Final insights from the 2023 tax season in Portugal

During 2023, we filed approximately 500 tax returns for expats in Portugal at FRESH, over half of them for Americans and about 100 tax returns in the US, for the first time. That is about 10 times more than the second largest firm dealing with expats, so the volume of our filings and the fact that we deal with almost every possible scenario (including UN workers, seafarers, pilots and other interesting cases), gives us unique and interesting insights.

As it has been extensively discussed here, the authorities applied the NHR exemption for US securities gains. At FRESH, we have been advocating for 2 years now to claim the exemption because law is clear and the arbitration court provided a very good decision and we noted that last year the authorities have not applied it. We were gearing up for many disputes and luckily it will not be needed because Finances did the right thing.

Many people in this group who have not filed taxes with Fresh complained about not receiving the exemption and the reason was that their US citizenship was not noted on the form in the right place. Luckily - it's an easy fix through refiling.

We should remind people that foreign capital gains exempt from tax in Portugal (specifically for real estate, where it's normally exempt) are still included in income for purpose of calculations of taxable income. This leads to nasty surprises for those who have both taxable and non-taxable income. The calculations are very complex.

About 40% of our clients with foreign royalty income that should have been exempt received a tax bill, in contrast to previous years. Unacceptable and we won't accept it on their behalf. We should remind that royalties could be classified as either category B (for original creators) or category E (for subsequent holders).

Under most treaties, including the US one, social security income has reverse sourcing rules to private pension income and is first taxable in the source country. This means that credit should be claimed in Portugal and should be respected by the Portuguese government. Last year AND this year, we have seen inconsistent treatment with the credit being respected in some cases and not respected in others. We expect to have some back and forth with the authorities and hope all credits will be respected eventually.

This year was the first year we filed PT+US taxes. The US portion is done by a contractor that joined Fresh's internal systems so not entirely internal but as close as we could get it to doing it internally.

The coordination has been harder than expected on a number of issues - first, many cases have social security + private pension which means first right of taxation to both countries and not a trivial decision what to do. We eventually decided to pay estimated taxes and extend in the US. This leads to the second issue - estimating foreign taxes is very hard. The calculation is done by finances and has a lot of moving pieces which are not entirely transparent. Finances is not offering an estimate of foreign taxes. Third, analysing the Portuguese tax bill for credit claims by income type. And forth - coordinating information between the PT + US teams. Some clients expect everyone in each team to know everything said to the other team - not easy!

Now, with a much bigger team, we are gearing up to the 2024 tax season. Still accepting early birds but not for long!

Below: AI GPT image responding to "artistic abstract image depicting 2023 taxes"....

Book the early bird 2024 taxes with us.