If you are planning to move to Portugal, or at least thinking about I 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.
The NHR came into force in Portugal in 2009 and is proving very successful at attracting 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.
In addition to the non-existence in Portugal of wealth tax, or of inheritance/gift tax for close relatives, the NHR regime essentially grants qualifying individuals the possibility of becoming tax residents of a white-listed jurisdiction whilst legally avoiding or minimising income tax on certain categories of income and capital gains for a minimum period of 10 years.
A major feature of the NHR regime lies in its interaction with the double tax conventions signed by Portugal or with the OECD model tax convention in the absence of one. In effect, most double tax conventions (of which Portugal signed 68) grant the possibility to tax most categories of income to the country of source of such income, although in practice, so as to attract foreign investment, many countries will not make use of that possibility to tax non-residents. Since most such categories will not be taxed in Portugal in the hands of a NHR because they may be taxed abroad, in practice most foreign-source income types will be zero taxed in such hands.
Taking the UK/Portugal convention as an example, if you are a resident of Portugal but receive dividends from the UK, then the UK has the power to tax them under article 10, although it does not if the recipient is not a UK resident. On the other hand, Portugal will not tax such dividends in the hands of a NHR either, because the UK may tax them under the convention. This way, the non-habitual resident of Portugal may receive dividends from UK sources completely free of tax.
Under the NHR regime, the following categories of foreign-source income and capital gains (except if sourced from a blacklisted tax haven which has not signed a double taxconvention with Portugal) will be generally exempt from income tax in Portugal since they may generally be taxed in the source country, even though they will not often be taxed in the hands of non residents in the latter country either:
- Profits derived from eligible occupations
- Royalties and associated income
- Dividends, interest and real estate income
- Capital gains from the alienation of real estate (including shares deriving more than 50% of their value from real estate) and of ships or aircraft operated in international traffic
Capital gains from the alienation of movable property (other than shares deriving more than 50% of their value from real estate or ships/aircraft operated in international traffic) will be tax exempt if the relevant double tax convention states that they may be taxed in the source country, but this is not the case with the OECD model or with the generality of the conventions, and therefore some basic tax planning may be required.
It should be noted that several countries often deemed “offshore tax havens” do have double tax conventions with Portugal and are therefore white-listed for the purposes of the NHR regime. In addition, all EU member states are white-listed, even though several such states may in many ways be used as “offshore tax havens”, especially by non-residents from that country.
Occupational pensions will be tax exempt in Portugal as long as they may not be deemed sourced from Portugal.
Foreign-source income from employment (including fees of directors and entertainers or sportsmen) will not be taxed in Portugal if it is taxed (at whatever rate) in the source country.
Portuguese-source income depends on whether or not it is derived from eligible occupations, will be taxed as follows:
- Employment income (including fees of directors and entertainers/sportsmen), business or self-employment profits and royalties (including payments for know-how), if derived from eligible occupations will be subject to a 20% flat rate;
- Other Portuguese-source income will be taxed at the normal rates applicable to regular resident taxpayers;
- A surcharge of 3.5% applies to the slice of the total taxable income (whether subject to progressive or flat rates) which exceeds for each taxpayer the minimum guaranteed wage of EUR 6,790 p.a.
In conclusion, in order to maximise the advantages of the NHR regime it has to be taken into account not only the Portuguese tax law, but also the tax law of the source country of the income, as well as the double tax conventions applicable to the foreign-source income and advantages to receive as a NHR.
Please feel free to contact us to discuss your personal situation and see whether you meet the criteria to qualify as a non-habitual resident (NHR). Although the granting of NHR status is not automatic, it will not be refused if all the legally applicable criteria are met.
DISCLAIMER: this text contains description of a generic nature and cannot preclude specialist advice in connection with specific situations.