A lesson for expats opening a business in Portugal
One of the early tasks for expats immigrating to Portugal is to declare your Non-Habitual Resident (NHR) status with the Finances office. Not a difficult task once you figure out how to navigate the Portal das Finances website. That’s where you petition for NHR status. It’s an easy enough process; just provide some supporting materials, and wait for the status to be granted. (Instructions in English)
At this point, an explanation of our visa process is relevant. Like most Americans wishing to immigrate to Portugal, we applied for the D7 visa. This is the type granted to retirees (i.e. not working). As it happened, I was an independent contractor working remotely for a US company. In the eyes of Portuguese immigration, that meant “entrepreneur”. So, they decided that I needed a D2 visa. The one for self-employed people. The catch was, I needed to start a Portuguese company.
In late 2018, I met PRISMAAT. We were co-habitants of a shared office space in Braga. Being a tad overwhelmed by the idea of having to launch a Portuguese business, I thought angels had descended from heaven when I saw their ‘D2 visa assistance’ sign in their glass offices one day. And thus began a wonderful relationship!
In January, 2019, Green Hat Coaching & Consulting, LDA (GHCC) was born. Unfortunately, I was still working as an independent contractor for a company back in the US. The good news is that, under NHR, most foreign income is exempt from Portuguese tax for ten consecutive years. So, my US income should be tax-free in Portugal. But… since I was an independent contractor…. this is yet to be determined. I’ve heard that tax-free only applies if you were/are an employee.
In May 2019, I ended my contract with the U.S. company, and started a contract via GHCC. This began a Portuguese income stream that required an amendment in my NHR status to reflect a ‘high value profession’ code. This is important! This code would cap my personal income taxes (from my GHCC salary) at 20% versus the normal 30+%.
I knew where to find my NHR status on the Portal das Finanças (PdF) site, but when I went to check it, I was dismayed to find that my code was 888, ‘no high value activity’. Not good!!! This meant that the 20% tax rate would not apply. But, as the owner of a Portuguese company, I was entitled to code 802, a qualifying high-value code for company owners. No problem. This should be fairly easy to prove. If you don’t own a company, there are many other codes which may apply, each with their own document requirements. (Reference the Instructions document above.)
The PdF site is vast, the English translation is clunky, and my Portuguese is not yet up to that level of sophistication. After much searching, I finally found a way to send an email to request the code modification. But there was no information on the required documentation. Since I was about to start drawing a GHCC salary, getting this code changed was CRITICAL! Without the code, my business accountant would be required to make me pay the higher income tax. Fortunately, he WAS able to craft a document (in Portuguese) that detailed my request indicating what the code should be and why.
Despite my efforts, I never was able to send the message via the PdF website, so I decide to visit their location in my hometown of Braga, just this past Friday with my printout in hand.
Luckily, this is a VERY efficient government office. There are a lot of stations staffed by helpful and patient people. And though most don’t speak English, Google Translate is my close companion.
I arrived around 9:30 am and took a ticket for one of the queues. Once called, the woman at that station indicated that I had not taken the right type of ticket. I chose the wrong letter for the type of change I needed to discuss. I was placed into the yellow queue for the next available person.
When it was my turn again, I showed the agent my request document. This was super helpful in getting past stage 1 – a basic understanding of my request. He disappeared into the back.
When he returned, he tried to explain (in Portuguese, of course) that he could not help me, and something about Lisbon. I could not understand, but we kept trying to communicate through Google. In the end, he found the instruction document (link above) in both Portuguese and English and printed them both. Together we found the corresponding paragraph with the instructions on how to request the change. Thank God for his patience and tenacity to find this approach to explain it to me.
Armed with the instructions, I called again on the PRISMAAT’s Angels for assistance.
I headed over to their offices where Nuno Cerqueira was ready to assist.
The critical paperwork that needed to be mailed to Lisbon is a document that each business has filed with the government. It can be found at the ePortugal website. It is called the Certidão Permanente and it has all of the basic facts about the business, including a list of the managing partners. In my case, this document proves that I own/manage GHCC which justifies my 802 NHR code.
Of course, when we went to find the certidão permanente for Green Hat, it appeared that my login to the website had expired. As it turned out, it was going to take a few hours to get a fresh login. Nuno volunteered to baby-sit that processes. Meanwhile, we prepped the request letter and envelope. Nuno was able to reuse the accountant’s original text and wrap that request in some nice, professional Portuguese wording (way beyond my grasp of the language). Once he had the login, he could pull down the certidão permanente, print it, and include it in our letter to the Lisbon PdF office.
Bonus lesson for the day: I learned about Portuguese mailboxes. In passing, Nuno mentioned that he would send the letter via blue post. “What is blue post?” I asked. He explained. Scattered around Portugal you will find pairs of cylinders that look like overgrown fire hydrants. One red, the other blue. These are mailboxes. Correio azul (blue) is airmail which offers1-day Portugal delivery (not international). Red is normal mail. Slower, but costing a bit less. Finally, after nearly a year, I was able to gain real clarity on what those blue and red CTT post office boxes were for!
So… part one of the mission is accomplished. The letter has gone out. We’ve delayed my September salary for a few days. We have until the 8th to get the high-value code approved. After that, my salary MUST be taxed at the higher rate – at least for this month.
Stay tuned as the story unfolds.
Post Script – Wrinkle #5
I told my story today to a colleague at lunch. He is here on a work visa from another country, but also with NHR status and also waiting on a high-value profession code. The HR team here where we work has warned him that it could take up to a YEAR (!!!) to be given the high-value code. However, once the code is granted, it is retroactive, and you can file a special tax refund form. (The silver lining under wrinkle #5). Not sure if this timeline also applies in my case, but we shall see. Stay tuned.