The Foreign Account Tax Compliance Act (FATCA) is a US law that was enacted in 2010 to reduce tax evasion by US taxpayers holding assets and accounts abroad. This law requires foreign financial institutions (FFIs) to report information about their US clients to the US Internal Revenue Service (IRS).
Portugal is one of the countries (among major nations such as China, the United Kingdom, and Canada) that has entered into an Intergovernmental Agreement (IGA) with the US to implement the Foreign Account Tax Compliance Act. The Portuguese tax authority (Autoridade Tributária e Aduaneira) collaborates with the Internal Revenue Service under FATCA to report information on financial accounts held by US persons.
In this article, we'll explore what FATCA means for real estate in Portugal and the FATCA rules for banks in Portugal.
What are the FATCA rules for banks in Portugal?
Under the Foreign Account Tax Compliance Act (FACTA) rules, Portuguese banks and other financial institutions in Portugal are required to identify and report information about their US clients to the US government. This means reporting financial institutions must provide information about financial accounts (such as bank balances), interest and dividend payments, and other financial transactions.
FATCA Portugal bank account reporting
Foreign financial institutions in Portugal are required to comply with FATCA rules by identifying and reporting US account holders to the IRS. They must also withhold a percentage of payments made to account holders who don't comply with FATCA's regulations.
To comply with FATCA, FFIs in Portugal must enter into an agreement with the IRS and register with the IRS as a participating FFI. Failure to comply with FATCA reporting requirements can result in significant penalties for the foreign financial institution.
The IRS offshore disclosure program offers a way for individuals to come forward and disclose any income generated overseas.
If you're a US citizen or resident of Portugal, you must inform your Portuguese bank that you're a US taxpayer. Your bank may then ask you to provide additional information and documentation, such as your US tax identification number (TIN) or social security number (SSN).
A FATCA bank account is a foreign bank account that's subject to FATCA rules. If you're a US taxpayer with a foreign bank account in Portugal, your account may be subject to FATCA rules. This means that your bank may be required to report your account information to the IRS.
Foreign Account Tax Compliance Act (FATCA) for US Expats in Portugal
The Portuguese Republic is committed to complying with FATCA rules and ensuring that its institutions are in compliance. If you're among the US taxpayers living in Portugal with a Portuguese bank account or NIF, you may have additional reporting obligations under FATCA. You should consult a tax professional to understand your obligations and ensure compliance with FATCA regulations.
Understanding FATCA rules is crucial for American citizens and legal permanent residents living in Portugal. As there are strict penalties for non-compliance, failure to comply with these rules can result in serious legal issues and hefty fines.
It's important to stay up-to-date with legal developments in international tax law and to obtain express written consent from any financial institutions sharing your information with the IRS. By complying with FATCA rules, Americans working in Portugal as expats or as digital nomads can enjoy peace of mind knowing that they're meeting their legal obligations.
FATCA and Real Estate in Portugal
If you're a US citizen or resident who owns real estate in Portugal, you may be subject to FATCA reporting requirements, so your Portuguese bank or financial institution may be required to report information about your real estate holdings to the US government. You may also be required to register this information on your US tax return.
Foreign individuals and entities investing in Portuguese real estate are subject to FATCA rules. If you're a US taxpayer with a foreign bank account in Portugal that holds funds related to real estate transactions, you may be required to report your foreign accounts to the IRS (i.e., if you have a house for sale in Portugal). This is because the IRS considers real estate transactions a form of investment.
Portuguese NIF and Portuguese Bank Accounts
Portuguese banks are considered foreign financial institutions (FFIs) under FATCA, so they must comply with the FATCA regulations. This means if you have a Portuguese bank account, the bank may be required to report certain information about your account to the IRS if you're a US taxpayer.
When you open a Portuguese bank account, the bank will ask you to provide your tax identification number (TIN), known in Portuguese as your "Número de Identificação Fiscal" (NIF) or "Número do Contribuinte." Your NIF could be compared to the Social Security Number (SSN).
You need a NIF in Portugal to open a bank account or conduct any other financial activity in Portugal, like signing an employment contract, renting a house, paying taxes, doing your tax return, and buying real estate.
We recommend getting a NIF as soon as possible before or after relocating to Portugal. We can help you get your NIF remotely. All you have to do is fill out this online form; in two to three weeks, we'll send your NIF straight to your inbox.
When you're signing up for a bank account and providing your NIF, the bank will use this information to determine whether you're a US taxpayer, and if so, they will report your account information to the IRS as required by FATCA.
We can also help you open a Portuguese bank account from anywhere in the world with one of Portugal's leading banks.
Frequently Asked Questions about the Foreign Account Tax Compliance Act (FACTA) Portugal
What does FATCA mean for banks?
The Foreign Account Tax Compliance Act places significant compliance burdens on foreign financial institutions. Any foreign financial institution must identify and report information about their US clients, and these institutions must implement due diligence procedures to identify accounts held by US taxpayers.
Failure to comply with FATCA requirements can result in the imposition of a 30 percent withholding tax on certain US-source payments.
What foreign financial accounts are reportable under FATCA?
Under FATCA, FFIs in Portugal must report all accounts held by US taxpayers, including deposit accounts, current accounts, custodial accounts, and certain types of investment accounts. The law also requires reporting certain income earned on these accounts, such as interest, dividends, and capital gains. Other information may also be requested.
Not all foreign accounts are reportable under FATCA. For example, retirement accounts and some insurance contracts may be exempt from FATCA reporting requirements.
Is FATCA only for US citizens?
No, FATCA applies to US citizens and residents as well as non-US citizens who hold assets or accounts in the US. It also applies to US citizens and residents who hold assets or accounts abroad.
If you think FATCA might apply to you, consult an international tax expert who can help you keep up to date with the most current legal developments.
Who is required to file FATCA?
US taxpayers residing in Portugal must navigate FATCA's regulations if their foreign financial assets reach specific thresholds. As a non-resident, even brief absences from the U.S. trigger FATCA reporting when your combined asset value exceeds $10,000 at any point. This includes bank accounts, investments, life insurance, and certain retirement accounts.
How can I avoid FATCA for my foreign accounts?
If you're a US taxpayer with a foreign bank account in Portugal, you cannot avoid FATCA reporting requirements. These requirements are under the protection of US tax treaties. However, you can ensure you comply with FATCA regulations by properly reporting your foreign accounts to the IRS.
Additionally, you can work with a tax professional who can help you understand your FATCA reporting obligations under the tax treaties and help you navigate the process. We would recommend that you obtain advice from a tax professional with FATCA experience.
How are retired expats taxed in Portugal?
Taxation for retired expats in Portugal in 2024 is undergoing significant changes. The popular Non-Habitual Resident (NHR) program, offering tax exemptions on foreign pensions and a flat 20 percent rate on other income, is set to end. The State Budget Law for 2024 determined the end of the NHR regime from 1st January 2024. However, certain individuals can still apply up until 31st March 2025, and the scheme is being replaced by the Tax Incentive for Scientific Research and Innovation, which has now been implemented. Learn more in our Guide to NHR.
Does Portugal have a tax treaty with the US?
Yes, Portugal and the US have had a bilateral income tax treaty in place since 1994. This agreement aims to avoid double taxation for individuals and businesses earning income in both countries. While specifics vary depending on your situation, the treaty can offer benefits like reduced tax rates or exemptions on certain types of income.
Does Portugal tax US Social Security?
Portugal taxes residents' US Social Security on a sliding scale based on combined income (including other income sources). This means the taxable portion of your benefits ranges from 0 percent for lower earners to 85 percent for high earners. It's advisable to consult with tax consultants and legal advisors for advice on your specific bracket and potential rebate program details.
What is the 10-year tax rule in Portugal?
The "10-year tax rule" in Portugal refers to the now-discontinued Non-Habitual Resident (NHR) program. This program ended in 2o24, with a grace period until 31st March 2025 for a small proportion of individuals who are still able to qualify for its benefits as new applicants. Individuals who already have NHR status will continue to benefit from reduced tax rates for the 10-year period starting from when they became a tax resident. NHR is being replaced by the Tax Incentive for Scientific Research and Innovation, which has now been implemented.
What role do the Portuguese tax authorities play in reporting overseas transactions?
Under Law 14/2017, the Portuguese tax authorities are mandated to annually disclose on their website the total value of transfers and remittances, along with the purpose of the transfer, when directed to countries, territories, and regions enjoying a more favorable preferential tax regime. As such, it's important for US citizens to ensure that any transfers and remittances they make to these countries, territories, and regions are compliant with both Portuguese and US tax laws.
