If you’re an expat living in Portugal under the Non-Habitual Resident (NHR) regime, it’s crucial to understand how income from a U.S. LLC is taxed–because it may not be as straightforward as you’d expect.
How Portugal Sees LLC Income
In the U.S., a single-member LLC is usually treated as a disregarded entity. Meaning the owner reports business income directly on their personal tax return. Although, Portugal doesn’t recognize U.S. LLCs in the same way. Instead, Portugal looks at what kind of income you’re receiving:
- Is it dividend income?
- Is it self-employment or business income?
- Is it a salary or management fee?
The NHR Rule of Thumb
If you’re under Portugal’s NHR tax regime, certain types of foreign-sourced passive income (like dividends, interest, or royalties) can be tax-free in Portugal. However, only if that income is also taxable in the country it came from (like the U.S.) under a tax treaty or international rules.
Things can get tricky if:
- If the money you take from your LLC is considered active income*. Portugal will likely tax it, even under the NHR
- If the money is treated more like dividends**, then it may qualify for the NHR tax exemption and be tax-free in Portugal
*: such as profits from running a business or self-employment income
**: as it might be if your LLC is taxed like a corporation in the U.S.
Understanding how Portugal Taxes U.S. LLC Income
While it would be great, not all LLC income is tax-free in Portugal just because you’re under the NHR. The nature of the income matters more than the entity itself. If you’re taking home active income from your business, or don’t clearly state it as passive investment income, it’s likely to be taxable in Portugal.
It’s important to work with a tax advisor to structure your LLC and distributions properly. It could mean the difference between paying 0% tax or paying Portugal’s full rate.
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