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How to reduce corporation tax: Goodbye London, hello Portugal

By June 24, 2021August 1st, 2021Blog, UK
corporation-tax-savings-uk-portugal-article

The UK capital is losing its appeal and the recent announcement that Corporate Tax rates will increase to 25% by 2023 is driving companies to shift to lower tax jurisdictions. 

Moving your business to Portugal from the UK post Brexit could be considered a long term corporate tax (saving) investment for those companies with profits over £500,000 per annum. 

And for professionals choosing to work remotely, indefinitely, moving to Portugal from the UK is a great lifestyle choice and can be a smart tax move. 

Tech professionals leaving London  

Research by the Office of National Statistics found that 1 in 5 tech professionals are in the process of relocating elsewhere from London. 

While many businesses have already found success as a result of their relocations, what effect will this be having on London? 

A huge talent shortage is currently gripping the UK.   If the capital continues to lose its talent, particularly those who work in the tech and digital industries, it’s likely that the businesses that have remained in London will feel the pinch even more.

In addition, with the rise of remote work in 2020 many tech professionals are choosing to work from home indefinitely. Many tech companies have already offered permanent remote work to employees. 

Portugal Tax incentives for expats – NHR regime

The tax incentives on offer, like the NHR Portugal,  reducing tax on foreign  income considerably (little to no tax in Portugal), for 10 years, are an alluring factor for many remote employees. Moving to Portugal after Brexit is still a smart financial move for many expats. 

Foreign income in this context means foreign to Portugal, which offers British expats some interesting opportunities:

Dividends from UK companies

These escape tax  under the NHR Portugal as they are taxable in the UK, however, in practice, special “disregarded income” rules can eliminate UK tax liability for those resident overseas.  

Entrepreneurs who have built up cash rich companies and are looking to enjoy their wealth in a tax efficient way could end up paying little to no tax in either country on dividends paid by UK companies. 

If employed, non-habitual residents can benefit from a flat 20% rate of income tax in Portugal on their earnings, which represents a significant reduction on both the UK’s [45%] and Portugal’s [48%] top income tax rates.

Fintech companies in Portugal

Portugal provides a cutting edge and globally interesting environment, surrounded by the tech leaders of the industry and high quality engineers at an affordable cost. 

Digitalisation of supply chains and AI-powered decision-making processes, great engineering and global ambition make Portugal the place to be for tech based companies, e-commerce and any business that has an EU client base.

Unicorns emerging from the Portugal tech ecosystem include OutSystems; Talkdesk (which relocated its HQ to SF); and while Farfetch can claim Portuguese heritage via its founders, it’s better known as a London startup. 

A lot of fintech companies are moving to Portugal after Brexit.  Notably, many financial services have built a European facility to ensure they can operate in the region without any disruption. 

Brexit Business Impact 

POST EXIT ESTIMATES BY BUSINESS LEADERS AFTER 1ST JANUARY 2021 (%)

brexit-business-impact-export

Benefits of relocating your business to Portugal

Here are few reasons why more and more companies of all sizes are relocating to Portugal:

  1. Portugal promotes a tolerant, open and safe society and is ranked one of most peaceful countries in the world.

  2. The city of Porto is bustling with business from Internationals who have set up subsidiaries here including; Farfetch in Maia (Porto) and  Adidas which  has a huge space in Maia (Porto) for the world’s support admin, among many others. Lisbon has  49 co-working spaces and shared offices such as LACS, Heden, IDEIA, and Cowork Lisboa, to name a few. The Beato Creative Hub, a 35,000 m² mega campus can hold up to 3000 jobs.

  3. Portugal has one of Western Europe’s lowest cost of living but property prices are creeping up in the main cities of Lisbon and Porto.

  4. The Portuguese Government has been preparing for different scenarios and developed a series of contingency plans, to minimize economic disruptions. The Government has been engaging with the major economic and trade sectors from Portugal that rely on the UK, with specific measures around technical and financial support developed.

  5. Relocating your business to Portugal increases your target audience and helps to gain traction across borders – EU and other African Portuguese speaking countries

Corporate tax Portugal – Is Portugal a tax haven?

Portugal has created a tax regime for companies that has one of the best tax benefits throughout Europe, including:

  • Reduced corporate tax rates (5%) until 2027;
  • No withholding taxes on dividend (and reserves) payments to non-resident -corporate or individual – shareholders (provided the same are not located in blacklisted jurisdictions) and no taxation (corporate income tax) on dividends and reserves received from subsidiaries (applicable criteria) as these profits are removed from the taxable income;
  • No taxation of capital gains upon sale of subsidiaries (applicable criteria) and, as well, on capital gains originated upon disposal – by non-resident shareholders – of participation held in the Portuguese Company;

The corporate tax savings in Portugal VS UK

The corporate tax savings in Portugal compared to the UK is even more lucrative for companies with profits of £1million or more.

RHJ-corporation-taxes-savings-UK-PortugalAt RHJ Accountants we recognise, more than ever, that our clients are globally mobile and may choose to live in “white listed” jurisdictions such as Portugal that, in the same way as the UK does, offer tax incentives to attract wealth and expertise that will ultimately grow the economy.

We have seen a massive increase in enquiries from UK companies looking to save on their corporate tax and reduce their Brexit export headaches. We review each company’s operational strategy, case by case and help them shift their operations to Portugal in a tax compliant and stress free way. 

Our international team of specialists operate from offices in the UK and Portugal.  We work together synergistically to provide tax efficient solutions to our clients to help them grow their business whilst keeping tax liabilities to a minimum. 

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