5 Key Tax Questions for Canadian Expats Settling in Portugal

1.The most simple, and common, question is whether one needs to file taxes both in Canada and Portugal?

Most people do not need to file taxes in both Canada and Portugal. Expats who live in Portugal do need to file a return in Portugal, but they would only need to file in Canada if they have Canadian sourced income, such as income from a rental in Canada.

2.Is it possible to be a tax resident in both Canada and Portugal? When does one give up their tax residency in Canada?

The crux of this issue lies in understanding the double taxation treaty, which aims to prevent the double taxation of individuals considered residents in both countries. Both Canada and Portugal have broad definitions of tax residency, potentially leading to dual residency.

However, the Canada-Portugal tax treaty includes ‘tie-breaker rules’ to resolve such situations. These rules determine where a person is considered a tax resident, ensuring that one country, not both, has the right to tax the individual’s worldwide income. If you are considered a tax resident in both countries, these rules help establish your tax residency based on factors like your permanent home, center of vital interests, and habitual abode.

3.If one has a property in Canada that generates rental income and the primary residence of this individual is in Portugal, does he/she need to file taxes in Canada and Portugal? How is the foreign rental income taxed in Portugal?

Owning a rental property in Canada while residing in Portugal means you must file taxes in both countries. Canadian rental income is taxed in Canada first. Once Canadian tax is applied, the situation in Portugal depends on whether you have Non-Habitual Resident (NHR) status.

If you have NHR status, you enjoy a full exemption from taxation in Portugal. Without NHR status, Portugal can tax the income, but the tax paid in Canada can be credited against the Portuguese tax liability. Essentially, you would only pay additional tax in Portugal if the Portuguese tax rate exceeds the Canadian tax rate, and the difference is the only additional tax you’d owe.

4.Some of our Canadian clients are looking to retire in Portugal. How is retirement income from Canada taxed in Portugal?

Retirement income from Canada is treated differently based on your residency status. For those who arrived under the old NHR regime before April 2020, this income is not taxed in Portugal, provided they continue to benefit from the NHR regime. For individuals under the newer NHR regime or without NHR status, retirement income is generally taxed at 10%, or according to Portugal's standard progressive tax rates if they do not qualify for NHR.

5.Many of those looking to relocate to Portugal from Canada are interested in the Digital Nomad Visa and work remotely. An interesting difference between Canada and Portugal lies in the Social Security contributions one makes in Portugal when they are employed. Does one need to pay Social Security contributions if you are a Canadian who is working remotely in Portugal?

If you work remotely for a company based in Portugal or are self-employed in Portugal, you are required to pay Social Security contributions here. This obligation applies regardless of whether you are a local hire or an expat. Your employer must also contribute to Social Security on your behalf. It’s important to comply with these regulations to ensure you receive the appropriate social benefits in Portugal.

We’d like to thank Zeev Fisher for the opportunity to ask some of the most common questions we receive regarding taxation and how to navigate the complexities when relocating to Portugal from Canada. Zeev is a founding partner at Fresh Portugal, a firm renowned for its expertise in handling complex tax matters in Portugal, especially for expats. Fresh Portugal’s expertise ensures that expats receive comprehensive guidance tailored to their specific situations.

For more information or personalized advice, we invite you to feel free to contact FRESH PORTUGAL – tax lawyers in Portugal , or send us an inquiry using the Contact Us form.

As a community dedicated to supporting expats, we frequently encounter a range of questions that reflect the diverse concerns of individuals relocating to Portugal. One topic that consistently dominates these inquiries is taxation. Expats often find themselves navigating complex tax regulations, and it's no surprise that questions about taxation repeatedly emerge. Recognizing the need for clarity on the subject, we've compiled a list of the most common questions to help expats better understand their tax obligations when relocating to Portugal. By addressing these frequently asked questions, we aim to provide valuable insights and practical advice to make the transition smoother.

We asked Fresh Portugal, a firm of tax lawyers, offering expertise beyond that of accountants or tax advisors, especially for complex tax matters. They specialize in tax law but also help filing more complicated tax returns for expats, which involves understanding double taxation treaties and multi-jurisdictional interactions. Canadians, who are planning to move to Portugal or who are already here, are looking for a tax advisor or accountants who are familiar with the Portugal-Canada tax treaty and taxation. As the largest expat tax firm, Fresh Portugal has extensive experience with hundreds of expats, including many Canadians. Their lawyers are well-versed in the unique Canada-Portugal tax treaty, which contains many non-typical clauses.