Non-Habitual resident program in Portugal – is it worth it? part 2 – Part one is here.
Non-habitual resident program
The Non-Habitual Resident (NHR) Portugal program is a tax regime that offers foreign residents and investors reduced tax rates and exemptions from certain taxes. This program was first introduced in 2009 and after updated in 2020.
The goal is to attract foreigners to Portugal. It turned out to be very successful: more than 10,000 unaccustomed residents of Portugal enjoy benefits.
Below you can find all the details of the Non-Habitual Residence (NHR) program; what it is, how you can benefit from it, and more.
So, Portugal’s special tax regime for non-permanent residents (NHR) allows qualified entrepreneurs, professionals, retirees, and high net worth individuals to enjoy preferential tax rates on Portuguese-sourced income, while most foreign-sourced income is exempt from Portuguese taxation for a decade.
Individuals of any nationality (including non-EU/EEA nationals) can potentially enjoy the benefits of the Portuguese NHR regime for 10 consecutive years if they qualify as a Portuguese tax resident and have not been taxed as a Portuguese tax resident in any from the previous five years. the year in which the place of residence was established.
You must also meet the criteria for being a tax resident in the year you apply – the easiest way to achieve this is to stay in Portugal for more than 183 days. Portuguese-sourced salaries or self-employed income derived from one of the qualifying professions (listed below) will be subject to a final flat rate of tax of 20%.
In addition, non-Portuguese income in most categories, including income from self-employment, income from real estate (rental), income from capital (interest and dividends), and capital gains from property, will be exempt from Portuguese personal income tax, provided that:
- The source country has the right to tax this income in accordance with the terms of the Double Taxation Agreement (DTA) signed between Portugal and this country; or
- Income is taxed in another country and is not considered to be received in Portugal; or
- Income is taxed in any other country in accordance with the OECD Model Tax Convention.
Until recently, the NHR regime also allowed for the majority of foreign pension income in Portugal to be tax-free, but Portugal’s 2020 budget introduced a flat tax rate of 10%. This new tax applies from April 1, 2020, although existing NHR holders are still eligible for the tax exemption for the remainder of their ten-year NHR period.
However, this 10% tax rate is still a very attractive option for NHR applicants as it will be lower than the rates that would apply in their home countries, as well below Portugal’s standard tax rate of 14. 5% to 48%. Portugal also has no inheritance tax, gift tax, or wealth tax for the NHR.
It should be noted that eligibility for NHR benefits in each financial year will only apply if the applicant was considered a resident of Portugal during that year. However, if an applicant fails this test within one or more years, he/she may still enjoy benefits in subsequent years up to the 10-year limit.
In addition, any income earned in countries listed by the Portuguese Finance Department as “favorable tax treatment” – the so-called “black list” – will not qualify for NHR treatment unless the country in question has a double tax treaty with Portugal.
Qualifying professional activities covered by the NHR regime include the following:
- General managers and executive managers of companies;
- Administrative managers and commercial managers;
- Production managers and specialized service managers;
- Hospitality, restaurant, retail and other service managers;
- Physicists-specialists, mathematicians, engineers and related technologists;
- doctors;
- Dentists and stomatologists;
- Teachers of universities and higher educational institutions;
- Information and Communication Technology (ICT) specialists;
- Authors, journalists and linguists:
- Creative and Performing Artists:
- Mid-level technicians and specialists in the field of science and technology;
- ICT specialists;
- Farmers and market-oriented skilled agricultural and livestock workers;
- Market-oriented skilled workers in forestry, fishing and hunting;
- Skilled workers in the industry, construction and crafts, including skilled workers in metalworking, food processing, woodworking, clothing, handicrafts, printing,
- production of precision instruments, jewelers, craftsmen, electricians and electronics specialists;
- machine and equipment operators and assembly line workers;
- Directors and managers of companies engaged in productive investment activities, to the extent that such personnel are involved in projects for which treaty tax benefits are provided in accordance with the Investment Tax Code.
Persons engaged in this professional activity must also meet one of the following criteria:
- Level 4 of the European Qualifications Framework;
- Level 35 of the International Standard Classification of Education (ISCED); or
- Five years of relevant work experience, duly proven.
Benefits of the NHR program in Portugal include:
- Income tax: special regime of individual taxation of income for a period of 10 years
- Tax exemption on almost every foreign sources of income
- Compared to other income tax rates in Portugal, up to 48%, this program offers a flat rate of 20% for certain sourced income in Portugal (from certain professions and from self-employment).
- Opportunity to have EU tax residency in a whitelisted country
- Exemption from tax on gifts or inheritance to family members
- No wealth tax
- Free money transfer to Portugal
Eligibility: Who Can Be a Non-Permanent Resident
- You must be eligible to be a resident of Portugal by being an EU/EEA/Swiss citizen or through the Portugal Golden Visa program, and
- You must not have been tax resident in Portugal within the previous five years.
In order to be a tax resident in Portugal, you must have a residence by December 31st of the same year to show your intention to make Portugal your permanent home.
Buying Portuguese property can be beneficial, but it doesn’t have to be. A Portuguese lease agreement for 12 months will be sufficient proof of residence. If you decide to buy a property, you can present the bill of sale as proof that you are a resident.
Once you have taken residence, you must apply for the Non-Habitual Resident Program in Portugal by March 31st of the following year.
Individuals who are eligible to be a resident of Portugal under the Golden Visa program can apply for the Non-Permanent Resident program.
Types of income from foreign sources
Labor income
Under the NHR regime, he is either exempt from tax or taxed at a flat rate of 20% unless he is in one of the eligible occupations.
Income from self-employment
If he is from a relevant profession and from a country with a DTA (Double Taxation Treaty), he is exempt from taxes. It may also be exempt from taxes if in the absence of an agreement under the OECD Model Tax Convention (unless the country is a tax haven). If he is not in one of the qualifying professions, he is taxed at the standard progressive rate, and this is also subject to other social security contributions.
This type of income may also be taxed at a flat rate of 20%; however, an individual may pay a regular progressive tax if it is less than the flat rate.
Royalty and income from financial assets
If the income comes from a country with a double tax treaty, it is not taxed. He is also exempt from taxes if he is from a country without a DTA, but which is not a blacklisted tax haven. If a country is on the black list of tax havens, then it is taxed at a rate of 28% or 35%.
Real estate income and capital gains
They are exempt from taxes if:
- they come from a country with a double tax treaty; or
- they come from a country without a DTA, but which is not blacklisted for tax havens.
Capital gain from the sale of securities (stocks, bonds, etc.)
If they are from a blacklisted tax haven, they will be taxed at an additional rate of 28%, 35%.
Retirement income
If it comes from a country with a double tax treaty, it is not taxable.
Tax on income from a Portuguese source
Labor income
If it is not on the list of eligible occupations, it is taxed at the standard progressive rate. However, if the job is on the list of eligible occupations, a 20 percent rate may apply, and if the regular progressive rate is lower, then a progressive rate may be used.
Income from self-employment
If she is not on the list of eligible occupations, she is taxed at the normal progressive rate. However, if the employment is in the list of eligible occupations, a 20 percent rate may apply, and if the regular progressive rate is lower, then a progressive rate may apply.
Real estate income and capital gains
- Rental income is taxed at a rate of 28% (additional rate) or at a regular progressive rate.
- Net capital gains are taxed at 50% at the normal progressive rate.
Retirement income
It is taxed at regular rates.
How to apply for the NHR regime in Portugal?
Here is the program application shown step by step:
Step 1: Proof of residence
The first step is to prove that you have a legal right to reside in Portugal.
EU/EEA/Switzerland citizens can check in without a visa. They can register at their place of residence at the mayor’s office of their region. They must bring their passport and EHIC card for the procedure. They will also be asked for their current address, but they don’t have to prove it.
Non-EU citizens must first obtain a residence permit in order to be allowed to settle in Portugal. They can get permission in a variety of ways, but the two most common methods are the Golden Visa program or passive income. They can do this online (on the SEF website) or at the Portuguese embassy in their country.
Step 2: Obtaining a NIF Number (Portuguese Taxpayer Identification Number)
The NIF number is a nine-digit taxpayer identification number that you must obtain, especially if you intend to conduct a business or other official or legal activity in Portugal. While non-residents can obtain it through their representative/lawyer in Portugal, residents of Portugal can do so directly from the finanças (local tax authorities). To do this, you will need an identity card/passport and proof of residence.
Step 3: Registration as a tax resident in Portugal
After receiving the NIF, you must register as a tax resident with finanças.
Step 4: Apply for NHR Status
First, you need to register on the relevant government website. To register, you will need a NIF number, email address, phone number, and fiscal address. After registering, you will receive your password by mail in about two weeks. You can then complete the application site. To do this, you need to provide the following documents:
- A document certifying that you have not been a tax resident in Portugal during the previous five years.
- Tax returns for the last five years
- Lease agreement or deed of ownership in Portugal
While you can apply for the NHR program on your own, it is a rather complicated process. Many people prefer to get help from a professional with their application.
