Since Portugal does not tax dividend income and potentially other distributions under the NHR regime so long as it could be taxed in the other country (which is normally the case), it has been attractive for people benefitting from this regime to trade via foreign companies and extract distributions, as an alternative to incurring employment or self-employment income which is both taxed in Portugal and is subject to the list of high value professions.
The risks of this approach have been the subject of much discussion. Essentially, a foreign company that incurs profits in Portugal could be taxed for these profits and this outcome can be achieved in a number of ways, including treating the company as Portuguese tax resident or concluding that the company has a permanent establishment in Portugal.
It is generally true that the more substance the company has overseas, the lower these risks. One strategy which has been common in the past is appointing nominee directors overseas. These are people who act under direction of the owners without any true authority. In our mind, appointing a person who knows nothing about the company can do more damage than good. In a thorough tax inspection, it is all but admission that the incorporation of the company is meant for tax reduction.
In our mind, the best structures are real one. A company that includes true partners in other jurisdiction with real authority to make important decisions and with economic sense and history is the way to go.
Naturally, not all companies have foreign managers.
At Fresh, we offer a management service through a separate company (FreshOps Limited) created for this purpose to support companies wishing to introduce a true, substantive, international element to their trade and improve their operations and compliance.
Some people attempt to create an image of management overseas by "naming someone who lives in another country" as a manager, often a family member or a nominee lawyer who knows nothing about the company. In our view, trying to present an artificial and false image of management that carries no true substance will not survive scrutiny and could in fact make things worse.
It is possible that a company will be managed from another country, but it needs to be a real structure.
We call our management service Fresh Ops. We created a management consultancy that is run by one of our members in the UK and brings together some of the brightest minds, executives with decades of experience running companies, to create a "board for hire" for your company.
FreshOps is given management powers and it is responsible to identify people with the requisite experience in supporting your company, assemble regular meetings of the board of directors (or managers in the event of LLCs), identify the important decisions that need to be made in the company's life, vote on them and implement them. Board (or management) meetings are normally convened physically in our offices in the UK 4 times a year.
We also accept responsibility to negotiate and sign contracts on behalf of the company (one would note that managers retaining a right to sign contracts risk being seen as a permanent establishment).
During board meetings, facts are presented, a discussion is had and decisions are made.
Board meetings are documented and we produce minutes showing proper compliance and management.
Whilst the shareholders/owners remain in ultimate control of the company, our involvement in a company is made to improve its management style, introduce proper decision-making mechanisms and improve the outcomes of company contracts.
Although board meetings are minuted, the discussions between us and the company owners are confidential.
We do not believe in management without substance and therefore, the service offered by Fresh Ops is not a cheap service and we can only accept so many companies. It is also not designed just for people who want to shift tax residency. It is designed for people who want to improve their companies by introducing robust management and decision making strucutures.
At the same time, we believe that Fresh Ops is defensible to any tax authority that considers place of effective management.