The historic charm, stunning coastline, and relaxed lifestyle might be Portugal’s main appeal. But perhaps it is the 10 years of tax benefits, also known as the Non-Habitual Resident tax regime, that is the country’s best-keep secret.
The Non-Habitual Resident (NHR) tax regime in Portugal is currently one of the top stimulants attracting thousands to invest in Portugal. Established in 2009 and updated in April 2020, the enticing tax regime offers tax exemptions and reduced tax rates for those willing to reside in Portugal.
This article provides complete guidance on how to become a non-habitual resident through the following topics:
- What is the Non-Habitual Resident (NHR) tax regime
- What are the advantages of NHR in Portugal
– For Working Professionals
– For Pensioners
– For Cryptocurrency Dealers and Investors
- Who is eligible for the NHR program
– Qualifications and Requirements
– NHR regime for UK citizens
– NHR regime for US citizens
– How to maintain tax residence in Portugal
- How to apply for the NHR program in Portugal
– Step-by-step Application Guide
- Portugal Golden Visa
- Frequently Asked Questions and Answers
What is Non-Habitual Resident (NHR) tax regime
Portugal’s non-habitual resident tax regime is a thriving scheme that offers tax benefits for foreign residents. Initially, Portugal introduced the tax regime to attract talent and investments that enhance the country’s economy and international status. In proof of its success, the non-habitual resident tax regime has drawn over ten thousand residents to Portugal.
Based on specific criteria, qualifying individuals can become tax resident in Portugal under the NHR status. Consequently, these non-habitual residents enjoy exceptions on foreign-source income tax and a flat rate of 20% on Portuguese income tax. The NHR status lasts for a period of 10 years, after which you will become a regular tax resident in Portugal.
We have prepared a complete guide of Portugal Golden Visa. You will find all the benefits of Portugal Residency, interesting facts about the country and all investment options.
What are the advantages of NHR in Portugal
Though the significant benefit of being a non-habitual tax resident in Portugal is the alleviation of tax burdens, the benefits are numerous and diverse for different reasons. For high-value professionals who work in Portugal (whether under regular employment or self-employment), personal Portuguese-source income is taxed at a flat rate of 20%. However, working professionals are tax-exempt on all foreign-source income including capital gains, dividends, interests, and rental income from real estate in other countries.
As around 79 countries have a double taxation agreement (DTA) with Portugal, their citizens will not be taxed in Portugal. Under the NHR regime, Portugal offers tax exemption on almost all income taxed abroad. An American resident in Portugal, for instance, will not pay taxes on their US real estate income in Portugal since these will be paid in the United States, avoiding double taxation.
For retirees with NHR status in Portugal, pension income from outside Portugal is tax-exempt. Where there is no double taxation agreement in place, retirees with NHR status pay a flat tax rate of 10%, compared to a maximum of 48% for Portuguese tax residents without NHR status. Non-habitual residents also enjoy exemption from inheritance tax to direct family members and wealth tax.
To those who benefit from a double taxation agreement with Portugal, such as French pensioners residing in Portugal, pension income is not taxed in Portugal but only in the country of origination – in this case, France.
Most foreign-source income is tax-exempt for cryptocurrency dealers and investors under the NHR regime in Portugal. Income from cryptocurrency, salaries in digital currencies, and gains on crypto portfolios, for example, are not subject to tax in Portugal.
Who is eligible for the NHR program
- Not have tax residency in Portugal within the past 5 years.
- Live in Portugal for no less than 183 days for a year, purchase a property in Portugal, or carry out functions on behalf of the Portuguese government in the past year.
- Have resident status in Portugal either by being an EU/EEA/Swiss citizen or via schemes such as the Golden visa program.
In order to pay the 20% personal income tax under the NHR status, qualified professionals need to work in high-value jobs. The list includes engineers, artists, physicians, programmers, architects, auditors, and designers among others with significant economic and cultural worth.
The high-quality activities must also comply with the European Qualifications Framework (Level 4) or the International Standard Classification of Education (ISCED). If neither criterion is applicable, 5 years of demonstrated working experience is sufficient to qualify for the NHR status.
After Brexit, UK citizens can benefit from tax exemption and visa-free travel across the Schengen area. Unlike EU/EEA/Swiss nationals, UK citizens must apply for Portugal’s Golden visa first (or another long-residency visa) to subsequently obtain the NHR status.
Although there is still uncertainty about the consequences of Brexit, the UK has a double tax agreement with Portugal. The Portuguese government assured UK citizens living in Portugal of their tax treatment, and that their tax rights remain protected under the NHR regime.
Based on data from the Portuguese Ministry of Finance in 2018, 2,511 people from Great Britain and Northern Ireland have benefited from the NHR tax in Portugal. UK citizens came in third place after the French and the Italians, with 5,896 and 2,646 individuals holding the NHR status, respectively. Only 1,502 non-habitual residents are of Portuguese nationality.1
In 2022, the number of British nationals living in Portugal jumped to 34,000 as Portugal gained tremendous popularity among the Brits due to its tax-saving solution and double-tax prevention.2
Portugal has been on the radar of US citizens as their chosen country of residence. Because of its affordable living costs, warm climate, and advantageous personal income tax. Any US citizen who meets the requirements can apply for NHR status. Since the interaction between tax rules in Portugal and the US is somewhat complicated, it is advised that US citizens who reside in Portugal carefully note the correct interpretation of the NHR regime.
The Portuguese Arbitration Association (PCA) recognized that because a US citizen must include worldwide capital gains in their US taxable income, that the conditions for a Portuguese domestic exemption for foreign-source capital gains are fulfilled, and those capital gains are therefore not taxable in Portugal.3
Of course, the individual has to sustain the tax residency they obtained in Portugal. This is done by having an available house or a home in Portugal on December 31st of that year. It is not required for a Portugal non-habitual resident to buy property to maintain their NHR status, but only to demonstrate the intention to hold and inhabit the property as a place of residence.
So, it is favorable to buy real estate to maintain NHR status in Portugal. However, it is not obligatory as an annual rental contract also serves as proof of residence.
How to apply for the NHR program in Portugal
The non-habitual resident status is a step-by-step process. To start, EU/EEA/Swiss nationals only have to register at a local town hall (Sítio da Câmara) and pay a fee of around €16. A relatively straightforward process that only requires their passport, EHIC card, and current address.
Meanwhile, non-EU nationals should get a residency visa or permit through one of the various available schemes. The most common method is the Portugal Golden visa, which allows non-EU citizens to reside in Portugal. This can be done online on the “SEF” site or in person at the Portuguese embassy in their home country.
Once you obtain legal residency in Portugal, the second step is getting a Tax Identification Number (NIF); a 9-digit number used for tax purposes. To register at a Portuguese tax office (Finanças) or a citizen’s service bureau (Loja de Cidadão), you should present proof of residence, residence certificate/visa, and your passport.
The third step is to apply for NHR status through the tax authority website (Portal Das Finanças). You should submit the online application by March 31st of the year following becoming a resident in Portugal. For ease, the below step-by-step guide simplifies this activity.
Step-by-step Application Guide
- Complete an online form to register with the financial portal.
- Receive a password by mail to access the tax authority website (might take a maximum of two weeks).
- Afterward, use the received password to log into the website and register as a non-habitual tax resident in Portugal.
- Click on Serviços tributários, then Entregar Pedido, and lastly inscrição Residente não habitual.
- Upload the following documents:
– A declaration that states that you have not been a Portuguese tax resident in the last 5 years.
– Tax returns for the previous 5 years.
– Proof of purchase of property in Portugal (or rental contract).
- Follow your application until completion, and receive confirmation of acceptance.
- If you have a high-value job, submit certified proof of profession.
Normally, it takes approximately two weeks for an application to be either accepted or rejected. Providing adequate evidence that you have not been a tax resident in Portugal within the past 5 years (i.e., being a new tax resident) prevents the application from rejection. The NHR status will be effective from the day the applicant became a resident in the country and for 10 years.
A specialist, a lawyer, or an accountant can facilitate the NHR application for residents in Portugal, especially for non-EU nationals. With professional advice, you ensure a safer approach to attaining the Portugal non-habitual resident status and understanding the special tax rates.
According to statistics by the Portuguese tax authorities, there are nearly 50 thousand beneficiaries of Portugal non-habitual resident regime. These comprise Entrepreneurs, pensioners, and high-net-worth individuals (HNWI) benefiting from Portugal’s preferential tax treatment on real estate income, pension income, and wealth tax.
Portugal Golden Visa
Portugal issues a resident permit for investment, officially known as the Golden Visa (GV). Established in 2012 and recently updated in 2022, the GV program offers investors and their family members the right to work, study, and live in Portugal.
With a low stay requirement of 7 days per year in Portugal, the Golden visa allows visa-free travel to 188 countries, including the Schengen area. After 5 years of holding the visa, you can apply to obtain Portuguese citizenship and passport.
- Property Acquisition with a minimum value of €500,000 (or €350,000 for properties over 30 years old).
- Investment of €500,000 in a qualifying Portuguese venture capital fund.
- Capital Transfer of a minimum of €1.5 million.
- Creation of new full-time jobs, whether through a business owned by the applicant or an existing Portuguese business.
- Donation of €250,000 to preserve the Portuguese national heritage or €500,000 to research and development.
Foreigners who relocate to Portugal via the Golden Visa and become tax residents in the country will reap the benefits of the NHR regime; lower tax rates on Portuguese income and tax exemptions on almost all global income.
Ultimately, the NHR Portugal regime presents residents with tax exemptions on nearly all foreign-earned income and a 20% tax rate on qualifying employment and self-employment income. In the case of pension income, it is taxed at a flat rate of 10%. This attractive incentive is more than enough reason for many nationalities to make a move to Portugal.
Foreigners only need to pay taxes on their worldwide income if they reside in Portugal for more than 183 days. If they live in the country for less than 183 days, they would only need to pay their Portuguese income tax.
Those who have not been a resident in Portugal in the last 5 years and want to relocate to the country and remain there for 183 days a year can qualify for NHR Portugal.
After living in Portugal for 183 days a year and having your primary home there, you can get the NHR status. Once you submit your NHR application, it takes the tax authority around 2 weeks to make a decision on your application.
10 years. The NHR Portugal regime lasts for 10 consecutive years as long as you register as a tax resident in the country and meet the specified qualifications.
After passing 10 years of NHR residency, the NHR status alongside all its benefits will fall away. This means you will become a regular Portuguese tax-payer and will have to pay taxes on your foreign income and gains at full rates. Therefore, before losing your NHR status, make sure you make the most out of it.
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