Wherever you live in Europe as an expat or international professional it is important to keep on top of all changes in your country of residence. In this post we address some important proposals being discussed in Portugal and Spain that you need to be aware of, including Brexit.
1. International Tax Portugal:
If you are an international professional living in Portugal, be prepared for significant tax change. There are around 50,000 British nationals living in Portugal alone plus many other nationalities who may be impacted by these changes.
The Portuguese government has announced it is changing the “non-habitual residence” (NHR) status. This has meant for all internationals that qualify, by spending less than 6 months of the year in Portugal, and receiving the NHR status, that they didn’t have to pay tax on income earned outside of Portugal. That included pension income from other countries, investment income, rental income and even employment income. The plan is to raise the tax from the current zero to 10% and for high income earners to 20%. With this announcement, all worldwide income could be considered part of your taxable income in Portugal. This will have a big impact on cash flow and affordability, meaning it is very important to get the right professional advice so that you are prepared and ready.
2. Portugal Golden Visas:
Portugal has been one of the hottest destinations for ‘Golden Visas’ for internationals looking to secure residency and potential future citizenship within the EU. It is estimated around 28,000 people have taken up this opportunity from several countries including China, Brazil, UK, US and others. The most common route is via the requirement to purchase a property with a minimum price of €500,000.
There are recently announced plans in the 2020 Budget, where Portugal is looking to overhaul its golden visa scheme. Be aware if you are considering the Portuguese golden visa scheme. Their proposals include limiting the scheme to property purchases outside of Lisbon and Porto. The majority of properties currently purchased in this scheme are in these cities.
For those that have already secured their golden visa, there is no change, however, new arrivals post-Brexit will fall under the new restrictions.
3. Spanish Income Tax:
How much income tax you pay in Spain is dependent upon whether you are classified as a resident or a non-resident for tax purposes, your citizenship and even varies according to in which region of Spain you reside.
If you are a tax resident of Spain (meaning you probably spend more than 183 days (6 months) of the year in Spain and have registered as a resident) you will pay the Impuesta on your worldwide income from all sources at the relevant marginal rates. But how much tax you will pay is not that simple because there are both state and regional taxes. This means your tax bill will be dependent in part on where you live.
If you are a non-resident, there are simplified flat tax rates and the sources of income classified as taxable are reduced. They still include dividends, investment income, capital gains and pensions, although pensions are taxed at a reduced progressive rate.
Most important for British expats living in Spain post-Brexit is that your non-resident tax rate will go up! EEA/EU citizens residing in Spain but classified as non-residents for tax purposes pay tax at 19%, whereas for the rest of the world, it is 24%. Be prepared for the potential change in your cash flow.
4. Spanish Wealth Tax
The Patrimonio is much talked about in the international community in Spain. It is a tax that has been variously imposed, removed and reintroduced over the last 15 years. Like the income tax, it also varies by region so the amount you might pay is dependent on where you live. For example, Madrid has a wealth tax of zero.
The wealth tax is a percentage fee imposed annually on the value of your assets. It includes assets such as investments, shares, mutual funds, investment property, cash at bank etc. There is a tax-free threshold of €700,000 of assets per person (less in some regions) and an exemption of €300,000 per person on the value of their main residence. There was discussion in late 2019 about the prospect of the wealth tax again being abolished however this has faded with the election of the new Spanish government in late 2019.
Brexit has officially happened, as of 31 January 2020. Whether you are for it or against it, if you are living in Spain or Portugal and you are a British citizen, you need to be aware of your changed status.
First, nothing much has changed between 31 January and 1 February 2020. There is an 11-month transitional exit period taking us to the end of this year. However, most of you will have received information or advice either from your Embassy or from the relevant government department about your ongoing rights to remain in either Spain or Portugal.
As mentioned above, Brexit may also change the amount of tax you pay, which may mean less income. As the UK will no longer be a part of the EU, if you are a non-resident taxpayer in Spain for example, your tax rate will potentially go up from 19% to 24%. There is also uncertainty about ongoing access to healthcare which will be resolved as part of the transition this year.
What all this means is that whilst it is great to live, work or even retire in the sun in Spain or Portugal there are complex and changing factors that can impact how you live, where you live, your cash flow and annual tax liabilities.
We recommend you get specialist advice on how to be best positioned to meet your needs now and in the future. Remember, when you are seeking advice make sure they are qualified, that they hold an independent investment license in Europe, that they never receive commissions for their work, and that you maintain all flexibility to change your investments and pensions without penalty. The changes above illustrate the importance of that.
Speak with us at Black Swan Capital and we can help you achieve your goals in this changing environment. Contact us at [email protected].