If you are planning to move to Portugal, or at least thinking about it we have good news. The non habitual resident (“NHR”) taxation regime; a scheme for new residents that can provide substantial tax benefits, so much that you may discover that Portugal is a tax haven for you.
What is the Non-Habitual Residency tax regime?
This scheme was approved in 2009 and assigns certain tax advantages over a period of 10 years, for any person requesting the tax residence in Portugal. The objective of this special scheme is to attract to our country, individuals of independent means, pensioners and certain skilled professionals to establish residency in Portugal for tax purposes, while not being subject to any minimum or maximum stay requirements.
Who can apply for this regime?
May apply for this tax regime all citizens who become tax resident in Portugal during the current year, that have not been considered resident in Portuguese territory during the last five years preceding the year of application. This applies both to foreigners and to Portuguese citizens who are living abroad and wishing to return to Portugal. To be considered resident in Portugal you will have to stay more than 183 days in the country or alternatively own or rent a property in Portugal, that is supposed to be your habitual residence for the future.
Once the NHR status has been obtained, in which cases is your foreign income tax exempt?
In the case of pensioners and retired people their income will be tax exempt in Portugal as long as their pensions may not be deemed sourced from Portugal. This occurs if either there is a convention to eliminate double taxation, signed by Portugal and that foreign State (Portugal has currently signed double taxation agreements with 71 different countries); or in case the Income is not considered to have been obtained through a Portuguese source, according to the criteria provided for in the IRS Code (personal income tax).
In the case of income derived from employment, when that income is taxed in the State of origin, in accordance with the convention to eliminate double taxation, signed by Portugal and that State; or when that income is taxed in another State with which Portugal has not signed any convention to eliminate double taxation, as long as the income is not considered to have been obtained in Portuguese territory, in accordance with the criteria in article 18 of the IRS Code (personal income tax);
In the case of income from self-employment (through the provision of services of a high added value, of a scientific, artistic or technical nature, or through intellectual or industrial property, investment income, rental income, capital gains income or other increases in equity), the exemption happens when:
The income may be taxed in the source country, territory or region, in accordance with the convention to eliminate double taxation, or;
When no convention to eliminate double taxation has been signed, the OECD model convention may be applied (taking into consideration the observations and reservations made by Portugal) and as long as the source country, territory or region does not have a privileged tax regime, and as long as the income is not considered to have been obtained in Portuguese territory, in accordance with the criteria in article 18 of the IRS (personal income tax).
How to request the tax resident status in Portugal?
To achieve this status, the taxpayer needs to make the registration as resident in Portuguese territory. Only after the taxpayer is registered as resident he can request the non-habitual residency status. This request must be made by 31 March of the following year in which the citizen became resident in Portugal. The request is made to a specific tax office in Lisbon that only deals with the NHR. Some documents are required, such as proof of your current tax situation abroad, etc.
Please feel free to contact us to discuss your personal situation and see whether you qualify for the NHR regime. Although the granting of NHR status is not automatic, it will not be refused if all the legally applicable criteria are met. We can make the application on your behalf.