Portugal has become a notable destination for high-net-worth individuals (HNWIs) from the U.S., offering an attractive tax environment alongside opportunities for efficient wealth management. As a member of the European Union, Portugal applies global income taxation to its residents, as well as specific inheritance rules and obligations to disclose foreign bank accounts. For U.S. citizens, this dual-taxation scenario requires careful coordination to ensure compliance with both Portuguese and U.S. tax laws. The double tax treaty between the two nations provides mechanisms to mitigate double taxation, but proactive planning is essential to improve tax outcomes.
This article examines the primary tax considerations for HNWIs making the transition to Portugal, including strategies for managing dual taxation, enhancing asset structures, and navigating cross-border estate planning. By addressing these matters with careful planning and professional advice, individuals can make informed decisions that support their financial objectives and compliance needs.
U.S. Income Tax Considerations
For U.S. citizens, understanding Portugal’s tax system is particularly important, as residents are subject to taxation on their worldwide income and gains. Coincidentally, U.S. citizens and tax residents are also taxed on worldwide income and must maintain their compliance with U.S. tax obligations, which creates a dual-taxation scenario. While the bilateral tax treaty between Portugal and the U.S. offers relief, meticulous planning is essential to align Portuguese tax liabilities with U.S. foreign tax credits and reporting requirements.
Whether you are looking to move to Portugal temporarily or permanently, from a U.S. perspective, citizens need to consider the U.S. state they are currently a resident of and whether they plan to maintain a home there or break residency. Some states are not limited to physical presence when it comes to assessing if there is a resident tax filing obligation. Domicile states, such as California, Hawaii, Massachusetts, New York, and New Jersey, determine residency based on your intentions and domicile in that state. Meaning, if you wish to move abroad to Portugal but still plan to keep ties with the state, such as your home, driver’s license, voter registration, etc., these factors often lead to that state’s residency status. Not only are these some of the highest tax states in the U.S., but they will also continue to tax those who do not break domicile on their worldwide income, and some of these states do not provide foreign tax credit alleviation or a foreign earned income exclusion. Planning may be possible to mitigate these state taxes.
U.S. Expatriation Tax Considerations
In addition, if one plans to relinquish their U.S. status, i.e., U.S. citizens and/or long-term permanent residents to remove their future U.S. tax filing obligations, they should consider the expatriation tax provision. Individuals subject to the exit tax generally are assessed tax as if they had sold all of their assets the day before they left the country, also known as a “deemed distribution.” Careful planning and modeling should be undertaken to ensure the value of their assets are known, as well as the potential U.S. tax obligation.
Investment Funds: An Alternative Residency Pathway
Portugal provides a variety of investment opportunities tailored to HNWIs, notably regulated investment funds. With a minimum investment of €500,000, these funds allow individuals to obtain residency while participating in sectors such as technology and infrastructure, without the need to stay in Portugal for long periods of time to keep their residency permits valid.
These professionally managed funds are designed to balance growth with risk and may appeal to those seeking a more streamlined alternative, now that property investment is no longer a possibility. Selecting funds with proven performance and reputable management is vital to meeting financial goals and residency requirements.
When considering investments, it is highly important that U.S. citizens report any passive foreign investment companies on Form 8621. These include funds such as mutual funds, exchange-traded funds, and qualified electing funds. Proper reporting of these investments is extremely important as they are often taxed drastically different than your usual domestic investments. There are certain tax preferential elections that can generally only be made on your income tax return in the first tax year you own the fund, so advance planning is advisable.
At any given time during a tax year, if U.S. investors find themselves with foreign investments accounts such as brokerage accounts, bank accounts, pension funds, and even signature authority on a company account, they should seek advice on determining whether they have additional foreign reporting requirements such as a Report of Foreign Bank and Financial Accounts (FBAR) and Form 8938, Statement of Specified Foreign Financial Assets. These forms have strict filing thresholds based on the total value of all your non-U.S. accounts and financial assets combined. They also impose harsh penalties for noncompliance. Many countries, such as Portugal, are completely integrated in the Foreign Account Tax Compliance Act, ensuring their financial institutions share data about their U.S. clients with U.S. authorities.
The D7 Visa: A Residency Solution for Passive Income Holders
One of the more attractive options currently when considering residency in Portugal for individuals with passive income sources—such as pensions, rental income, or dividends—is the D7 visa. This option is particularly suited to retirees and those seeking a simplified lifestyle in Portugal, as it does not require significant financial investments. Instead, applicants must demonstrate sufficient income to sustain their residency. As previously explained, once tax residency is established in Portugal, worldwide income reporting and filing obligations should be considered in both jurisdictions.
Wealth Management & Succession Planning
Portugal is one of Europe’s countries that does not impose a general wealth tax; however, specific regulations, such as a surcharge on high-value properties, should be considered. Estate planning also warrants attention, as Portugal’s forced heirship laws may differ from those in the United States.
Under Portuguese law, a fixed portion of an estate is reserved for immediate family members, which may limit the flexibility of wills or trusts established under U.S. law. Nevertheless, U.S. citizens residing in Portugal can elect to apply U.S. inheritance law to their estate through a will, provided it meets specific legal requirements.
Though there is no U.S. inheritance tax imposed on beneficiaries at a federal level, there are gift, estate, and trust taxes to regard. At a U.S. federal level, the updated 2025 estate and gift tax exemption is $13.99 million per individual (adjusted annually for inflation). This high exemption is sunsetting at the beginning of 2026 and absent further legislation, would be cut back to less than half of what it is today. Those with taxable estates that exceed the exemption amounts should highly consider using the provision for tax planning before losing out. To further the state considerations, understanding each state’s rules and connecting to your advisor are recommended as states such as New Jersey and Pennsylvania impose inheritance taxes, and states such as Washington, New York, Connecticut, and Massachusetts impose estate tax, while Maryland imposes both.
In addition, individuals who may be thinking about setting up a trust outside the U.S., for strategic planning purposes, will need to contemplate the type of trust and the rules of the trust to be put in place. Foreign trusts, as well as gifts received from non-U.S. individuals/trusts over a certain threshold, are required to be reported on Form 3520, and for U.S. owners of a foreign trust, there is an additional Form 3520A. Depending on the rules of the trust and type of income, there could be a U.S. tax assessment on the income and even undistributed net income.
Planning for a Smooth Transition
Relocation is a significant undertaking, particularly for HNWIs with complex financial arrangements. By addressing taxation, residency options, and estate planning in advance, U.S. citizens can make the most of the opportunities Portugal offers while ensuring compliance with both Portuguese and U.S. obligations.
Professional guidance is invaluable in navigating these complexities, allowing you to focus on the many benefits of life in Portugal.
How Forvis Mazars Can Help
Relocating to Portugal involves understanding complex and interlinked tax systems. Our firm offers:
- Integrated Tax Advice: Tailored strategies to help improve your position under Portuguese and U.S. tax systems.
- NHR Applications: Guidance on eligibility, applications, and asset structuring to increase benefits.
- Estate Planning: Cross-border services that respect both U.S. and Portuguese legal frameworks.
With our experience in assisting HNWIs and strong collaboration between our Portuguese and U.S. offices, we can provide support for your relocation. Contact a professional at Forvis Mazars today to learn how we can help you plan for your move to Portugal.