[ Offshore Tax ] Taxation of US LLCs under the New NHR

[ Offshore Tax ] Taxation of US LLCs under the New NHR

It’s important to note that Limited Liability Companies (LLCs) and Limited Partnerships (LPs) are generally not eligible for the benefits provided under most of the Double Taxation Conventions (DTCs) that Portugal has entered into.

For example, under Article 3 paragraph a) of the Protocol of the US/Portugal DTC, LLCs are only considered residents in the US if the income earned by these corporate entities is effectively subject to tax in the US, either at the corporation level or at the partner level.

This topic has already been addressed by the Portuguese tax authorities, who have issued several binding rulings. For instance:

Under domestic legislation, the allocation of income/profit by an LLC is considered a distribution of dividends, generally subject to a 28% Personal Income Tax (PIT).

An LLC, being tax transparent, is not considered a resident in the US for the purpose of the DTC with Portugal.

Therefore, income attributed to an LLC’s partners is not considered or treated as dividends for treaty purposes.

Instead, it falls under the provisions of Article 24 of the DTC (‘other income’), which grants cumulative taxing rights to both source and residency contracting states.

The look-through approach adopted and the disregard for the LLC when applying DTC provisions align well with Non-Habitual Resident (NHR) taxing principles. The Portuguese tax authorities focus on the nature of the income received by individual taxpayers rather than on the corporate vehicle.

TIMESTAMPS:
0:00 INTRO
0:30 US LLCs under the New NHR
1:30 Tax treay under new NHR in Portugal
2:00 Investment income taxation in Portugal under nee NHR
2:50 OUTRO


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