Great. And that is a single-member LLC and they spend most of the time away from PT as you were describing?
Estonia e-residency + Portugal NHR
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Yes, that's what i know. They were spending most of their time between Brasil and Asia.
Did the PT tax authority came asking questions and was fine with the arrangement because they spent most of the time abroad or it's just that nobody asked so far?
What kind or taxable net income are we talking about for these companies, ballpark? $500K? More?
are you sure about that?
US LLCs don't pay divideds, they are transparent... So technically it doesn't matter the 0% NHR divided tax rate
I don't understand what's your point.
Under NHR foreign income source is tax exempt so it doesn't matter if you receive dividends, royalties or something else if the income is passive.
The point here is to not trigger permanent establishment in Portugal so if you manage your US LLC from outside Portugal it can't be considered local sourced income.
Do you mind sharing a contact of the accounting service you use in Portugal, I actually heard similar case from other entrepreneurs and thought it might just worth checking
Xolo Go does not give you a company. It's about the same as billing through PayPal. Their fees are ridiculous.
I think there's a misunderstanding here.
Domestic rules always come first. DTT's cannot create new tax liabilities, they only override domestic law.
And in case of a single-member US LCC (disregarded entity), the DTT can't be used at all.
Similarly, even with a Estonian company, in theory, if the company could be regarded as managed from PT, then it would be tax resident in PT only under the DTT, and again, the DTT becomes irrelevant, since it would simply be treated as a PT company.
Most NHR residents seem to be using companies in Cyprus or Malta as those come with much lower taxes than Estonian companies.
But as always, you don't know if/when the PT tax authorities might change their stance on these companies that have no economic substance where they are incorporated and are essentially run from Portugal.
That's not correct, there are additional criteria. I don't remember all the details, but for example, if 50% or more of the income the company that pays the dividends is passive, then there may be PT tax after all. It only works with operative businesses. I believe this was due to PT CFC rules, but I don't remember exactly.
Last edited: May 17, 2023
The only additional criteria i'm aware of is if the income comes from a country included in Portugal's black list or subject to taxation lower than 50% of Poruguese CIT then CFC rules apply.
I'm 100% sure there was something about active vs. passive income as well. But maybe that has changed since I last looked into this.
Alright, so it was about new CFC rules that came with the implementation of ATAD.
Did some googling:
https://www.ey.com/en_gl/tax-alerts/portugal-transposes-the-eu-atad-into-portuguese-tax-law
I don't remember all the details, but it was important to make sure that CFC rules don't apply, and as you can see, active vs. passive income is an important criterion for that.
I didn't look more into this now, but there you have a starting point in case you want to do more research yourself.
Last edited: May 18, 2023
Alright, so it was about new CFC rules that came with the implementation of ATAD.
Did some googling:
https://www.linkedin.com/pulse/revamped-portuguese-controlled-foreign-company-rules-cassiano-neves
https://www.ey.com/en_gl/tax-alerts/portugal-transposes-the-eu-atad-into-portuguese-tax-law
I don't remember all the details, but it was important to make sure that CFC rules don't apply, and as you can see, active vs. passive income is an important criterion for that.
I didn't look more into this now, but there you have a starting point in case you want to do more research yourself.
Last edited: May 18, 2023
Ok but isn't active vs passive income only taken into account if foreign CIT is 50% lower than PT CIT? That's why Malta, Cyprus, Estonia are all valid options.
That's possible, I haven't looked into this in a long time. Just mentioning it, so anyone really interested in it knows what to check...
How to be protected from CFC rules being triggered if I'm distributing dividends from a company in Dubai where I hold 60% shares?
I should be able to export a Corporate TRC in a few months, but understood it doesn't detail the director/manager details, which is good for me. I don't have a local manager yet sadly, but looking to hire one, possibly a nominee too. And I do have an office.
Is that enough?
I still don't understand why would Malta/Cyprus/Romania/Bulgaria/Estonia work, but not UAE. After all, they all got DTAs with Portugal, and supposedly international agreements overrules domestic CFC rules. But I might be wrong here.
I should be able to export a Corporate TRC in a few months, but understood it doesn't detail the director/manager details, which is good for me. I don't have a local manager yet sadly, but looking to hire one, possibly a nominee too. And I do have an office.
Is that enough?
I still don't understand why would Malta/Cyprus/Romania/Bulgaria/Estonia work, but not UAE. After all, they all got DTAs with Portugal, and supposedly international agreements overrules domestic CFC rules. But I might be wrong here.
UAE does work, there was a case a couple years back where a NHR resident won in court over the PT tax authorities.
Guess it could be more risky still than EU countries because of reputation as a tax haven, sticking out among everyone else with Cyprus/Malta companies, etc.
Having a local director shouldn't be relevant for CFC rules, but for corporate tax residency/permanent establishment.
Guess it could be more risky still than EU countries because of reputation as a tax haven, sticking out among everyone else with Cyprus/Malta companies, etc.
Having a local director shouldn't be relevant for CFC rules, but for corporate tax residency/permanent establishment.
Can you tell us more about that case? Was that resident the sole owner in the UAE company or a minority shareholder? Was there a director and substance in UAE?
Yeah that case from 2017 I guess?
Only thing is hiring a local director in Malta would cost 1-3k a year, whereas in Dubai it's a good 15k a year at least.
I know some entrepreneurs living in Portugal and distributing dividends from non-EU jurisdictions like Singapore, HK, and Colombia. Not sure why that'd be better than UAE in the sense of less risky.
Is UAE more likely to be considered a CFC comparing to Malta/Cyprus? Why is that?
Yes, I guess the case could have been from 2017 (should be possible to find on Google quite easily).
As far as I know, you will always need substance with NHR, as you can only be a passive investor in the company.
I don't think there is a big difference with regards to CFC rules between UAE and other non-EU countries, but I'm not sure. You should ask a Portuguese tax lawyer about this stuff if you're seriously considering it.
As far as I know, you will always need substance with NHR, as you can only be a passive investor in the company.
I don't think there is a big difference with regards to CFC rules between UAE and other non-EU countries, but I'm not sure. You should ask a Portuguese tax lawyer about this stuff if you're seriously considering it.
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