Where We Work – Country FAQs - Chase Buchanan USA

Western Europe has some of the most popular countries in the world for U.S. citizens and green card holders to move. The region holds immense appeal for numerous reasons, including work, retirement, and a baseline lifestyle change.

However, Americans face additional hurdles due to the complex financial considerations associated with holding U.S. citizenship. Each country, or “jurisdiction,” in financial planning parlance, has its own Double Taxation Agreement (DTA) and Totalization Agreement with the United States. The DTAs inform how you, as an American citizen, are taxed, based on a host of factors including where you reside and where your center of personal interest lies. A Totalization Agreement is a specific type of international tax treaty designed to eliminate dual taxation with respect to U.S. Social Security and Medicare taxes.

In simple terms, what this all boils down to is that, in practice, optimized planning strategy in Spain may not even be viable in Italy.

Below, we outline common questions associated with three of the four primary jurisdictions where we work: Portugal, France, and Italy.

Stay tuned for our FAQs about Spain!

Portugal

Are U.S. citizens living in Portugal required to pay taxes in both countries?

Portugal has a comprehensive Double Taxation Agreement with the United States. This agreement generally ensures that income earned by U.S. nationals residing in Portugal is not subject to double taxation. Under certain circumstances, taxes paid in Portugal can be credited against U.S. taxes, reducing the overall tax burden for U.S. citizens availing themselves of the NHR program.

What is the Non-Habitual Residency (NHR) regime?

The NHR program was initiated in 2009 by the Portuguese government to attract skilled professionals, entrepreneurs, and retirees from around the world. It offers an attractive tax regime for a duration of 10 years, providing a significant advantage for those who move to Portugal, in comparison to its normal tax regime.

How can you apply for the NHR regime?

U.S. citizens seeking to benefit from Portugal’s NHR program must meet specific criteria.

Should not have been a tax resident in Portugal for the previous five years.
Must register as tax residents in Portugal and submit necessary documentation, including proof of accommodation and valid residency visa.

To maintain tax resident status, an individual must spend over 183 days in Portugal within a 12-month period or have a residential accommodation as a habitual abode.

What happens when the NHR Status expires?

Upon the completion of the ten-year period, individuals revert to standard Portuguese tax rules. This system includes progressive income tax rates that vary depending on the level of income earned. It is advisable for individuals approaching the end of their NHR period to reassess their financial strategies. This includes reviewing income sources, potential tax liabilities, and optimizing their financial planning considering the shift back to regular tax rules.

The Portuguese government decided to end the NHR regime, but can we still apply?

NHR regime will be revoked with effect from January 1, 2024, onwards. However, individuals becoming tax residents of Portugal until December 31, 2023, can apply for the NHR regime until March 31, 2024.

A grandfathering regime will be applicable, so those who are interested in moving to Portugal under the NHR regime must take immediate action. Individuals who become tax resident of Portugal until December 31, 2024 can apply for the NHR regime until March 31, 2025, provided they meet the grandfathering regime requirements.

What are the NHR grandfathering regime requirements?

To the taxpayer who becomes a resident for tax purposes by December 31, 2024 and who declares, for the purposes of registering as a non-habitual resident, to have one of the following elements:

Promise or employment contract, promise or secondment agreement signed by December 31, 2023, whose duties must take place within national territory;
Lease contract or other contract granting the use or possession of property in Portuguese territory concluded until October 10, 2023;
Enrollment or registration for dependents, at an educational establishment domiciled in Portuguese territory, completed by October 10, 2023;
Residence visa or residence permit valid until December 31, 2023;
Procedure, initiated by December 31, 2023, of granting a residence visa or residence permit.

Is my Social Security benefit taxed in Portugal?

Typically, yes, according to the Double Taxation Agreement between Portugal and the U.S., Portugal has the first right to tax your Social Security payments. Social Security is not considered a government pension in the context of the Double Taxation Agreement. During the NHR period, Social Security would be classified as a pension is taxed at a flat 10% tax rate in Portugal. If your U.S. liability exceeds this 10% rate, then you would owe the excess tax payment to the U.S.

How will my 401(k) or IRA distributions be taxed in Portugal?

According to the Double Taxation Agreement, Portugal has the primary right to tax 401k and IRA distributions, meaning you will pay income tax in Portugal on distributions from these plans. During the NHR period, these can be classified as pension distributions and taxed at a flat 10% rate in Portugal. If your US liability exceeds this rate, then you would owe the excess tax payment to the U.S.

Is my Roth IRA or Roth 401k still considered tax-free in Portugal?

No, Portugal does not recognize the tax-free nature of these accounts and distributions can be considered taxable.

Should I move my investment accounts to Portugal when I move?

We typically advise clients not to move their investment accounts over to Portugal when they move. There is no equivalent to an IRA or Roth IRA in Portugal, and these cannot be rolled over into a European account. Any distribution to a European account from these plans is a taxable event.

For taxable brokerage accounts, there are very few local investment options that are tax-efficient for Americans. Considering that Americans must always adhere to IRS rules around the taxation of investments, we cannot typically invest in European mutual funds or ETFs without significant U.S. tax consequences. As a result, it is easier and more tax-efficient to maintain U.S.-custodied investment accounts. The U.S. financial system is also cheaper, more transparent, and has more investment options.

Should I move my investment accounts to Portugal when I move?

No, there is no wealth tax in Portugal.

What is your practical advice for Americans looking to move to Portugal?

For U.S. citizens planning to move to Portugal, it is crucial to consult with financial advisors proficient in international taxation. Understanding the nuances of tax regulations and planning for long-term residency in Portugal are key factors for a smooth and successful integration into the Portuguese tax system.

Where We Work – Portugal FAQ – Resources

If you would like to discuss the cross-border implications of moving to Portugal, please schedule a meeting at your convenience with Ricardo Jesus.

France

When am I a tax resident in France?

Tax residency in France is based primarily on a few defining criteria, namely if:

your household or main abode is based in France
your primary professional activity is based in France
the center of your economic interests is based in France

The directors of companies whose registered office is located in France and which generate a turnover in excess of €250 million are presumed to be carrying on their primary professional activity in France (NB: the turnover of controlled companies is taken into account in calculating the above threshold)

If any one of these criteria is met, then you can be considered French tax resident.

In the event of a tax residence dispute between the US and France, the following tie-breaker rules included in the Double Taxation Agreement signed by both countries must be applied successively:

1. You will be considered tax resident in the country in which you have a permanent home

2. If you have a permanent home in both countries, the center of vital interests is considered

3. Where the center of vital interests cannot be determined, or if you do not have a permanent home in any country, you will be deemed to be resident for tax purposes in the country in which you have a habitual abode

4. If you habitually reside in both countries or if you do not habitually reside in either country, you will be considered a resident of the country of which you are a national.

5. If you are a national of both countries or if you are not a national of one of them, the competent authorities of the countries decide the matter by mutual agreement.

Will France tax me on my U.S. income?

If you are a tax resident in France, you will be liable to pay tax on your worldwide income, including any income generated in the U.S. However, the exact nature of the taxation will be determined by the Double Taxation Agreement between the U.S. and France and French tax law. Some types of income may be taxable in the U.S. rather than in France (for example: some dividends, interest and royalties, and capital gains on securities from U.S. sources may be granted a tax credit equal to the French income tax).

Will I pay taxes twice – to France and the U.S.?

Typically, no. There is a Double Taxation Agreement between the U.S. and France that intends to eliminate double taxation on the same income. However, there can be some circumstances where the same income can be taxed twice or you may not get a full tax credit. It is best to speak with a tax professional to determine how you will be taxed upon your move to France.

Is my Social Security benefit taxed in France?

No, according to the Double Taxation Agreement, your Social Security benefit will be taxed by the U.S. However, France will use the income from the Social Security benefit as a part of your overall taxable income for tax calculation purposes. You will receive a tax credit equal to the French income tax to offset any French liability on Social Security income, the French tax is then canceled due to the tax treaty.

Note: Further reference may be made to Article 18§1 of the double tax treaty on pensions. Pensions of U.S. source are indeed taxable in the U.S. France takes into account these pensions for tax calculation purposes and a tax credit equal to French is granted pursuant to Article 24§1-a)-i) of the tax treaty.

How will my 401k or IRA distributions be taxed in France?

According to the Double Taxation Agreement, the U.S. has the right to tax any distributions from retirement accounts or pension benefits that were accrued within the U.S. Likewise, France has the right to tax any benefits built up within the French retirement system (regardless of whether you live in the U.S. or France). Similar to the situation with Social Security income, you will receive a tax credit equal to the French income tax to offset any French liability on distributions from your retirement accounts or schemes.

Is my Roth IRA or Roth 401k still considered tax-free in France?

Yes, this is one of the benefits of the Double Taxation Agreement between the U.S. and France.

Should I move my investment accounts to France when I move?

We typically advise clients not to move their investment accounts over to France when they move. There is no equivalent to an IRA or Roth IRA in France, and these cannot be rolled over into a European account. Any distribution to a European account from these plans is a taxable event.

It should be noted that all bank accounts, capitalization contracts, or similar investments (life insurance contracts) and digital asset accounts opened, held, used, or closed out of France during the year must be reported as part of the French income tax return.

Is there a wealth tax in France?

Yes, although it applies only to property* (worldwide if you are a French tax resident) and only on the French real estate assets during the first five years of residency in France if you have not been a French tax resident during the preceding five years. If your net worth in property (the value of your property holdings less any outstanding mortgages) exceeds €1.3m, then you may be liable to French wealth tax.

Can I invest in an Assurance Vie as a U.S. Citizen?

No, you should not invest in an assurance vie structure as a U.S. citizen or green card holder. While these types of savings products are widespread and efficient in France, they are not tax-efficient for U.S. purposes. In fact, the IRS treats these in a manner that makes them extremely inefficient as a savings product for Americans.

Where We Work – France FAQ – Resources

If you would like to discuss the cross-border implications of moving to France, please schedule a meeting at your convenience with Alex Ingrim.

Italy

When am I tax resident in Italy?

Tax residency in Italy is based primarily on whether you are registered in the anagrafe at your local commune. It is not solely based on your physical presence in Italy, meaning that if you are registered in the anagrafe for 183 days of a calendar year, then you are considered tax resident in Italy, whether you are physically in Italy or not. Additionally, if your habitual abode, or domicile (economic or social interests, like family) are based in Italy, then one can be considered tax resident in Italy.

Will Italy tax me on my U.S. income?

Yes, if you are tax resident in Italy, you will be taxed on your worldwide income, including any income generated in the U.S. The exact nature of the taxation will be determined by Italy’s tax laws, the Double Taxation Agreement, and whether you are enrolled in any Italian tax regimes.

Will I pay taxes twice – to Italy and the U.S.?

Typically, no. There is a Double Taxation Agreement between the U.S. and Italy that intends to eliminate double taxation on the same income. However, there can be some circumstances where the same income can be taxed in both countries but with the right to deduct the taxes paid in the U.S. from the Italian taxes. It is best to speak with a tax professional to determine how you will be taxed upon your move to Italy.

Are there ways to mitigate my Italian taxes?

Yes. Depending on your eligibility, you may qualify for the €100k flat tax regime, the Impatriati regime, or the 7% Foreign Pensioner flat tax regime. These are tax regimes that are open to new residents of Italy and the eligibility is determined by your situation and in which commune you are registered.

Is my Social Security benefit taxed in Italy?

Typically, yes, according to the Double Taxation Agreement between Italy and the U.S., Italy has the first right to tax your Social Security payments. Social Security is not considered a government pension in the context of the Double Taxation Agreement.

On the contrary, the pension related to a public function is not taxable in Italy, if you are not an Italian citizen.

How will my 401k or IRA distributions be taxed in Italy?

According to the Double Taxation Agreement, Italy has the primary right to tax 401k and IRA distributions, meaning you will pay income tax in Italy on distributions from these plans. The type of taxation depends on the type of distribution.

Is my Roth IRA or Roth 401k still considered tax-free in Italy?

No, Italy does not recognize the tax-free nature of these accounts and distributions can be considered taxable.

Should I move my investment accounts to Italy when I move?

We typically advise clients not to move their investment accounts over to Italy when they move. There is no equivalent to an IRA or Roth IRA in Italy, and these cannot be rolled over into a European account. Any distribution to a European account from these plans is a taxable event.

Is there a wealth tax in Italy?

Yes, although this is a bit of a misnomer. There are small taxes on foreign investment accounts, not for Pension Funds such as 401(k)s and IRAs, and foreign property.

The foreign property tax can be offset with U.S. property taxes. These are designed to be equivalent to the taxes you would pay on local Italian investment accounts and Italian property.

Pension Funds must be included in the RW Form to report foreign assets but no wealth tax is owed.

Investment accounts are taxed at 0.2% of their value, while foreign properties are taxed at 1.06% of their purchase price. Bank accounts are taxed with a fixed tax of 34€ each account if the average balance during the year is more than 5.000€.

Does Italy really need to know about my accounts and income from abroad?

Yes, you are required to file a form each year, if you are a tax resident in Italy, called the Quadro RW declaring your assets held abroad. Italy has a reputation for strong financial enforcement, and audits are not abnormal. There is a special financial police force, the Guardia di Finanza, that exists in Italy.

Where We Work – Italy FAQ – Resources

If you would like to discuss the cross-border implications of moving to Italy, please schedule a meeting at your convenience with Alex Ingrim, who is currently based in Florence.