The UK Government is making a move to increase corporate tax by introducing a sliding scale of taxation. Starting from 6th April 2023, the first £50,000 of profits earned will be taxed at 19%, the next £200,000 at 26.5%, and the total tax charged on the first £250,000 profits made will be at a rate of 25%.
This is a significant corporate tax increase that all businesses should be aware of. In this blog post, we will be discussing the UK Government’s sliding scale of corporate tax increases.
Rise in UK corporation tax to 25%
The negative outcome of this is that small business owners can’t compete on an equal footing with larger firms.
So, lets discuss the advantages of opting for a more favourable tax rate in Portugal of 5%; allowing entrepreneurs and businesses to continue to develop their profits – without having to pay a substantial amount in corporation tax.
The 5% corporate tax rate in Portugal can be a great way to keep your business profitable; while ensuring that you don’t have to pay too much in taxes. We will also look at the UK-Portugal Double Taxation Treaty. This allows people to benefit from reduced taxes when trading between the two countries.
Even if you earn less than £250,000 per year and cannot benefit from the 5% tax rate, there are still many other benefits. Portugal offers a cheaper and more relaxed lifestyle, everyone can enjoy. We have plenty of other business owners, who often choose to relocate to Portugal due to these advantages.
How paying 5% corporation tax is possible in Portugal
Businesses that generate a minimum profit of £250,000 annually, have the chance to make use of Portugal’s 5% corporate tax rate – it is as simple as that.
The UK and Portugal have a long-standing Double Taxation Treaty that dates back to 1970. This treaty seeks to protect against double taxation between the two countries, as well as provide certainty of treatment for cross-border trade and investment.
The treaty is designed to prevent excessive taxation and other forms of discrimination against UK business interests abroad.
Companies, entrepreneurs, retirees and individuals can all benefit from double taxation agreements.
Under the UK-Portugal Double Taxation Treaty, both countries agree to tax certain income on either a territorial or international basis. On a territorial basis, income arising in one country is taxed in that country. Whereas income arising in two countries may be taxed in either country depending on the agreement.
The treaty also provides exemptions from taxation for certain types of income. Such as pension payments and government grants, as well as eliminating the risk of double taxation by allowing the country of residence to grant a credit for taxes paid in the other country.
By taking advantage of the UK-Portugal Double Taxation Treaty, businesses and individuals can benefit from reduced tax liabilities; and more certainty when it comes to international business transactions. With the right advice and planning, businesses can also benefit from tax-efficient processes, such as the 5% corporate tax rate available in Portugal as long as their business profits exceed 250,000 euros per year.
Those who don’t earn over £250,000 per year and therefore cannot enjoy the 5% rate are not without options, as Portugal boasts other advantages; for example, by having a UK company paying the corporation tax whilst moving to Portugal as an individual and registering for the NHR regime (more on this later).
Also, by having a company outside of the UK – for example in the UAE at 0%, Malta at 5% or Cyprus at 12.5% – you could still benefit from corporate tax rates under 15%.
RHJ Accountants are able to open companies and aid you in moving to one of the countries listed.
How the NHR regime can reduce your taxes further
The Non-Habitual Residency scheme – often referred to as the NHR – is a tax regime which offers expats and investors reduced tax rates and exemptions, throughout Portugal. Approximately 10,000 non-habitual residents are already enjoying the benefits.
Some key benefits of the NHR scheme include:
- Tax exemption on almost all foreign sources of income
- Residency in the EU
- Exemption on tax from gifts or inheritance to family members
- No wealth-tax
- Plus so much more
Non-Habitual Residents in Portugal will be exempt from taxation for a ten-year period for income coming from a foreign source, including UK rental income, capital gains from real estate, interest, and dividends.
This also applies when the income is not being taxed in the home country. To use a UK-specific example, dividends that are taxable in the UK under the double tax treaty can be made tax-exempt in Portugal, with the additional advantage of non-residents being absolved of UK tax liability due to disregarded income rules.
This can create a situation in which no tax is paid on UK dividend income in either Portugal or the UK.
For you to take advantage of the NHR regime; you must be a tax resident in Portugal – and have a relevant Portuguese visa (i.e. be a citizen of Portugal). Although it can seem like a difficult process – it really isn’t. Again, this is something we can guide you through – from finding the right visa, ensuring you’re a legal tax resident of Portugal and then aiding you to qualify for the NHR itself.
Additional benefits
Inheritance tax exemption in Portugal
The Portuguese government abolished the traditional inheritance tax years ago, replacing it with a flat 10% stamp duty, or Imposto do Selo. This only applies to property owned in Portugal; heirs of the deceased who are considered legitimate by Portuguese law, such as spouses, children, grandchildren, parents, and grandparents, are not required to pay the inheritance tax.
However, non-Portuguese heirs may have to cover the costs of administrative fees related to the translation and stamping of necessary documents.
Occasionally, pre-existing debts can detract from the total worth of an estate. Fortunately, Portugal has established laws that safeguard inheritors from the financial obligations of their predecessors. Additionally, the nation grants exemptions on taxes related to any form of inheritance – dividends, social security allowances, personal possessions, and even credit derived from life insurance are all exempt.
How RHJ can help you move to Portugal
Here at RHJ Group, we have access to expert solicitors, accountants, business support professionals, financial advisers, real estate agents and so much more.
Our services were designed to bring you to your destination; whether you’re looking to move abroad with your family, expand or start your business, or retire elsewhere.
RHJ Group are your one-stop expat experts as we offer services and advice for moving to Portugal including:
- Setting up your own bank Accounts
- Applying for your visa
- Translating all your relevant documents
- Organising insurance & so much more!!
- Also new to 2023 we can now help you find your perfect home in Portugal through RHJ Estates
- Portugal has many different visa types; whether you’re looking to move as a Digital Nomad or invest in the country to enjoy many benefits over the years – we have all the options you need, along with the right help for applying
Which other countries have great tax benefits for expats
Don’t fancy Portugal then why not look elsewhere?
The United Arab Emirates is a haven for businesses looking to save on taxes due to it’s tax-free zones. This tax-free zone comes with beneficial tax rates and exemptions.
If you wish to relocate to the UAE, or want to explore how this can be made possible, our team at RHJ Law can help. We can explore the possibilities and the visa options available to you. With our expertise and experience, we can help ensure that your relocation is hassle-free and that you are taking advantage of the best opportunities for your corporation tax savings.
Not feeling the UAE? We have more…
Malta’s taxation system is highly esteemed, providing a multitude of tax benefits for both companies and individuals. Its typical corporation tax rate is 5%, but due to various initiatives, organisations can enjoy greatly reduced rates.
For instance, for those companies with owners not registered as tax residents in Malta, it is possible to receive a 30% tax refund, effectively reducing the corporation tax rate to just 5%. This renders Malta’s corporate tax rate the lowest in the European Union, which can be an influential factor when deciding to set up a business or relocate assets.
Moreover, the Maltese government gives generous tax deductions for research and development costs and numerous grants and incentives, making the country even more attractive to businesses.
Furthermore, a Maltese holding company can avail of 0% dividend tax, meaning that all earnings from a subsidiary can be sent to shareholders as dividends without having to pay any tax. This lets them take full advantage of the benefits of Malta’s tax system and gain maximum benefit from its taxation opportunities. Therefore, it is a perfect option for both individuals and organisations looking to exploit the diverse tax advantages.
We can also help you set up in Cyprus!
Companies that are considered as tax residents of Cyprus are subject to taxation on income received or earned from any and all sources, be it domestic or abroad. Non-residents are obligated to pay tax on the revenue they gain through a Permanent Establishment (PE) in Cyprus, and any other sources of income that arise within Cyprus. The general rate of Corporation Tax in Cyprus is 12.5%.
SO MANY OPTIONS TO CHOOSE FROM!
FAQ’s
Do I have to move to Portugal to qualify for the 5% corporate tax rate?
To get the 5% corporate tax, you as a person, do not have to move to Portugal. But you would need to register your business there – as it would be a brand new incorporation of a business in Portugal.
I’m not sure how to calculate if my company will reach the £250k threshold. Would you be able to provide advice, to help me review my companies finances?
Yes of course! What we’d recommend is organising a call with our team to go through your company records and books. This is to make sure no.1 do you qualify & no.2 how is your business doing. Book a FREE consultation now!
How does NHR apply on uk based salary income? Is there a tax benefit?
There are a couple of options for you. Option 1; as long as you can continue having your salary taxed in the UK, then it will be exempt from further tax charges in Portugal with the NHR. Option 2; if you are not taxed in the country of source, if you qualify for a High Value Activity you will be eligible for reduced tax payments – but it is best to talk with our team about this so we can help you understand in more detail.
What investment is required to gain the 5% corporate tax rate?
It really depends but you would need some sort of tangible or intangible asset. We would advise discussing this over a meeting with our team. We can then go through what your business does as a trade and how you can qualify for the 5% tax rate. Let’s talk – book a meeting with the team today!
What happens if I apply for 5% tax this year, but the rules change next year and tax increases?
Once you have applied for the 5% corporate tax that does last up until 2027. So once you have got it you have got the 5% corporate tax rate guaranteed.
How long would it take for you to make an application on my business’ behalf?
On average to open a 5% tax company in Portugal can be anything from 8 – 14 weeks. The reason behind this is that there is a lot of information and paper work to go through. Also Portugal operates at a slower pace than other countries; be prepared for this!
Let’s talk more…
Want to find out more about your specific situation? Then why not book a FREE 20 minute call with our expert team today!
