08 Oct, 2018
The Portuguese Non-Habitual Tax Resident (NHR) Regime
What to expect if you decide to move to Portugal and become resident for tax purposes – assuming you haven’t been so in the previous five years
For starters, keep in mind some general comparative advantages from living in Portugal:
- 9th country on the OECD better life index;
- One of the sunniest countries you’ll ever meet – estimated 3300 hours of sunshine per year;
- 300 daily flights from Portugal for foreign countries;
- Portugal is ranked as the 8th best in the world according to the 2017 U21 Ranking of National Higher Education Systems (as adjusted by GDP);
That being said, and getting down to business, by residing here the income obtained in Portugal will be taxed at a limited 20% rate for 10 years.
Is that all? No. You may also benefit from exemptions.
What types of income are eligible for exemption under the NHR regime, then?
- Pensioners and retired people, as long as:
- Those revenues are effectively taxed in the source state, accordingly with the non-double taxation treaty (DTT) applicable; or
- Those revenues do not deem to arise from a Portuguese source under the IRS Code territoriality rules.
- Foreign-sourced employment income provided that:
- Those revenues are effectively taxed in the source state, accordingly with the non-double taxation treaty (DTT) applicable or, in the absence of thereof, as long as those revenues are not considered to be obtained in Portugal matching our IRS CODE article 18.º criteria.
- Foreign-sourced income from independent personal services provided that:
- Derives from high value-added activities as defined by Ministerial Order (ex.: investors, artists, doctors, architects, university professors…)
- It is potentially liable to taxation in the source state accordingly with the non-double taxation treaty (DTT) applicable or, in the absence of thereof, under the rules of OECD Model Tax Convention, if such income is not deemed to arise from a state, region or territory included in Portuguese tax havens’ blacklist nor from a Portuguese source under IRS CODE article 18.º criteria.
In the end, what matters is that if the above requirements comply, those types of income are exempt from taxation in Portugal, which means taxes will be due only to your source state. Plus, income deriving from employment and independent personal services (high value-added activities) of a domestic or foreign source, but not qualifying for the mentioned exemptions, are limited at a special 20% rate. Sounds like a tempting plan so far?
What about financial income?
In summary, observing the basic principles…
- Investment funds/ distribution of profits (dividends) → exempt.
- Redemption and alienation/bonds/windfall gains (capital gains) → not exempt (28%).
- Bank deposits/insurance with guaranteed capital (interest) → exempt.
- Certificates or insurance without guaranteed capital (other income) → not exempt (28%).
- Crypto-currencies → exempt as long as the trading of cryptocurrency is not frequent.
Something about inheritance you should be aware of:
With the enforcement of the Succession European Regulation n. º 650/2012, you will need to choose the law you wish to apply to your situation, otherwise, the supplementary rule will determine the application of the law from the residence country. According to Portuguese law, inheritance and donations are subject to taxation upon the transfer of property, however, succession by close family members are exempt and assets outside Portugal are not taxable. Only to donations of real state between close family members, there is a 0,8% tax on their taxable value.
Let’s attend some countries examples:
Warning: to obtain NHR statute, you have until 31/march of the next year counting from when you became fiscal residents.
Melissa Tavares de Carvalho