Guide to the Portugal-Canada Tax Treaty

This guide delves deep into the intricacies of the tax treaty between Portugal and Canada, specifically illuminating how Portuguese residents are taxed on income derived from Canada. Its purpose is to equip you with the knowledge to navigate the complexities of double taxation and optimize your tax burden.

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Dividends:

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• Portugal has the authority to tax Portuguese residents receiving dividends from Canadian companies.

• However, Canada also claims the right to levy a tax on these dividends, capped at 15% unless paid to corporations.

• Essentially, Portuguese residents will face a 15% withholding tax on their Canadian dividends, applicable even under NHR status. While Portuguese taxation under NHR may be exempt, the Canadian tax still applies.

• As this is a withholding tax, filing a tax return is unnecessary if Canadian dividends are your sole source of income as a non-resident.

Interest:

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• Similar to dividends, Portugal reserves the right to tax residents who receive interest income from Canadian companies.

• Canada holds the power to impose a tax on this interest, with a maximum limit of 10%.

• Therefore, even under NHR, you'll be subject to a 10% withholding tax on Canadian-source interest, despite its tax-exempt status in Portugal.

• Analogous to dividends, if this is your only Canadian income stream as a non-resident, filing a tax return is non-essential.

• Certain interest sources, like those originating from governments or political subdivisions of either Contracting State, are exempt from taxation.

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Capital Gains:

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• When Portuguese residents dispose of real estate situated in Canada, the resulting capital gain falls under Canada's taxation jurisdiction.

• To avoid Canadian capital gains tax, consider selling your primary residence in Canada before relocating to Portugal.

• The sale of shares in Canadian companies with their value primarily derived from Canadian real estate can be taxed in both nations. Therefore, between the treaty and potential departure tax, disposing of these holdings before leaving Canada is often the most tax-efficient option.

Pensions and Annuities:

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• Portuguese residents become liable for Portuguese taxes on their Canadian pensions once they establish residency in Portugal.

• Canada retains the right to tax periodic pension payments made to Portuguese residents, but this tax is capped at the lower of 15% of the gross annual amount of these payments exceeding CA$12,000 (or its equivalent in Portuguese currency); or the rate determined based on the recipient's overall tax liability for the year, assuming they were a Canadian resident.

• Under NHR, while you'll incur a 15% withholding tax on your Canadian pension, this amount acts as a credit towards your 10% Portuguese tax obligation, effectively nullifying the Portuguese tax burden on that specific income stream.

• Remember that government pensions and old-age benefits also fall under the 15% withholding tax bracket.

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Eliminating Double Taxation:

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• Portugal offers tax credits based on the amount of tax paid in Canada on income subject to Canadian taxation. This ensures you're not taxed twice on the same income.

• Even if income is exempt from Portuguese taxation, it still factors into calculations for your overall tax liability.

Key Points to Remember:

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• This guide offers a comprehensive overview of the Portugal-Canada tax treaty's impact on your Canadian-derived income as a Portuguese resident.

• Specific situations and individual circumstances may require further analysis beyond the scope of this general guide. For detailed advice, consulting a tax professional is highly recommended

• Stay informed about potential changes in tax regulations to ensure optimal tax efficiency in managing your cross-border income.

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