If you are considering buying a property or spending some time abroad, Portugal may be able to offer you more than just its stunning scenery, culture and weather.
Becoming a tax resident in Portugal can also eliminate your income tax bill on income received from your home country. That’s TAX FREE income in both Portugal AND in your home country.
Sounds too good to be true? Well Portugal’s Non-Habitual Resident (NHR) tax regime can provide just that.
The NHR is a tax program which was set up by the Portuguese government in 2009 in order to incentivise foreign nationals and their families to come to Portugal by making it attractive from a tax perspective to become tax resident in Portugal.
So how does the Non-Habitual Resident Scheme work and who can apply?
The main requirements to qualify for the NHR scheme are:
- You must become a Portuguese tax resident; and
- You must not have been tax resident in Portugal in the 5 years before you apply for your NHR status; and
- You must have the right to live in Portugal (EU/EEA citizens have the right to live in Portugal. For Non-EU/EEA citizens NHR is usually combined with the Golden Visa).
How do you become tax resident of Portugal?
You are considered to be tax resident in Portugal if:
- You have been in Portugal for more than 183 days in the tax year, which runs from 1st January to 31st December; or
- You have been in Portugal for less than 183 days, but have a permanent home in Portugal.
What are the benefits of the Portuguese Non-Habitual Resident Scheme and can I really pay zero income tax?
The benefits of the NHR are:
a) It exempts foreign-source income (i.e income that arises outside of Portugal) from being liable to income tax.
- Pension income
- Income from investments (including dividends and interest)
- Rental income
- Employment income
For most people, this is the biggest draw of the scheme as it provides many with the opportunity to reduce the tax paid on their income to zero.
For many people looking to take advantage of the NHR scheme the majority of their income will come from a source in their home country. For most people this income will not be taxed in either Portugal or their home country so will be totally tax free!
- b) A special rate of 20% tax is applied to any employment and self-employment income derived in Portugal from a “high value added activity”.
This is includes:
Actors, Architects, Auditors, Dentists, Doctors, Engineers, Investors, Musicians, Professors, Psychologists and Technicians (this list is non exhaustive and specific advice will need to be obtained with regard to your specific circumstances).
- c) Capital gains tax advantages, this will depend on the type of asset. (Before becoming a non-habitual resident of Portugal, tax advice should be taken by anyone who anticipates significant capital gains).
- d) Other benefits include:
Having successfully applied for the scheme, NHRs will have access to all the benefits of an ordinary Portuguese tax resident including healthcare.
Why does the Non-Habitual Resident Scheme mean that you pay no income tax?
Ok… ready for the science bit?
According to the Non-Habitual Resident regime, as long as the source country of your income has the power to tax your income (regardless of whether or not they actually do or not), either under a double taxation agreement with Portugal (Portugal has agreements with 71 countries) or under the OECD model tax convention, and the income is not deemed to be Portugal-sourced income, Portugal will not tax your foreign-sourced income.
The double taxation treaties grant the source country the option of taxing income paid to residents of the other country, although many countries do not exercise this option in their own tax laws.
The UK for example have a double taxation treaty that works in this way. This means that in practice most types of income will attract zero income tax both in Portugal and in the UK for those with non-habitual resident status.
How do you apply for the Non-Habitual Resident Scheme and become a non-habitual resident of Portugal?
Obtaining non-habitual resident status is not automatic just because you satisfy the criteria. You need to actually make an application for Non- Habitual Resident Status to the Portuguese tax authorities.
Most people instruct a lawyer with experience of making these applications to assist with this. For details of an English-speaking lawyer who can assist with your application for Non-Habitual Resident tax status, contact Worldwide Lawyers on 01244 470 339 or firstname.lastname@example.org.
You may apply for your NHR status when you have become a Portuguese tax resident or before 31st March of the following tax year.
Once granted, your Non-Habitual Resident Status is valid for a period of 10 years.
Once you have the Non-Habitual Resident status there is no obligation that you visit or live in Portugal for any length of time to maintain your resident status there.
Other information about the Non-Habitual Residents Scheme:
- Although you must be a resident in order to apply for the NHR, you do not have to live in Portugal for any particular period of time after obtaining your NHR status.
- Portugal began the program to encourage economy growth after the global financial crisis, the scheme has provided a boost to the Portuguese economy and has a good chance of being available for a few years. However, it may be not available forever. If you would like to take advantage of the the scheme, do not delay taking action and seeking advice.
- The term non-habitual can lead to confusion. As this regime is valid for 10 years the Portuguese tax authorities used the term “non-habitual”. Contrary to the suggestion in the name, you are required to have your tax residency, and be “habitually resident” in Portugal.
- You do not have to own a property in Portugal to qualify. Renting a property is sufficient.
- You can backdate your registration as a NHR in Portugal to the date on which you became tax resident in Portugal, BUT the deadline for making the NHR application is 31st March of the tax year after you became tax resident in Portugal.
- Do not delay making your NHR application, you do not want to find that you have missed the deadline and the opportunity to qualify for NHR status. This can lead to you potentially paying more income tax if you end up being liable for Portuguese income tax under the general tax rates.
I want to take advantage of the Non-Habitual Resident Tax regime and want to find out more- what should I do?
It is recommend that you take proper tax advice in order to make sure all your circumstances are taken into account. For further information and to find out if you are eligible for the non-habitual resident tax status in Portugal, contact Worldwide Lawyers today on 01244 470 339 or email email@example.com.
We can put you in you with a recommended Portuguese lawyer specialising in applications for the Non-Habitual Resident Status who can advise you of whether you will be eligible and the process for making the application.
Buying Property in Portugal?
If you are thinking of moving to Portugal you should definitely seek advice as to whether the NHR scheme could apply to you – you do not want to find out you could have had the benefit of this but have missed the deadline! Contact Worldwide Lawyers on 01244 470 399 or at firstname.lastname@example.org for further details about the NHR scheme and also how to but property in Portugal safely and efficiently.