your case, the body shop would be based in Portugal and would have all the necessary tax / social security / payroll systems set up), then you are technically employed by the body shop (not your uk employer), and therefore there’s no problem - your UK employer would just pay the body shop, who would then sort out any taxes and then pay you.

If you don’t use a body shop and instead, your employer (UK) pays you directly (i.e. no body shop), then no, i don’t think your UK needs to set up in Portugal. The concern for Big Companies is that if very senior (e.g. CEO / top decision makers) are based in Portugal, but working for a UK company, then the local authorities (Portugal) consider that all the important management / decision making is done in Portugal and therefore the company should be treated as a Portuguese company and taxed as a Portuguese company. If you’re a middle-level employee or junior employee that’s not a problem. The issue that UK employer could face is that it’s not complying with Portuguese health and safety law (e.g. what if you have an accident? Or they don’t give you certain benefits that employees are meant to get in Portugal.That’s the bigger concern for a UK company, not tax, if you’re a junior/mid-level employee.

(ii) - I’ve highlighted the section on the UK Government website about you being able to pay UK national insurance for 2 years, even if you’re in Portugal (or elsewhere): http://marker.to/eAw3DB - your UK employer has to fill in a form.

So, in summary, for up to 2-ish years, if you’re not a super-senior employee, then i think they (UK employer) should be able to do it without too many issues. Some employers may worry about health and safety liability / other local benefits, others won’t.

Hey,

This is great thanks! I’m mid-level management therefore there shouldn’t be an issues and that’s what I need to advise further HR on.

Concerning the 2years solution, do they have to have a specific reason for me to be working out of portugal? I mean they had to send me on a project with company XYZ or can they just base it on the fact I want to work from home there?

I don’t think you / the UK employer has to say very much in any form to the UK authorities (i.e. maybe just a sentence or 2, keep it vague / high-level) - perhaps just say something like,

“[employee] temporary placement in Portugal to assist with exploring business opportunities and growth for [UK Company] in Portugal”.

Normally in these situations, the less you say the better!

That said i’ve never done it. Let us know how you get on / anything you learn.

This article seemed to have a little more information about paying NI instead of Portuguese social security (it seemed to say, you can do that for up to 5 years) - https://app.croneri.co.uk/topics/national-insurance-employees-working-abroad/indepth