If you are looking to relocate to another country with favorable fiscal incentives, Portugal may offer great opportunities for you. The Portuguese government provides preferential tax benefits to prospective new residents for a span of ten consecutive years. Unlike other countries, Portugal does not have a reputation as a tax haven. It therefore doesn’t usually attract the attention of tax administrators. So, staying and working from Portugal doesn’t make you look like you’re thinking of tax evasion.
What are these benefits?
Since 2009, Portugal accords a preferential tax status to new residents of certain employment or income categories where they don’t have to pay any more taxes from income that comes from outside of Portuguese territory. This tax status is called the non-habitual tax residence or non-habitual residential regime (NHR) and has attracted quite a number of new residents to live and work from Portugal.
This is an appropriate tax system for highly qualified persons such as artists, physicians, dentists, engineers, computer scientists, financiers, administrators, managers, musicians, performers, and others who have a lot of purchasing power and wish to lower their tax burden.
As a result, these individuals will not need to relocate to a distant island to pay lower taxes; instead, they will be able to live in metropolitan cities such as Lisbon or Porto and quote as if they were in a tax haven.
Who can apply for the non-habitual residential regime?
This tax status is designated for certain individuals, including people with high net-worth, internet tech-entrepreneurs, technological specialists, artists, models, highly regarded professionals like physicians, lawyers, architects, and others.
If you belong to any of these categories and have not paid personal income tax in any of the preceding five years although possessing tax residence, you can be considered as a taxable individual with a non-habitual residence on Portuguese territory. You can acquire tax residence if you have been staying in Portuguese territory for more than 183 days, either continually or cumulatively. This also applies if you request for non-habitual tax resident status with the Portuguese tax authorities until March 31 of the year after the year in which the status is to take effect.
It’s worth noting that achieving this condition isn’t automatic; rather, it requires a previous examination and permission by the tax authorities. The process of evaluating each request and then granting it takes around six months on average. If you have stayed for a shorter period of time, you will need to have a house on Portuguese territory on the 31st day of December of that year under conditions that enable you to assume your desire to retain and occupy it as your primary dwelling.
For personal income tax purposes, the subject must be deemed a tax resident each year.
However, if you did not choose to contribute as a non-habitual resident (or were not considered a tax resident for personal income tax purposes) in one or more years during the scheme’s application period, you may still benefit from the scheme in any of the remaining years of that period, as long as you are once again considered a tax resident for personal income tax purposes.
What benefits can be availed if granted a NHR status?
Once you are granted a non-habitual residential tax status, your passive income from overseas, such as interest, dividends, capital gains, pension plans, and pensions, will not be taxed.
For high-value-added operations carried out from Portugal, you will benefit from a 15% special tax rate. However, in the case of income originating in Portugal, this condition will allow the holder of income from employment or self-employment to benefit from a reduced rate of personal income tax of 20%, provided that these incomes are derived from the performance of activities with high added value, as defined by law. It should be noted that, in addition to the 20% special rate, an additional 3.5 percent extraordinary personal income tax surcharge might be imposed on the income earned.
Non-habitual residents will also be excluded from paying taxes in Portugal if they earn income as an employee from a company based in another country. This, of course, depends on any existing agreement on eliminating double taxation between Portugal and the country where the company is from. This also applies in cases where Portugal has not signed into a double taxation agreement in said country, as long as the income is not obtained within Portuguese territory.
Self-employed individuals earning income from activities considered as high added value, from scientific, artistic, or technical fields, or income from capital, real estate, or assets, will also be exempted from taxes if the country where they paid taxes has an agreement with Portugal to eliminate double taxation. On the other hand, they may be subject to taxation in the other country if Portugal has not entered into a double taxation agreement in accordance with the rules defined in the OECD’s model tax agreement on income and wealth, as long as that it is not a territory subject to a privileged tax regime, and the respective income is not considered obtained in Portuguese territory, as defined by the Personal Income Tax Code.
Those with income from pension can also be considered non-habitual residents. Their income will be subject to a 10% flat rate tax as long as it is derived from contributions and has not been treated as a tax deductible in Portugal.