How Entrepeneurs can legally avoid tax
- Written by David Anderson
Portugal’s new tax regime for new arrivals from 1st January 2010. David Anderson solicitor and tax adviser at Sykes Anderson LLP Solicitors and Chartered Tax Advisers talks tax to a UK entrepreneur selling up and moving to Portugal.
Please note that tax law is a complex subject and this article is of a general nature and should not be relied upon without professional advice on the facts of your particular case.
Nothing in this article should be construed as investment advice.
Q. I am about to sell a company and some land in the UK where I am resident. I am thinking about moving to Portugal and becoming resident there before the start of the next tax year to avoid UK Capital Gains Tax. Will this work?
A. It used to until the beginning of 2010. It was previously quite simple. You made sure you left the UK before the start of the tax year you were going to make the sale and registered in Portugal as a Portuguese resident. The UK Revenue would normally regard you as not UK resident provided return trips to the UK were not excessive. There was no capital gains tax in Portugal so you ended up paying no capital gains tax provided you did not return to the UK for 5 years.
Q. What has changed?
A. Portugal has now introduced a 20% Capital gains tax. So you can avoid UK Capital Gains Tax but end up being liable in Portugal. The simple way of proceeding no longer works.
Q. Does the UK - Portugal tax treaty help?
A. No.
Q. Does this rule out Portugal?
A. No. There is a way around the capital gains problem which is fairly simple and cost effective. It does however need to be implemented before you become Portuguese resident and preferably as early on in the business venture as possible. If you leave it later on you may end up triggering UK capital gains tax if you take the required steps whilst still UK resident which will normally be the situation.
Q. If I do this does it rule me out from say working for some time for the company after the sale as part of the sale deal?
A. No
Q. What else is new in Portugal?
A. Something very helpful on the income tax side. The new rules introduced in January 2010 mean new arrivals in Portugal can obtain a 10 year tax exemption from Portuguese income tax on non Portuguese source income. Portuguese source income is taxable.
Q. What is non Portuguese source income?
A. Examples are pensions, dividends from UK companies, bank interest and consultancy fees.
Q. Can the income arise in any country?
A. The income must arise in a country with which Portugal has a tax treaty. The income must be capable of being taxed in that country but need not actually be taxed in the source country.
Q. What do I have to do to get this exemption?
A. you must come within one of the extensive categories of people specified in the new law. You can qualify by virtue of being a company director.
Q. What happens after 10 years?
A. You revert back to the usual position of being fully taxable in Portugal.
Q. Doesn’t that mean I am better of being in a tax haven?
A. Maybe not. You have the advantage of the Portuguese tax treaty with the UK which makes it much easier to become non-UK resident and still return fairly often to the UK.
October 2010
David Anderson
Solicitor and Chartered Tax Adviser
david.anderson@sykesanderson.com
