A Portuguese Tax Authority binding ruling — Process 27218, dated 22 January 2025 — addressed capital gains from the sale of US Qualified Small Business Stock (QSBS) by a US citizen resident in Portugal under the old NHR regime.
The Tax Authority concluded that, because Article 14(6) of the Portugal–US Tax Treaty generally allocates taxation of these securities gains to the State of residence, Portugal, the NHR exemption under Article 81(5) of the Portuguese Personal Income Tax Code should not apply.
However, this position is controversial.
The Portugal–US treaty also contains a “saving clause”, allowing the United States to tax its citizens on a worldwide basis as if the treaty had not entered into force. Portuguese arbitration case law has repeatedly interpreted this clause differently from the Tax Authority.
In particular, CAAD decisions have held that US citizens may satisfy the NHR requirement that foreign income “may be taxed” in the other contracting State because the saving clause preserves the United States’ taxing rights. This interpretation has supported the Portuguese NHR exemption for US-source investment income and securities capital gains.
This creates a significant practical issue: the Tax Authority’s published binding ruling and relevant arbitration case law do not point clearly in the same direction.
For US citizens with NHR status, the Portuguese tax treatment of capital gains should therefore never be assumed solely from the fact that the asset is located in the United States, that US tax applies, or that a US exemption such as IRC Section 1202 is available.
The analysis must be made case by case, considering:
- Portuguese tax residency and NHR status;
- US citizenship;
- the precise type and source of the capital gain;
- Article 14 of the Portugal–US Tax Treaty;
- the treaty’s saving clause;
- Article 81 of the Portuguese IRS Code;
- and the latest administrative and arbitration practice.
Where the amounts involved are significant, obtaining a Portuguese binding ruling (Informação Vinculativa) before completing the transaction can substantially reduce tax uncertainty. Portuguese law expressly allows taxpayers to request binding guidance from the Tax Authority regarding the tax treatment of their specific circumstances.
At GoalSeek, we recommend reviewing these structures before the sale takes place rather than addressing the Portuguese tax consequences after completion.
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