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Gerard Associates Ltd
Gerard Associates Ltd
Global Wealth Managers and Independent Financial Advisers
QropsOverseas Pension TransfersQrops ChargesUK PensionsQrops FAQ
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Portugal Income tax on QROPS income

The following gives details of income tax from a QROPS for a Portuguese resident. This should be read in conjunction with our Guide to Portuguese tax which is available by emailing info@gerardassociates.co.uk

One immediate consideration is paying tax on your Pension income.

By transferring to a QROPS you immediately benefit from receiving the income Gross whether in the UK or Portugal. It is then for you and your tax professional/accountant to declare the income via your UK self assessment or Portuguese tax return.

This is an immediate cash advantage as you effectively defer paying tax until the future payments on account.

Portuguese tax financas will treat you as tax resident if you spend more than 183 days in the country.

Portuguese residents are taxed on their worldwide income on an increasing scale.

The following statement is taken and updated to 2008 from the Portuguese Finance Department:

http://www.dgci.min-financas.pt/pt/docs/Conteudos_1pagina/NEWS_Portuguese_Tax_System.htm

or go to http://www.dgci.min-financas.pt/pt and click on Portuguese Tax System.

Cat. H: Pensions

This category contains pensions in general, including annuities and alimony payments. Category H income paid on a monthly basis to a resident pensioner is subject to a withhold tax at rates between 0% and 28%, depending on the pensioner circumstances.

(Note: The income from a QROPS is paid Gross from a foreign jurisdiction (Guernsey) and does not impose a withholding tax)

In 2008, each pensioner with a pension or annuity income up to €30,000.00 can deduct from the gross income an amount of €6,000.00. But if the annual income is higher than €30,000.00, each pensioner is only able to deduct the amount of €6,000.00 reduced by 13% of the exceeding part of the annual income.

Your income is in excess of amounts which would benefit from this exemption.

In addition, the pensioner may deduct 150% of the fees paid to trade unions, with the limit of 1% of the gross earnings of Cat. H, except on the part corresponding to any advantage such as health care, educational, elderly, housing, insurance or social security schemes.

The capital element of a temporary or life annuity paid on the basis of an insurance policy is deductible. In those cases where is not possible to determinate the capital element, only 20% of the gross annuity is treated as taxable income.

Annuities – a payment by an annuity will be taxable only on the income element, when a certificate is supplied by an authorised actuary, such an annuity will comprise of both a capital and income element.

Whilst the above is taken from the Portuguese Finance Departments own website http://www.dgci.min-financas.pt/pt our experience of Portugal in 2007 is that 20% of the Pension income whether by way of an annuity or income drawdown is taxable.

For 2008 this Pension exemption has increased to 85% so only 15% is assessable.

As with all taxation you should discuss your liability with a tax professional in Portugal which will also determine any other liabilities to tax that you will incur in becoming Portuguese resident.



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