DERREN JOSEPH:
Hi, I’m planning to move to Porto on the D7 visa in mid-April next year. I have passive income from 12 rental properties in Florida and interest income from mortgages. I make would real estate investors also in Florida. So, he has a real estate business of some sort in Florida. I won’t have social security income until 2029. My questions are, how will these sources of income, the rental, the interest, and eventually the social security benefits from the US be taxed during the 10 years that he would hope to be subject to the NHR, the non-habitual residence. And then after the NHR program for him would expire after 10 years. So, he has some other questions, but let’s deal with this one first, and let’s deal with the first part of it. So, his rental property income, how would that be taxed here under the NHR, Augusto?

AUGUSTO PAULINO:
Well, rental property would be exempt of taxation in Portugal under the NHR regime. So, the rental income under the double tax treaty would be taxable in the country where the properties located, or at least US who they have the rights to tax in such a way that would be exempt under the NHR.

DERREN JOSEPH:
Okay. So, we are going to move on just yet, because we put some flavor into this while we were discussing this before this zoom call. So, let’s assume that this person has, I mean, it’s 12 rental properties, right and he has other investors. So, we’re going to assume that he has a structure and we’re going to assume that it’s in and out, it’s all in an LLC, a Florida LLC. So then, okay. Let’s same scenario, but it’s a Florida LLC. How is Portugal looking at that Augusto?

AUGUSTO PAULINO:
Well, I would say that we have a different two ways to look at that. And because with in case of an LLC, which is a transparent entity, so with an entity that is not subject to taxation itself at the corporate level, the idea would be that any taxation of the activity of the profits of the LLC would be directly at rebooted to partner, to shareholder for, for taxation purposes. That would be a way to look at these in such case, the discussion around these would be if the nature of the profit, that these are located to the partner still as the nature of rental income, or if it is a business profit. And there’s a lot of a discussion around these, we may argue that the underlying income as the nature of a rental income. And try to follow that route and argue that would be an income exempt from taxation given the nature of the underlying income. It’s a possible approach possible. I’m not saying that this would be the view of the tax authorities.

DERREN JOSEPH:
Yeah. So, just to add to what Augusto has already said, it could be very, very nuanced. And especially so people, I know I’ve seen discussions and people have approached me on our online forums on our website. And then they talk about invoking, I think it’s the Article 7 of the tax treaty and its business income, blah, blah, blah. But it really depends on because when you look under Article 7, that very first line, it speaks about having a permanent establishment here and in this case in Portugal. So, if it is that I think a key factor as whoever your tax advisors would be a key factor for them to understand which we don’t know in this case. So, we can’t say one way or the other, but a key factor to consider is whether you have what we call substance or permanent establishment here in Portugal. So, if it is that you are making decisions for that business, from your home in Cascais or the Algarve or wherever it is, you’re running that business from Portugal. So, you know, then this permanent establishment, he had his nexus here. So potentially that whole structure could be taxable in Portugal potentially, right? So, it really, really depends on if it is that you have a full team boot on the ground in Florida, and all you’re doing is you sitting back and you’re in the Marina in Cascais, and you just having a good time and you’re just receiving passive income then that’s another scenario, right? That is completely different from if you actively involved. So, this is something to consider. And we also get this as a slight segway. We also get this with some YouTubers as well. They may think, you know, that your main audience, you’re speaking in English on your YouTube channel and you getting income, but that income is being derived from English, speaking audiences in the US. But the point is that you are running that enterprise from here in Portugal. So, it really, you know, it’s something to consider and you should really seek advice. And in that disclosure really explain to your advisors exactly how your business is being structured. So just to get to the second part of his question Augusto, he’s asking, so what happens after the NHR expires? You want to comment on that?

AUGUSTO PAULINO:
Okay. After the 10-year period, what happens is that the general rules applicable to the regular taxpayers in Portugal will apply.

source