Want to Move to Portugal? What to Consider Financially

Knowing what to expect when it comes to your taxes, investments, real estate, Social Security benefits and other money-related issues is critical.

A street care on a street in Lisbon.
(Image credit: Getty Images)

Editor’s note: There are many reasons why an American may seek to relocate to Europe, chief among them retirement, work opportunities or simply a better work-life balance. This is the third article of a four-part series in which we’ll discuss key financial considerations Americans should keep in mind when considering a move to Europe and zoom in on three countries in particular: France, Portugal and Italy. Part one, an introduction to the series, is Considerations for Americans Who Want to Move to Europe. Part two is Want to Move to France? What to Consider Financially.

Portugal is one of the most accessible countries for foreigners to obtain EU residency and citizenship. The safety, warm climate, rich history and relative ease of integrating draw many Americans seeking a change in pace and quality of life.

Portugal has the sixth-lowest average annual salary in the Organisation for Economic Co-operation and Development (OECD), and salaries are significantly lower than in neighboring Spain. The average salary in Portugal in 2023 was less than $20,000 per year, according to Instituto Nacional de Estatística. In the U.S., the average salary was $65,450, according to the U.S. Bureau of Labor Statistics, underscoring the benefits many Americans perceive when they research Portugal as an expat destination.

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The Portuguese banking system is far more centralized than the one in the U.S. Taxes are also much higher. Savings and investment concepts are far less developed, with less focus on personal pensions and personal investing. Most transactions occur via cash or debit card, and purchasing property is not generally viewed as a wealth-building activity.

Where foreigners settle

Lisbon, Porto and the Algarve region are three of the most common places for foreigners to live in Portugal. In particular, Lisbon, the capital of Portugal, is one of the most expensive cities in Europe for rent. All three areas remain significantly less expensive for renting than major American cities. Of course, prices can vary widely. The Algarve sees a wider spectrum of housing prices since the region is comprised of many different cities, some less well-known than others.

While the Portuguese are generally described as friendly, warm and hospitable, many Americans struggle to adjust to the Portuguese pace of life. The lack of urgency around work can lead to everyday necessities, such as opening a bank account or securing an identification number, taking longer than an American feels they “should.”

High-net-worth individuals encounter unique challenges

Americans moving to Portugal should take stock of their financial situation before making an international move. High-net-worth Americans in particular face unique challenges. For example, they must ensure that their asset portfolio is properly structured for a tax residency in Portugal (if they will qualify as tax residents). Carefully reviewing your allocations with a cross-border financial planner specializing in Portugal before your move is advised, particularly concerning real estate property ownership considerations.

Americans who move to Portugal must continue filing a U.S. tax return. Tax returns filed from abroad come with additional considerations, particularly if you are self-employed/an entrepreneur, have a high income and/or have a high net worth.

Before moving, consult with a cross-border tax specialist who can explain which expat tax provisions will apply. This is a critical conversation for business owners, as the best business structure for your operations in the U.S. may not apply when you live in Portugal. While Portuguese tax rates are higher than those in the U.S., you may qualify for certain beneficial tax rates.

Prime Minister Luis Montenegro’s political agenda prioritizes restricting immigration pathways, as evidenced by his government’s recent repeal of a key migration policy aimed at restricting the number of non-EU migrants into the country.

More than just obtaining a visa required

For Americans, moving to Portugal involves obtaining a visa, but there’s more to it than that. You must also apply for the visa and program that is best suited to your specific needs:

  • Passive income or retirement visa (D7). This is for retirees and investors who want to relocate to Portugal and who earn consistent monthly income from passive income sources. Benefits of this visa include, potentially, the Non-Habitual Resident (NHR) program.
  • NHR program. This program sets highly beneficial tax rates for a range of income types for qualifying individuals. However, last year, the government announced substantial changes to the program, narrowing the pool of qualifying applicants and ending the regime entirely at the end of 2024. The question for prospective U.S. expats now is whether your circumstances qualify you to be grandfathered into the original regime or whether your move will expose you to Portuguese tax rates, which, as mentioned above, are extremely high compared to those in the U.S.
  • Temporary Stay Visa (D8). More recently referred to as the Portuguese Digital Nomad Visa, this immigration pathway allows qualifying remote workers to move to Portugal on a one-year renewable visa (up to five years). D8 visa holders benefit from a flat tax rate of 15% on all types of income and may also be eligible for NHR status.
  • Investor/Entrepreneur Visa (D2). Also referred to as the Portuguese Golden Visa, the D2 visa provides both a permanent residency and citizenship pathway for qualifying individuals and their families.

What about investments and retirement accounts?

Moving to Europe does not necessitate moving your U.S. investment accounts out of the U.S. In fact, it’s typically ill-advised to do so. With respect to retirement accounts, you may be able to continue your contributions, and receiving distributions from accounts based in the U.S. is not a problem.

Retirement accounts. There is no like-for-like comparison for a 401(k) or IRA within the Portuguese tax code. Subsequently, the typical expected benefits of Roth IRAs are not acknowledged; they can be treated like a taxable brokerage account or a traditional IRA.

Receiving Social Security. The U.S./Portuguese Totalization Agreement streamlines how you receive your Social Security and to which country you pay taxes on the taxable distributions. In the event you qualify as a Portuguese tax resident, you will pay Portuguese taxes on Social Security distributions.

Capital gains on investment portfolios. Long-term capital gains tax is higher in Portugal than in the U.S. (28% in Portugal compared to a maximum of 20% in the U.S.).

Inheritance and trusts. Portugal abides by a strict heirship regime enforcing compulsory heirs (herdeiros legitimários), beginning with the spouse and the immediate descendants.

Trusts are transparent and for U.S. expats will likely require increased emphasis on asset base and less on estate planning. In the context of cross-border planning, trusts may serve little to no purpose.

Many people view moving to Portugal as a long-term investment in a higher quality of life. However, just as you would take the time to properly prepare yourself for a move, it’s important to perform the same due diligence on your finances.

Pre- and post-move planning is very important. Seeking professional advice from certified cross-border experts who specialize in serving the American community in Portugal ensures that you’ll receive strategies tailored to your needs and goals.

In my final article for this series, I’ll be discussing the considerations and preparations associated with moving to Italy as a U.S. citizen.

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Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Alex Ingrim, Chartered MCSI
President and Co-Founder, Chase Buchanan USA

With over 10 years of experience working in European wealth management firms and family offices, Alex has significant expertise in cross-border financial planning, investment management, and macroeconomic analysis. He enjoys speaking with clients and explaining our investment philosophy while helping them understand the implications of various geopolitical events on their portfolios. Alex graduated with distinction from Grenoble Ecole de Management with a master’s degree in International Business after initially completing a bachelor’s degree in English at Simon Fraser University.