In the past French pensioners sought North Africa countries, such as francophone Morocco, to retire and get the most of each euro. Today, their chosen location is still a warm place close to the Mediterranean Sea: it’s Portugal.By increasing taxation to an unprecedented level François Hollande unwittingly created a new flux of steady but increasing immigration into Portugal.
French families are coming to Portugal to take advantage of specific tax benefits that are unparalleled in Europe. All French citizens are aware of the recent tax hikes and high net worth individuals were particularly struck down by a 75% tax on income above one million. Portugal is now a trendy destination.
A few wealthy individuals, for instance the actor Gérard Depardieu, have chosen Belgium and Russia, heading further east. François-Henri Pinault relocated with his wife, Salma Hayek, up north, to London. Still, others have chosen the westernmost nation in Europe as their low tax home. Invariably somebody will chastise these new inbounds suggesting that they moved out of France solely for the purpose of evading taxes. This is not the complete truth.
The new Biarritz and Saint-Tropez
As a Mediterranean country, Portugal is a warm, safe and friendly place to live. There, expats enjoy an unparalleled quality of life due to a mild climate, unique luminosity, different landscapes and a unique gastronomy with a Mediterranean twist. The climate is mild throughout the year and sunshine is usually present. In 2014, Portugal ranked as the 17th safest country in the world. Portugal’s health care standards are high and medical tourism is a growing industry. Also, Lisbon is the European capital with the highest number of golf courses and golden beaches, located 15 minutes away from the city center. Anchorage for yachts can be found all along the 1.794 long Portuguese coastline, particularly in Cascais, a Portuguese version of Biarritz or Saint-Tropez.
The attractiveness of migrating to Portugal is also amplified by the fact living costs are cheaper than France and several other European jurisdictions. The cost of living in Portugal is among the lowest in Western Europe; on average 30% lower than in any other country. French people may enjoy a better and cheaper life on their pensions or investments alone. For instance, a retired couple can live in the Algarve comfortably but modestly on a budget of 1,500 euros per month.
When considering living abroad, the proximity to “home” is always a crucial point. Portugal’s geographic location allows France residents to choose between a short plane ride or a relatively short car ride. Additionally, as the little things in life sometimes matter the most, from good cheese to perfect wine, Portugal offers nearly everything that would make anyone western European feel right at home.
A gate to Brazil
For the British, Portugal has been a vacation spot and a sanctuary for decades, and her Majesty’s subjects were attracted by sun, sea and sand. Notwithstanding the quality of life found in Portugal, financial affairs are the main driver behind French immigration.
Portugal is now a hot spot for investment in real estate. In fact, this is where Portugal now shines after the last financial crisis that lead to a bailout. Real estate prices dropped as a result, but are not on the rise yet. In the first quarter of 2014, 3,500 Portuguese properties were acquired by foreign citizens.
The country is a prime location for foreign investment to plant an investment flag, with a number of diverse investment options in addition to real estate. The tax regime for new inbounds also provides good tax saving opportunities. For entrepreneurs, Portugal is a good, stable and tax optimized headquarter to structure their investment in Brazil or other Portuguese speaking countries. Cash is insured when banking in Portugal, the Deposit Guarantee Fund provides compensation up to a limit of Euro 100.000.
Tax technicalities – France VS Portugal
Tax breaks in Portugal are available, not only for High Net worth Individuals but to anyone who is willing to enjoy what Portugal has to offer.
In France, rates on ordinary income are progressive, ranging in 2014 from 0% up to 45%. In addition to these rates a Social Security surcharge is applicable, up to 15,5%. Furthermore, a exceptional contribution of 3% will be applicable to income exceeding Euro 250.000 (single individuals) or Euro 500.000 (married couples), and another 4% special contribution will be applicable to income exceeding Euro 500.000 (single individuals) or Euro 1.000.000 (married couples).
Households are also liable to net worth tax at progressive rates of 0,5% up to 1,5%. Net worth taxes is only levied if the net worth exceeds Euro 1.300.00 per household. Finally, in France there is inheritance tax between close relatives.
Although locals are taxed in similar fashion both in Portugal and France, taxes for new inbounds in Portugal are much lower. The non-habitual residency regime (“NHR”) attracted the wealthy, such as bankers and CEOS, but also qualified workers, such as Professors, Consultants, Engineers or middle tier managers. Portuguese emigrants themselves are also eligible for the regime upon their return home.
The NHR regime was designed to offer attractive tax saving opportunities to value added professionals, entrepreneurs and investors who want to reside and do business in or from Portugal. Although these incentives vary according to the type of income, a perfect example of the opportunities that lay ahead are the incentives granted to pensioners or investors.
In fact, pensioners may benefit from full tax exemptions and investors may be exempt from taxation in Portugal. According to the Treaty to Avoid Double Taxation in force between France and Portugal, France will only tax pensions paid to French tax residents. The end result is French nationals may end up not being taxed at all when moving to Portugal.
Dividends paid by non-Portuguese companies and capital gains on non-Portuguese shares are, as rule, exempt in Portugal. So as long as the income is taxable in the other country under the terms of a Tax Treaty, dividends and capital gains will be exempt in Portugal. These benefits are applicable to all countries with which Portugal has a double tax treaty, not only France.
For French nationals starting to work in Portugal, there are also great incentives. Salaries and self-employment income may be taxed at a 20% + 3.5% flat tax rate if the income is related to the performance of specific high added value activities in Portugal. This regime is applicable for a 10 year period and the non-habitual status may be renewed after this deadline has elapsed.
Portugal has a further advantage over France in that it does not levy a wealth or an inheritance tax charge in close relatives transactions. For all these reasons, our office in Lisbon has seen a recent increase in demand by French clients from all walks of life: High net worth individuals, University Professors, middle class pensioners and even entrepreneurs willing to open a “bistrot” in the cobbled streets of Lisbon where French and English is spoken widely…
What about you, wouldn’t you like to live in Portugal?
crédit: Cascais, Portugal, Pedro Ribeiro Simões