Portugal: the old NHR regime closed to new arrivals, and that changes the US arithmetic.

The non-habitual resident regime is closed to new entrants. The incentive that replaced it, with effect from 1 January 2024, is aimed at scientific research and innovation: broadly a 20% rate on eligible employment and self-employment income for ten years, for people in qualifying activities who were not Portuguese tax resident in the previous five years, with short registration deadlines. It is not a general-purpose expat regime, and which set of rules applies to you decides your Portuguese rate — and therefore your credit.

Portuguese funds and PPR retirement products are tax-favoured locally and frequently PFICs or reportable assets to the US. The wrapper that makes your Portuguese return simple can make your American one considerably less so.

The totalization agreement covers Portuguese social security, so a self-employed American contributing there generally escapes the 15.3% US self-employment charge with a certificate of coverage.

Portugal is a common retirement destination, and pensions are where the treaty does the real work. Which article applies depends on the type of pension — a government pension and a private one are not treated alike, and a lump sum is not treated like a stream of payments. There is no general rule that produces the answer.

Where an arrival falls outside the new incentive and pays ordinary progressive rates to 48%, Portuguese tax on a professional salary generally exceeds US tax on the same income, so the credit removes the US liability. Where the 20% rate applies, the credit is smaller and part of the saving lands on the American return instead.