[ Offshore Tax ] ROTH IRA. Taxed in Portugal?

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DERREN JOSEPH:
So, Seville is asking, I have a substantial annual income in my Roth IRA. So individual retirement account in the US. So, his question is, how is my Roth because Roth is going to be tax-free in the US. So how is it going to be taxed if it’s going to be taxed in Portugal, Augusto?

AUGUSTO PAULINO:
Okay. This is the important discussion in this case to clarify the nature of the income deriving from the Roth. I would say that in principle it would qualify as a pension income if received in several installments after retirement. So, in such a case, if we can confirm this nature as a pension income, that would mean that the pension income under these new rules of the NHR regime would be taxable in Portugal at the flat rate of 10%. However, it is important to clarify that this 10% may or should only apply to do a component of receiving of the pensions receive that corresponds to income, meaning that we should not tax the amount received in the pensions that correspond to the capital contributions made by the person. So, the challenge would be to a niche pension income to split and only tax the income and not the amount of the contributions that were made by the individuals to these products.

DERREN JOSEPH:
Okay. So, I know that, when we say this, because this is a question that we always get asked, and after we give the explanation, there’s collective disappointment, right? Because people were under the impression that there’s a DTA and it’s still being bandied about online, right? So, there’s DTA I’m not going to be paying any tax in Portugal and that is wrong. And for those who may be new, you would have, you can look at what has been happening in Spain, right next door for forever. Right? So, the way it works is that Portugal will tax it. But as Augusto was said, we’re going to have to bifurcate. Whoever’s working with you. You know, whoever your tax team is, they’re going to need to bifurcate that monthly income between what was the original contribution and what is the return on the investment? And the return on the investment will be subject to the 10% tax. Now, then we get, so then you’re saying, well, what about the treaty? Right? That’s in violation of the treaty. Not exactly. So just like happens in Spain for those who may have spent time in Spain, or they have friends, or they’re connected with people, Americans who are in Spain, you do in bulk the treaty. But what you do is you reclassify that income, even though it was derived domestically. And this is strictly on a US tax return, right? As nothing to report you go, Portugal has got their piece already and they’re happy. So, US tax return, you’re going to invoke the treaty and reclassify that income from domestic to foreign income. And then you get a foreign tax credit, which would be usable to offset against any other tax liabilities that you may have to the US. So, you know, so the, the point is that it is not straightforward. And when you sit with your preferred tax advisor, they can walk you through. And in a case like this, where you are maybe where you still may be in the us and planning to come to Portugal, it creates planning opportunities because the NHR, as you know, as, as readily apparent by now, it’s very nuanced. So, before you arrive in Portugal, you may want to contact an advisor and go through all your income and go through all your, your assets and understand how Portugal will see it. And if you don’t like how it’s going to be treated by Portugal, then you have an opportunity to plan before arriving here. So, it may be a planning opportunity. So, that’s it as far as ROTH is concerned.

VOICE-OVER:
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