Last March Update: Punitive French Tax Rules, US Tax Credits, Destination Portugal

Article 155(A) of the French Tax Code was recently put to the test and the results showed that remuneration for services to a foreign company will be taxed in France, especially if the services were carried out in France. In the most recent case, the Court applied the rule to a service provider (taxpayer) who was also a manager in the Company. It found that the services formed part of the manager’s duties and so remuneration would be taxed in line with the salary. Complications are likely to arise if work lots are not set out as line items on invoices for activities carried out by a foreign company’s managers. This article would apply in cases where talent is hired where the legal entity is a resident of a low tax jurisdiction with remuneration and salary going to the tax haven and the performer being classed as low salary. The French Tax Authorities call these ‘rent-a-star’ systems.

US Companies are up in arms about new US Foreign Tax Credit rules that stop companies claiming credits from the American system for foreign taxes paid. The foreign tax credit is not relief or a grant but designed to prevent double taxation to prevent US companies paying tax in the US after already paying tax in foreign regions where they operate. The new rules came into force in December. Large companies are expected to assess the impact on profit and publish this information, so the effects are more widely known. The changes most deeply affect those chains in Latin America and especially in Brazil due to the tax treatment in that region. Additional feedback so far is that the rule change is exceedingly complex and do not seem to have a grip on reality, in that they will hinder US companies’ ability to compete with multinationals. The new rules were brought in to deal with schemes such as ‘novel extraterritorial taxes,’ for example European digital services that may otherwise have been able to claim credits in the US.

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Portugal has long been an attractive destination for travellers and businesses alike however has reported a drop in foreign direct investment recently due to Brexit and the COVID pandemic with the economy contracting by 7.6% in 2020 the largest drop since 1928. Portugal remains an attractive destination in terms of weather, topography and location and has ramped up efforts to attract both talent and investment predominantly using new and attractive visa schemes. The Golden Visa is also known as residence permit for investment activity. Originally launched in 2012 for non-EU citizens it requires €280,000 investment which allows full residency, only 7 days presence and allowance to apply for citizenship in 5 years which gives access to 188 Schengen countries. It allows the applicant to live, work and study in Portugal and was heavily targeted currently at the Indian market. As well as attracting a significant initial investment, the influx of high-net-worth individuals additionally invest in the property market as Portugal’s inheritance tax rules are more lax than for example the UK.

Another Visa route designed to attract growth is the so-called digital nomad visa. The D7 Visa was created for individuals who earn a passive or independent income able to support themselves. Importantly, this Visa status gives the bearer the right to apply for non-habitual resident regime (NHR) which allows individuals to be taxed at 20% for ten years.

As we can see there are a number of options with the sun and sea in their eyes for a successful Portugal migration. For more info contact Trade Horizons.