(NHR) Non Habitual Tax Status in Portugal

 

We have written on Portugal in the past - https://www.mooresrowland.tax/2019/10/brief-on-portugal-taxes-including-nhr.html

The NHR program is very nuanced and unfortunately it is often over simplified and people have the mistaken perception that you can "live in Portugal tax-free". This is certainly not the case and the program is evolving. In fact there were big changes that came into play in 2020

In 2020, our Webinars on Portugal tax attracted just short of 400 people. Here's a video where I give an update for 2020 - https://youtu.be/hTBWkjfj20A

We will do another in early 2021. See www.htj.tax for upcoming webinars

One thing that is not emphasized enough is that Portugal must be your center of life. Less experienced consultants would say that it is enough to just rent a room so you have an address and a rental contract registered. No this is certainly not correct. If your accommodation is registered with the local authorities by the landlord as a Alojamento Local (or Airbnb type accommodation) then the tax office may deem this insufficient to maintain Portugal tax domicile.

I had a very bad experience where I booked accommodation online from warmrental.com which was listed on housinganywhere.com. Unfortunately I did not follow my own advice and I paid a deposit without checking with my Portugal Tax Lawyer. She told me of the risk explained above a couple days after booking but days before I was due to move in. I lost over EUR2 000 as they refused my request for a refund. Times are hard in Portugal and rental agents are often desperate and will take any opportunity to pocket your money so please be careful. Get proper legal advice before ever handing over cash.

As to US taxes for expats in Portugal, please don't hesitate to get in touch.

 

Taxation of Non Habitual Tax Residents

 

Under this regime, the following taxation rules apply:

  • Foreign-source self-employment or sole trader income derived from an eligible occupation (see below), royalties, capital gains and investment or rental income will be exempt from Portuguese tax as long as they may be taxed in the source country either under a double taxation agreement or under the OECD model tax convention.​ In addition, such income must not be deemed Portugal-sourced under applicable Portuguese law, and must not be sourced from a blacklisted tax haven.
  • Foreign-source employment income will be exempt from Portuguese tax as long as it is liable to tax (at whatever rate) in the source country either under a double taxation treaty or under the OECD model tax convention, and is not deemed Portugal-sourced under applicable Portuguese law.
  • Pension income will be liable to a 10% flat tax in Portugal, as long as deemed as not being Portuguese sourced income under the applicable Portuguese law.
  • If your occupation is eligible (see below), Portugal-source employment or self-employment / sole trader income will be taxed at a flat rate of 20%, while other Portugal-sourced types of income will be taxed at the normal rates applicable to resident taxpayers, the calculation of the applicable marginal tax rate taking into account all income, including exempt income. 
  • In Portugal there is no wealth tax or capital duty, and an inheritance or a gift received by a spouse, descendant or ascendant is tax exempt. Inheritance or gifts received by other individuals will be either not taxable under territoriality rules, or else may be subject to a flat 10% stamp duty.

 

Applicability of Double Taxation Agreements

 

One interesting feature of this regime is that many double taxation treaties (of which Portugal signed 79) grant the source country the possibility of taxing income paid to residents of the other country, although in practice many countries abstain from using this possibility so as to attract foreign investment. This means that in practice many types of income will often be zero-taxed in the hands of the “non-habitual resident”, since Portugal will not tax them merely on account that they may be taxed in the other country.

 
Taking the UK/Portugal treaty and 2 types of income as an example, if you are a resident of Portugal but receive income from the UK, then, in respect of such income, the UK has the power to:
  • Tax dividends under article 10, although it does not if the recipient is not a UK resident
  • Tax royalties under article 12, although it does not if the recipient is not a UK resident
I.e. if you receive dividends or royalties from a UK company, such income may be subject to tax in the UK under the UK/Portugal agreement. As a consequence, although in practice it will not be taxed in the UK, it will not be taxed in Portugal either if you benefit from "non-habitual resident" status.
 
Capital gains deserve careful consideration. Under article 13, they are treated differently according to whether they originate from the disposal of immovable or movable property. While capital gains from the alienation of real estate may under the double taxation treaty be taxed in the country in which the property is located and will therefore be exempt in Portugal, capital gains from the alienation of other types of property (notably securities) are taxable only in the beneficiary's country of residence. As such, capital gains from the sale of securities will be subject to tax in Portugal, currently at a flat rate of 28%. Before becoming a non-habitual resident of Portugal, tax advice should therefore be taken by anyone who anticipates significant capital gains from the sale of securities.
 
This is, of course, only a superficial initial approach and it is recommend that you take proper tax advice in order to make sure all your circumstances are taken into account.
 

Stay Requirements

 

Although the individual must be deemed a resident of Portugal when he/she submits the application, there is no minimum stay requirement afterwards and it is even possible to stop being a Portuguese tax resident for one or more years without losing non-habitual resident status.
 

Eligibility Requirements

 

In order to qualify as a “non-habitual resident”, a Portuguese national or a foreign individual having the right to live in Portugal must register as a tax resident of Portugal after not having been resident in this country during at least the previous 5 years. It should be noted that under the law an unregistered individual will be deemed resident for tax purposes if he/she either spends more than 183 days in the country during a 12-month period, or has a place of abode in the country, "in a way that may lead to the supposition of an intention to keep and occupy it as a habitual home". However, there is no minimum stay requirement for a Portugal-registered tax resident.

EU, EEA and Swiss citizens have an automatic right to live in Portugal, having the legal obligation of registering accordingly, and individuals of other nationalities must obtain a residence permit.

Recognition of non-habitual resident status is not automatic and is granted for a period of 10 years upon successful application to the Portuguese tax authorities up until March 31st of the year following that in which Portuguese residence was taken up.

In order to apply, all that is required is the filing of a request and of a statement to the effect that the applicant was not resident for tax purposes in Portugal during the 5 years preceding the arrival in Portugal. Only in the event the tax authorities have doubts concerning the truth of what is stated will they request additional documentation, which may include a tax residence certificate from the previous country and/or a document proving that the vital and economic interests of the applicant were centred in another country during the previous 5 years.

 

Official List of Eligible Occupations

 

​The list of High Value-Added Professional Activities eligible to tax benefits applicable to employment and business income under the Non-Habitual Resident (NHR) tax regime, provided the professionals hold at least (a) a level 4 qualification under the European Qualifications Framework, or (b) level 35 of the International Standard Classification of Education, or (c) 5 years of duly proven professional experience, on the following occupations:

  • General Managers, Executive Managers
  • Administrative Managers, Commercial Managers
  • Production Managers, Specialised Services Managers
  • Hospitality, Restaurant, Retail and Other Services Managers
  • Specialist Physicists, Mathematicians, Engineers and related Technologists
  • Medicine Doctors
  • Dentists and Stomatologists
  • University and Higher Education Teachers
  • ICT Technologists
  • Authors, Journalists and Linguists
  • Creative and Performance Artists
  • Intermediate level Science and Engineering Technicians and Professionals
  • ICT Technicians
  • Market-oriented Farmers and qualified Agriculture and Animal Husbandry workers
  • Market-oriented Forestry, Fisheries and Hunting qualified workers
  • Industry, Construction and Handicraft qualified workers
  • Plant and Machine Operators and Assembly Workers, namely operators of fixed installations and machinery
Directors and Managers of businesses that promote productive investment in eligible projects that qualify for tax benefits under a concession agreement entered into under the Investment Tax Code.
 
 

Related Posts

Related Sites