I Moved From Austria to Portugal. Here Are the Tax Traps I Wish Every Long-Term Investor Knew Before Moving Countries

In 2023, I moved from Austria to Portugal. My wife and I chose Portugal to fulfil our dream of living close to the ocean. Taxes were more of an obstacle than a benefit in the beginning.

I bootstrapped a tech company for over 11 years and sold it in 2017, back in Austria. Tax avoidance was never a thing for me. My main focus was to build something great.

I like to plan ahead of time, so I worked with an advisor to see what our move between EU countries meant for me. I thought this would be a no-brainer, and tax-efficient between two EU countries. I couldn’t have been more wrong.

Exit tax

I was shocked by the findings. All unrealized gains at the time of our move would be owed to Austria because of the exit tax laws. Based on an EU law, I could delay the owed taxes until I sold them in Portugal.

Unbelievable, but Portugal would not take those taxes into account, as it has no exit tax, and it would tax me again on the same gains. After reading the double tax treaty myself and confirming with tax advisors, I had to sell and rebuy everything at the time of our move. There was no fix for this, and I wanted a clean start anyway.

Advantages of a step-up basis (for countries that have an exit tax)

On the other hand, I learned that a country with an exit tax can be an advantage if you move from a country without one to a country with one. The country with the exit tax will use a step-up basis at the time of arrival. This means that if you realize the gains in the new country of residence, you would only have to pay on the gains after your arrival. Any capital gains before that point would be tax-exempt.

Wealth tax and taxes on unrealized gains

Back in Austria, I had to make a yearly tax prepayment on retained fund income and internal realized gains. That was a big disappointment for the long-term accumulation of my index funds. My yearly drag was between 0.3% and 1.0%. Not as bad as inflation, but for my defensive portfolio with average returns of 7% per year, it was a big deal.

Luckily, there is no unrealized gains tax in Portugal, so I could restart the accumulation machine. Long-term realized gains are taxed flat at 28%, so this went up a tiny bit compared to Austria, where it’s 27.5%, and I would have to be thoughtful about when to realize gains.

Tax incentive (Non-Habitual Resident)

My advisors pointed out that I should also opt in to the NHR. I was not aware of tax incentives before, so I dug deeper and found out that many countries offer these incentives to attract foreigners. Oftentimes, even if you return to your home country after a certain number of years, you receive the benefit again.

There were zero tax benefits for my ETFs, though. Capital gains and ETF distributions are taxed at the standard 28% rate. On the other hand, foreign dividends, bonds, and bank interest are tax-exempt during my NHR period. With this new information, I decided to shift some of my ETFs into individual stocks and bonds.

I found another nice benefit: bonds bought at a premium create a capital loss that can be reused. So if a bond is paying around 3.5% yield, including the realized-loss advantage, I can end up in the range of 4–4.5% per year, as the interest is tax-exempt.

Big picture

I like to learn, understand, and look at the big picture. This way I was able to find tax advantages that no one told me about or seemed aware of.

Country tax checklist

If I ever decide to move to a new country, I will plan ahead and set up scheduled research. I won’t move to a country because of taxes, but if I dream of living in a new country, taxes can be an additional benefit that influences my decision and timing.

• Wealth tax and taxes on unrealized gains. This is by far the biggest disadvantage I will look out for, as it diminishes the accumulation over time.

• Exit tax. It can be a good thing, because I can take advantage of the step-up basis for my next move. If I plan to leave a country with an exit tax in the future, I will plan and take advantage of yearly tax brackets to minimize the rates slowly before the move. Some countries have flat capital gains rates like Austria, so it is better to wait until I leave.

• Tax rates on dividends and capital gains for long-term holdings.

• Inheritance tax.

• Book advisors on an hourly rate. I like to do research myself and verify my findings. I don’t like yearly percentage fees for this, as I only need it once every few years.

I would love to hear your insights. Where did you move to?