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Why the Insurance Wrapper is the best investment vehicle for residents of Portugal

Updated: Dec 26, 2023

Luso Insurance Agents on why using an insurance wrapper solution is the best and most tax efficient way to hold assets/investments while resident in Portugal.

Why insurance is the perfect solution for Portugal residents


• The client can maintain assets abroad but in a Portuguese compliant vehicle, with no doubt about its legal and tax treatment.


Maintain a custodian outside the EU (therefore out of scope of any potential EU restrictive measure or tax)


Avail of the vehicle with the best taxation possible in Portugal, while assets held abroad are otherwise subject to yearly taxation.


• They can invest in any type of financial asset without constraints, and either choose their preferred asset manager or even self-manage their own investments.


Reporting Requirements in Portugal


• Reporting to Central Register of Policies is made by the insurance group.


• Detailed tax reporting of interest, dividends, capital gains / losses and other income required for direct portfolios is eliminated.


• Reporting of premiums received is made by the insurer for the records held by the tax representative. No information is provided directly to the tax authorities by the insurer or the tax representative.


Tax Optimisation in Portugal


• Unit Linked insurance (insurance wrapper) is the most tax efficient investment vehicle in Portugal, with unique advantages vis-à-vis any other product or solution.


• The insurance wrapper falls under the definition of an ICAE (‘instrumento de captação de aforro estruturado’ _or ‘structured instrument for attracting savings’) Income arising from ICAEs is subject to Personal Income Tax (“PIT”) as investment income (Category E), and is postponed until partial or total surrender This is a key advantage in Portugal compared to direct investment either held locally or abroad.


• In case of surrender, advance disposal or maturity of the policy, income calculated as a difference between the premiums paid and the amount paid by the insurance company is subject to PIT at the prevailing rate, with the following reductions: - 1/5 of the income if surrender or maturity occurs after 5 years and before 8 years of the policy commencement date - 3/5 of the income if surrender or maturity occurs after 8 years of the policy commencement date. provided that premiums paid in the course of the first half of the policy term represents at least 35% of the total premiums.


• Life insurance premiums are excluded from Portuguese Stamp Duty.


• No inheritance or gift taxes are levied in Portugal. Instead, Stamp Tax (_Imposto do Selo_) is paid at a flat rate of 10% for gratuitous transfers, but transfers to spouses, descendants and ascendants, are exempt. Payments to beneficiaries of insurance policies are however out of the scope of Stamp Tax. Therefore insurance benefits from exemption of Stamp Tax even for heirs or donees other than spouse and children, i.e., there is not necessary any degree of kinship.


Dynamic Tax and Inheritance Planning.


• Insurance allows to plan for wealth transmission no matter how complex it is, in a similar fashion to trusts, which are not regulated in Portugal, but in a more simple and versatile way. Maturity date option allows transferring assets on a given date (as a donation) as an alternative to whole of life option. This date is extendable at policyholder’s request.


• Insurance is immediately paid to beneficiaries, no matter the inheritance takes years to be distributed, as it sits outside the will.


• Insurance offers total confidentiality, flexibility and swiftness to appoint and change beneficiaries irrespectively of the will dispositions. Reserved portions must be respected (including the spouse, descendants and ascendants of the deceased) but heirs can only challenge the premium paid and not the accrued investment value. Moreover, as beneficiaries do not need to know their condition, confidentiality is guaranteed before and after the wealth transmission.


• It allows establishing and modifying conditions or terms to surrender the policy or to pay the proceeds to the beneficiaries, even after the death of the insured person occurs, in a similar fashion to trusts, but in a more simple and versatile way, as the policyholder keeps the control of the insurance policy and can surrender it at any time.

For more informatin about how to subscribe to an insurance wrapper in Portugal contact Luso Insurance Agents

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