EU Investors: Tax Implications

What is CRS?

The Common Reporting Standard (CRS) is an OECD-developed automatic exchange of financial account information between tax authorities. Portugal participates, as do all EU member states.

What Portuguese Funds Report:

When you invest in a Portuguese fund, the fund administrator reports to Portuguese tax authorities:

• Your name, address, and tax identification number (TIN)
• Account balance at year-end
• Total gross interest, dividends, and other income
• Gross proceeds from sales or redemptions

Information Exchange:

Portugal then shares this information with your home country's tax authority. For EU investors, this means:

• Your home tax authority knows about your Portuguese investment
• No ability to "hide" offshore investments (not that you should)
• Ensures compliance but requires accurate tax reporting in your home country

Practical Implications:

1. Report your investment: Declare the Portuguese fund on your home country tax return
2. Match the data: Ensure amounts match what CRS reports (discrepancies trigger audits)
3. Claim available relief: Use tax treaties to minimize double taxation

CRS Reporting Timeline:

• Fund reports to Portuguese tax authority: March following year-end
• Portugal shares with partner jurisdictions: By September following year-end
• Your home tax authority receives data: Q3-Q4 of following year

Tax treatment of Portuguese Golden Visa funds varies by your country of tax residence:

Germany

• Fund distributions: Taxed as investment income at 25% flat rate (Abgeltungsteuer) + solidarity surcharge
• Capital gains on redemption: Same 25% flat rate
• Advance taxation (Vorabpauschale): Complex rules for accumulating funds
• Partial exemption: Equity funds may qualify for 30% exemption on gains

France

• Fund distributions: Taxed at 30% flat rate (PFU/Prélèvement Forfaitaire Unique) or progressive scale if elected
• Capital gains: Same 30% flat rate or progressive + social charges (17.2%)
• Long-term holding relief: Not applicable to non-EU regulated funds
• Wealth tax (IFI): Portuguese fund units generally not included (not real estate)

Netherlands

• Box 3 taxation: Assets taxed based on deemed return (1.898% of value in 2024) at 36% rate
• No tax on actual distributions: Only deemed return matters
• Threshold: First €57,000 (single) or €114,000 (couple) exempt
• Reporting: Include fund value in Box 3 declaration

Spain

• Fund distributions: Taxed as savings income (19-28% depending on amount)
• Capital gains: Same savings income rates
• Form 720: Foreign assets over €50,000 must be declared (significant penalties for non-compliance)
• Modelo D-6: Annual declaration of foreign securities

Italy

• Fund distributions: Taxed at 26% flat rate (imposta sostitutiva)
• Capital gains: Same 26% rate
• RW form (Quadro RW): Annual declaration of foreign assets required
• IVAFE: 2 per mille tax on foreign financial assets

Belgium

• Fund distributions: Taxed as movable income at 30%
• Capital gains: Generally exempt for individual investors (unless speculative)
• TOB (Transaction Tax): May apply on purchases/sales
• Cayman Tax: Complex rules for certain fund structures (unlikely to apply)

Note: Tax rules change frequently. Consult a tax advisor in your home country for current treatment.

When Do You Pay Capital Gains Tax?

For closed-ended Golden Visa funds (PE, VC, Hospitality), you typically receive your investment back when the fund liquidates (7-10 years). At that point:

1. Calculate gain: Redemption proceeds minus original investment
2. Determine tax jurisdiction: Usually your country of tax residence at redemption time
3. Apply relevant rate: Home country capital gains rates
4. Claim treaty relief: If applicable (usually not needed for EU-EU)

Portugal's Role:

Portugal generally does not tax non-resident investors on gains from Portuguese securities (including fund units). The EU Parent-Subsidiary Directive and interest/royalties directives create a favorable environment.

Key consideration: If you become Portuguese tax resident before fund exit (e.g., you relocate after obtaining citizenship), Portuguese tax rules would apply instead.

Example Scenario:

German investor puts €500,000 in a Portuguese hospitality fund in 2025. Fund liquidates in 2032 returning €620,000.

• Gain: €120,000
• German tax (25% + solidarity): ~€33,000
• Net return: €87,000 after tax

Tax Planning Options:

1. Time your exit: Some countries have preferential rates for long-term holdings
2. Consider relocation timing: If planning to move to Portugal, NHR status might offer benefits
3. Gift or inheritance: Some jurisdictions have favorable treatment for inherited assets
4. Pension wrapper: In some countries, investing through pension vehicles offers tax advantages (check fund eligibility)

What is NHR?

The Non-Habitual Resident (NHR) regime offered favorable tax treatment to new Portuguese tax residents. While the regime closed to new applicants in 2024 (replaced by a more limited incentive), those who already qualified continue to benefit.

NHR Benefits (for existing beneficiaries):

• 20% flat rate on certain Portuguese-source income
• Potential exemption on foreign-source income (including fund distributions)
• No wealth tax in Portugal
• 10-year validity

Post-NHR Landscape (from 2024):

The new "Incentive for Scientific Research and Innovation" replaces NHR but with narrower eligibility:

• Focus on R&D, teaching, and qualified professionals
• 20% flat rate on eligible employment income
• More restrictive than original NHR

Implications for Golden Visa Holders:

If you're considering eventual relocation to Portugal:

1. Current NHR holders: Continue benefiting for your 10-year period
2. New relocators: Standard Portuguese tax rates apply (progressive up to 48%)
3. Fund exit timing: Consider whether to exit fund before or after becoming PT tax resident

Portuguese Tax Residency:

You become Portuguese tax resident if:

• You spend 183+ days in Portugal in a calendar year, OR
• You maintain a habitual residence in Portugal (even with fewer days)

Warning: Portuguese tax residency means Portugal taxes your worldwide income. Plan your relocation timing carefully relative to fund distributions and exits.

The Risk:

Without proper planning, the same income could be taxed in both Portugal and your home country. EU tax treaties and directives minimize this risk.

How Double Taxation is Avoided:

1. Tax Treaties: Portugal has treaties with all EU member states
2. EU Directives: Parent-Subsidiary, Interest & Royalties directives
3. Tax Credits: Home country credits for any Portuguese tax paid
4. Exemption Method: Some treaties exempt certain income from home country tax

Typical Scenario for EU Investors:

• Portugal: Does not tax non-residents on fund gains (capital gains exemption for non-residents)
• Home Country: Taxes gains at domestic rates
• Result: Single layer of taxation (no double tax)

When Portugal Might Tax:

Portugal could tax if:

• You become Portuguese tax resident
• The fund distributes income taxable at source (rare for Golden Visa funds)
• You hold the investment through a Portuguese permanent establishment

Documentation:

Keep records of:

• Investment date and amount
• All fund statements and distributions
• Redemption amounts
• Tax returns filed in your home country
• Any tax paid in Portugal (for credit claims)

Before Investing:

• Confirm your country of tax residence
• Understand fund taxation rules in your home country
• Check if any foreign asset declaration requirements (Spain Form 720, Italy RW, etc.)
• Consider consulting a cross-border tax advisor
• Understand CRS implications

During Investment Period:

• Report Portuguese fund on annual tax return
• Declare any distributions received
• Complete foreign asset declarations (if required)
• Keep all fund statements and documents
• Monitor any tax rule changes in home country

At Fund Exit (Redemption/Liquidation):

• Calculate capital gain (proceeds minus investment)
• Report gain on home country tax return
• Apply correct tax rate (check for long-term holding benefits)
• Retain documentation for 7+ years
• Consider timing if relocation is planned

If Relocating to Portugal:

• Determine Portuguese tax residency start date
• Check NHR eligibility (if applicable)
• Plan fund exit timing relative to relocation
• Register with Portuguese tax authorities
• Consider engaging Portuguese tax advisor