Every year, we advise a little over 1,000 expats. Many people who have not been in touch with tax lawyers before are often surprised at the fee structure. Lawyers in other fields (including at FRESH PORTUGAL itself) often offer free consultation and the first meeting is designed to get to know the client ahead of building a relationship that could go on for years, but in the tax space, our firm, as well as any respectable tax firm, charges for advice.
Why is it? What is so special about tax that commands premium fees? In this article, we will make some effort to explain why tax work is different and why paying for quality advice is the investment with the highest return anyone can ever make and why comparing apples to oranges, such as comparing tax lawyers to accountants or try to calculate a hypothetical hourly rate, is completely missing the point.
Here are a few points to consider:
1. Tax advice from lawyers is COMPLETELY different from tax advice from accountants
In the U.S., the U.K. and many other countries, most of the tax work is done by accountants. People are used to dealing with accountants in their home countries and are understandably expecting accountants when they move. There are tax lawyers in these countries who command very high rates but most people never talk or come across them unless they are in trouble and need litigation or unless they are very wealthy and need very complex tax planning. Many people who approach FRESH for tax work even assume that we are accountants and do not fully understand the difference between lawyers and accountants.
Unfortunately, all the assumptions in the above paragraph are wrong.
First, foreign income, particularly under the NHR or TISRI schemes in Portugal or Beckham law in Spain, is incredibly complex. It involves a different treatment of different streams of income that depends on the taxation in the source country and the double taxation treaty. For example, government pension from the US is not taxed in Portugal but government pension from Canada is. Capital gains are a grey area for Americans but clearly taxed for all other nationalities. A ROTH IRA are something between a combination of an investment account and a pension. Expat taxation is a field for specialists anywhere and many accountants in all countries will shy away from it due to the complexity but there is perhaps no system in the world as complex, nuanced and difficult as the Portuguese NHR scheme.
Second, accountants in Portugal are not the equivalent of accountants in the US or UK. Their training focuses on issues such as the allowability of expenses and certain deductions, VAT and handling the books of companies. Accountants in Portugal are not trained to read or understand double taxation treaties or dive into the intricacies of the interaction between legal systems. Even in the US or the UK, many accountants (CPAs in the US) shy away from international taxation due to its complexity but it is within the scope of their expertise and profession. In Portugal, it is legal work and a domain reserved for lawyers.
Working with FRESH, you don't only work with tax lawyers with decades of experience, but with the only firm in Portugal with people qualified in multiple jurisdictions who understand the interaction between the legal systems from first hand experience.
2. It's about SAVING tax and not just about UNDERSTANDING it
Tax lawyers are trained to read the tax code, familiarise themselves with all the recent decisions of all level of courts and advise clients not only how they are expected to be taxed but also what can they do to reduce their tax bill.
Truth be told, most countries have gone to great lengths to make it very difficult if not impossible for "ordinary people" to reduce their tax bill. That is not the case in Portugal. There are many opportunities to plan and structure one's income in Portugal to bring the tax bill down and with experienced tax lawyers you have every chance to do it legally and responsibly. Identifying ways to reduce your tax bill is likely to achieve enormous savings and indeed, we estimate that we save tens of millions of Euros to our clients, every year. For tax lawyers to be able to identify paths to save taxes, it is not enough for them to be competent and experienced. They also need to be creative, open minded and work in a team. At FRESH PORTUGAL, because we have multiple tax lawyers who regularly consult and discuss strategies, we are always on top of the most advanced strategies.
We do not and cannot guarantee that each of our clients will save money, but it is very likely. Tax advice is therefore the single legal service that offers the best chance at life changing reductions of tax. Very often, our consultation is all that is needed to unlock enormous savings, but many people opt for our more expensive tax planning service. Looked at in isolation, these services seem expensive but considering the value they provide, they are not at all.
3. Getting taxes wrong can be devastating
Most procedures in Portugal would let you correct errors. If you mess up a form for exchanging a driving licence or even an immigration form, you will normally have an opportunity to correct the error.
If you make an error in planning or declaring your taxes, the results could be deadly. One of our most busy practices is dealing with people who missed the NHR deadline. Requesting NHR is (or has been) a simple, box-ticking exercise if done on time but even a day late and the applications are rejected and the result is that many people left Portugal because they could no longer afford it. Equally, many people make structure changes ignoring EU reporting requirements or other issues. This could lead to fines in the tens of thousands. We are advising people on a daily basis who have been told by their accountants "not to report this particular income". In this case, the result could be committing a crime.
Dealing with taxation, it's really important to handle oneself carefully and responsibly.
4. Sometimes it's not possible to get it right - tax laws in Portugal are full of grey areas
Getting the taxes entirely right is sometimes not possible. Tax laws are very established in most jurisdictions, but in Portugal and particularly under the NHR, there are many grey areas.
This means that there are points where rather than submitting your taxes in only one way (as is the case for most nationals), there are multiple ways and none of them is 100% correct and you need to run a risk assessment and understand the risk-benefit analysis of each option.
Understanding nuance is yet another thing that lawyers have the edge over accountants. We understand our clients' frustration that there is sometimes no clear answer, but when this is the case, our clients want to know why that is, what are the options and what is the associated risk. We are able to not only do that but also firmly defend our clients' position if needed. We will not give our clients answers such as "let's see what happens" or "maybe it will work" which leads to anxiety and feeling of lack of control.
5. Enforcement is minimal but when it happens, it is brutal
One of the reasons that very low quality services exist in Portugal is the low rates of audits. Many mistakes are never identified. Unfortunately, many mistakes lead to automatic assessments of high tax rates but some do not and these could go unnoticed for years.
However, when a case is picked up for an audit, the authorities can be very aggressive. Since we also have a litigation department, we see the cases that are picked up and have seen people receiving tax assessments of hundreds of thousands of Euros. Many if not most of the people who engage with the tax authorities after an audit end up leaving Portugal.
6. It's a different culture
Most expats come to Portugal with expectations engrained in their culture that the person who they speak to will tell them what they know and what they don’t know and refer them if needed to someone else. They also expect timely replies to emails and taking of responsibility.
However, this is not how Portuguese service culture works.
The Portuguese professionals are very polite and avoid conflict.
They will rarely say “no” to work directly. They will take the work but if they encounter difficulties, they will normally address it by making themselves unavailable and fail to respond to messages.
Expats are often puzzled when not receiving a reply on the same day and are not sure what to do. In reality, a long pause in communication is normally an indication of a problem that is not being communicated directly.
In the event of a serious problem, you can bet on most professionals disappearing. Many clients meet us at this point, after "saving" on the initial tax advice, they need a firm that would stand firmly on their side and support them when needed, without blinking and disappearing.
7. Tax advice is not a preface to a different service
One series about the rise of social network said "if you are not paying for the product, you are the product". A free consultation is not a consultation, it's marketing. If you buy a house, free consultation is meant to convince you to use our services to help you with the purchase of the house. If you immigrate, a free consultation is meant to eventually sell immigration services. With tax advice, the advice is often the only service you will need from us in the foreseeable future. Sure, many clients come back for other things but the tax advice is a stand-alone service with enormous value that often achieves great savings and gives people clarity. For this reason, it cannot be free.
8. The concept of "hourly rate" is not suitable for stand-alone services
Many people unkindly calculate "an hourly rate" for us of 840 Euros, considering we charge 420 Euros for a consultation. The concept of hourly rates had been the leading system for law firms to charge clients and calculate and measure productivity. It was never intended to be used for short, stand-alone services. An hourly rate is meaningful when comparing two identical attorneys in two different firms when they are hired to draft contracts or undertake litigation that could take tens, hundreds or even thousand of hours. At that point, the hourly rate is a meaningful metric. Calculating a hypothetical hourly rate for a one-off service that offers a direct financial benefit, could dictate a person's entire financial life for the next 10 years, only takes 30 minutes and often has no continuity is a complete abuse of the metric of hourly rate. A tax consultation cannot be measured by time, only by the value received from it.
