No Free Lunches: The Most Common Tax Risks of Owning a Foreign Entity While Living in Portugal
The Most Common Tax Risks of Owning a Foreign Entity While Living in Portugal
Living in sunny Portugal while running a foreign company might seem like the dream — good weather, pastéis de nata, and a global business! But before you set up that international structure, let’s talk about a not-so-glamorous topic: TAX RISKS.
Here’s the truth: when it comes to owning a foreign entity while residing in Portugal, there are no free lunches. Here’s what could be on the tax menu for you:
CFC Rules (Controlled Foreign Companies):
That low-tax country where your company is based? If your foreign company isn’t doing “real business” abroad, its income could be taxed in your hands — at Portuguese rates. Ouch!
Place of Effective Management (POEM):
Do you call the shots for your foreign company from your cozy Lisbon balcony? Portugal might decide that your company is effectively managed right here, making it liable for Portuguese corporate tax.
Permanent Establishment Risk:
Running operations in Portugal for that foreign entity? It might inadvertently create a "permanent establishment" here, subjecting parts of your profits to Portuguese taxes. Talk about a surprise course!
Anti-Abuse Regimes:
The Portuguese tax authorities are pretty sharp when it comes to spotting artificial setups designed to minimize taxes. Structures without substance or real economic activity? They’re likely to unravel them faster than you can say “sardinhas assadas.”
International Double Taxation:
Think, “double the taxes, double the headache.” Without proper planning, you could pay tax both in the country of your foreign entity and in Portugal. And let’s not even get started on the complexity of claiming tax credits.
So, what’s the takeaway?
Having a foreign company while living in Portugal can offer opportunities — but only with a robust strategy in place to navigate these risks. Proactive tax planning, leveraging double tax treaties, and staying compliant with local laws are key to enjoying the perks without choking on the unexpected costs.
