Relocating to Portugal is an exciting move, but as an expat, investing as a tax resident in Portugal and ensuring your current investments remain tax-efficient in your new home is essential. Investment strategies that worked well in your previous country may not be as effective under Portugal’s tax system. Understanding your options will help you make the most of your wealth while complying with local regulations.
What Investment Options Are Available in Portugal?
Expats in Portugal have several investment options, each with its own advantages and drawbacks. Understanding these choices is key to making informed financial decisions.
1. High Street Bank Investments
Portuguese banks such as Millennium and Novo Banco offer a range of investment products. However, these are often limited to in-house funds, which may not provide the diversification or global exposure that many expats seek. Additionally:
- They usually only operate in Euros, which can be restrictive for those who earn or hold assets in multiple currencies.
- Investment choices are typically managed with higher fees and restrictive investment strategies.
- Customer service and documentation are generally in Portuguese, making it challenging for expats who are not fluent.
For those looking for greater flexibility, lower fees, and access to international markets, alternative investment options should be considered.
2. Directly Held Stocks and Shares
Expats can invest in global stock markets through international brokers. While this offers high potential returns, it requires active management and carries higher risk. Additionally, tax reporting on individual stock holdings in Portugal can be complex with little tax optimisation.
3. Collective Investments (Funds & ETFs)
Investing in mutual funds, exchange-traded funds (ETFs), and index trackers can provide diversification while reducing risk compared to individual stock picking. However, these investments are not structured to take advantage of Portuguese tax efficiencies. Dividends and capital gains on any sale of funds are taxed at 28% unless held in a tax efficient structure.
4. Pension Structures
For those planning retirement, using a self-invested personal pension (SIPP) or other internationally recognized pension schemes can offer long-term benefits. However, careful tax planning is required to ensure compliance with Portuguese regulations.
5. The Portuguese Compliant Investment Bond
One of the most tax-efficient and flexible options for expats in Portugal is the Portuguese-compliant investment bond. This unit-linked investment allows long-term investment growth while offering significant tax advantages when held for a period of time.
Why invest in a Portuguese Compliant Investment Bond?
A Portuguese-compliant investment bond provides a structured, tax-efficient solution tailored to most expats needs. This structure allows capital to grow tax-efficiently and offers flexibility in withdrawals and additional funding, making it one of the best solutions for expatriates looking to manage their wealth efficiently. You can amend your strategy by buying and selling of mutual funds and ETF’s without any tax consequences.
Key Benefits of an Investment Bond:
- Tax Deferral: No tax is payable on gains until a withdrawal is made, allowing for tax-free growth (known as ‘gross roll-up’).
- Reduced Tax on Withdrawals: The longer you hold the bond, the lower the effective tax rate on withdrawals.
- Multi-Currency Flexibility: Unlike local Portuguese bank products, international investment bonds allow investments in multiple currencies, including EUR, USD, and GBP.
- Simplified Tax Reporting: Only withdrawals need to be reported, reducing administrative burdens.
- Portability: If you relocate, the bond can often be retained and adapted to new tax jurisdictions.
- Succession Planning: Allows flexible and certain transfer of wealth to beneficiaries, avoiding forced heirship laws in Portugal.
For an example of a popular investment bond, see Utmost Apex Bond.
Taxation of compliant Investment Bonds in Portugal
Under Portuguese tax law, investment bonds are classified as life insurance policies. Gains within the bond remain untaxed until you make a withdrawal. When funds are withdrawn, they are taxed under Category E – Capital Investment Income, with the taxable portion being the difference between the withdrawal amount and the original investment.
This structure allows investors to defer taxation and benefit from lower tax rates over time.
See here for the effective tax rates and real life examples on how to save in tax.
Investing as an Expat in Portugal Requires the Right Investment Choice
If you are an expat in Portugal looking for a tax-efficient, flexible, and globally diversified investment solution, an investment bond could be a great fit. However, it’s important to assess all available options, from direct stock investments to pension structures, to determine what aligns best with your financial goals.
Every financial situation is unique, and choosing the right investment strategy requires careful consideration. If you want to explore tax-efficient investment options in Portugal that align with your goals, reach out for a consultation.
