By Caitlyn Buchanan, 27th May 2021 (Updated 24th June 2022)
The Portugal NHR tax regime offers lucrative tax breaks for foreign residents residing in Portugal. The Non-Habitual Residents (NHR) scheme allows for substantial tax savings for those who qualify and has been highly successful in attracting international investors and self-employed professionals.
It is important to note that individuals must first be registered as tax residents before they can apply for the Portugal NHR tax regime.
Portugal first implemented the non-habitual resident tax regime in 2009 to increase the country’s international competitiveness. Since its implementation over 10,000 individuals have successfully applied for the Portugal NHR Tax regime to alleviate tax burdens.
Key Benefits of Becoming a Non-Habitual Resident in Portugal
- Special personal income tax treatment over 10 years
- Tax exemption on almost all foreign income sources
- 20% flat rate for income earned in Portugal (either from self-employment or specific professions). The normal Portuguese income tax rates can be as high as 48%
- No required minimum stay
- Tax residency in a white-listed tax environment within the EU
- Tax exemption for gifts or inheritance to direct family members
- No wealth taxes.
- Remittance-free funds to Portugal
NHR & Portugal’s Double Taxation Agreements
Individuals who avail of the Portugal NHR tax regime also benefit from Portugal’s Double-Taxation Agreements with 79 countries. Double-Taxation Agreements allow for most income categories to be taxed in the source country. Fortunately, most countries have policies that are welcoming to foreign investment and as result will choose not to tax income earned by non-residents. In turn, under the Portugal NHR tax regime, most foreign source income will not be taxed in Portugal allowing for NHR residents to avoid paying foreign income completely. This may extend to property and dividend income. We recommend seeking consultation with an accountant on your specific situation and income sources.
Portugal NHR Tax Regime Requirements
The following requirements must be met to qualify for the Portugal NHR tax regime:
- The individual must have the right to reside in Portugal either by being an EU/EEA/Swiss citizen, or through schemes such as Portugal’s Golden Visa program.
- The individual must not have been a Portuguese tax resident for the five years before taking up residence in Portugal.
- To establish tax residency in Portugal the individual must hold a place of residency within the country on the 31st of December of that year and show intent to maintain their habitual residence.
Please Note: An NHR in Portugal may be required to file annual tax returns declaring all income and capital gains.
Tax Assumptions vs Reality
Portugal’s NHR programme has been extremely successful in attracting new residents and generating revenues for Portugal. Although NHRs may not pay much income tax, they benefit the country by hiring staff, buying properties, and buying goods and services upon which VAT is paid.
It is important to seek advice from a local accountant and not naively assume that no tax will need to be paid for 10 years apart from the recent change of pensions which is now 10%. However, Portuguese sourced income is taxed at 20%, foreign income is only exempt from Portuguese tax if it has already been taxed or subjected to tax outside of Portugal.
Internationally mobile people that have landed in Portugal may choose to take advantage of this scheme by operating companies in low tax jurisdictions such as Hungary’s 9% Corporate Tax or Ireland’s 12.5% Corporate Tax while paying 0% on foreign income and dividends.
Information in this article only provides general advice. If you are interested in becoming a Non-Habitual Tax Resident in Portugal, we strongly recommend that you consult with a Visa provider and local tax professional. Euro Company Formations can help connect you with a local tax professional. Or if you are looking to incorporate a company in another country in which you are not a resident, we would be happy to advise and assist you. Please do not hesitate to contact us today or call +353 (0) 16461627.Contact US