Complete guide to the Portugal NHR tax regime

The Portugal NHR tax regime (non-habitual resident) is a hugely successful scheme offering lucrative tax breaks for foreign residents. To date, over 10,000 citizens from across the world have successfully applied, helping them alleviate their tax burdens. The NHR scheme was initiated in 2009 and updated in 2020 and is a fantastic initiative for those looking to optimize their tax planning and reside in Portugal. In this comprehensive guide to the Portugal NHR tax regime, you’ll learn more about the main guidelines for applying and the key benefits of the program.

This complete guide to Portugal’s NHR tax regime walks you through:

• What it is
• Eligibility criteria
• Program requirements

What is the Portugal NHR tax regime?

The Portugal non-habitual resident tax aims to attract investors and professionals of high cultural and economic worth, in order to increase the country’s international competitiveness. The regime was first implemented in 2009 and allows for substantial tax savings for those who qualify. Under certain conditions, the NHR status allows for a tax rate on income of 20% and in some cases even a tax exemption for pensions of private-sector pensioners. With over 10,000 non-habitual tax regime residents in Portugal, the scheme has been highly successful.

Why become a non-habitual tax resident in Portugal?

TAX RESIDENCY IN WHITE-LISTED EU COUNTRY

SPECIAL TAX TREATMENT FOR 10 YEARS

NO WEALTH TAX

FREE REMITTANCE OF FUNDS TO PORTUGAL

EXEMPTION ON ALL FOREIGN INCOME

20% FLAT RATE ON SOME PORTUGUESE INCOME

TAX EXEMPTION ON GIFTS FOR FAMILY MEMBERS

NO MINIMUM STAY REQUIREMENT

Key advantages of applying for Portugal NHR status:

• Benefit from a special personal income tax treatment over a 10-year period
• Enjoy tax exemption on almost all foreign source income
• 20% flat rate for certain Portuguese source incomes (from specific professions and from self-employment), as opposed to normal Portuguese income tax rates of up to 48%
• No minimum stay requirement
• Become part of a white-listed tax environment within the EU
• A tax exemption for gifts or inheritance to direct family members
• No wealth tax
• Free remittance of funds to Portugal

Portugal NHR and double taxation agreements

A key feature of Portugal’s non-habitual resident tax regime lies in its relationship with Double-Taxation Agreements (DTAs). DTAs allow for most categories of income to be taxed in the country of source of income. Most countries, however, choose not to tax income earned by non-residents as they want to be seen as jurisdictions open for foreign investment.

In turn, under the NHR tax regime, Portugal will not tax most foreign source income earned by NHR individuals because the income may be taxed abroad. This allows for NHR residents to receive foreign income completely free of tax.

Portugal currently has signed Double-Taxation Agreements with 79 countries and the OECD model tax convention may be used in the absence of a DTA.

Who can apply for the non-habitual resident tax regime in Portugal?

Requirements

In order to qualify for the NHR regime, applicants must fulfill the following requirements:

• Have the right to reside in Portugal either by being an EU/EEA/Swiss citizen, or through schemes such as the Golden Visa program

AND

• Not have been a Portuguese tax resident in the five years prior to taking up residence in Portugal

To maintain a residency status in Portugal, the individual must:

• Have a place of abode in Portugal on the 31st of December of that year.  This home must be available in a way that may lead to the supposition of an intention to keep and occupy it as a habitual home.

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NHR and the Golden Visa

Non-EU/EEA/Swiss citizens who wish to apply for the NHR regime in Portugal may want to take advantage of Portugal’s Golden Visa program.

Investors who first acquire residency through the Golden Visa program can then become eligible for the NHR regime in Portugal.

Find out more about the Golden Visa program here.

Global Citizen Solutions can help you take the next step towards investing in Portugal. As specialists in investment and residency programs, we can provide you with personalized advice that will help you make the best possible decision.

Tax residency requirements for the Portuguese non-habitual resident regime

In order to establish tax residency in Portugal, applicants for the NHR scheme must hold a place of residency in Portugal on the 31st of December of that year with the intent to hold habitual residence.

Do I have to buy or can I rent property to prove residency in Portugal?

The NHR regime does not require its beneficiaries to purchase property in Portugal.

To comply with the requirements of the regime, applicants must have a domicile in Portugal available to them. This must be a place that demonstrates the intention to hold and occupy the space as a habitual place of residence.

It can, therefore, be beneficial for NHR tax residents to buy property in Portugal however a rental contract for 12 months is also sufficient proof of residence.

What documentation is required to prove residency?

If you decide to rent a property, you will need to provide proof of a lease or loan agreement. If you have bought a property, you can provide a purchase deed instead.

Tax under the non-habitual resident regime in Portugal

Which professions are considered to be of high value under the NHR tax regime?

Professions of high cultural and economic worth are given generous tax exemptions under the NHR regime, as they are considered to be of added value to Portugal.

The following professions are considered of high added value:

Tax treatment of foreign source income under the NHR regime

Beneficiaries of the NHR regime in Portugal with a foreign income are largely exempt from taxation in Portugal due to DTAs.

If income is sourced in a country which has a double taxation treaty with Portugal, this means the income will not be taxed in Portugal.

Employment income

• Foreign source income is tax-exempt under the NHR regime or taxed at a flat rate of 20% if it falls under the list of eligible professions.

Self-employment income

• Taxed at normal progressive rates unless it comes under the eligible profession categorization
• This income is also subject to social security contributions unless the individual in question already pays into another social security system
• Optionally taxed at a flat rate of 20% —but the taxpayer can choose to pay usual progressive rates if they are less
• Tax-exempt if it is from an eligible profession and comes from a country with a DTA, or in the absence of a treaty under the OECD model tax convention (provided the country is not a tax haven)

Royalties and income from financial assets

• Tax-exempt if the income comes from a country with a DTA
• Tax-exempt if the income originates from a country without a DTA but which isn’t a blacklisted tax haven
• Otherwise taxed at 28% or 35% if the country is a blacklisted tax haven

Real estate income and capital gains

• Tax-exempt if from a country with a DTA
• Tax-exempt if from a country without a DTA but which isn’t a blacklisted tax haven

Capital gains from the disposal of securities (shares, bonds, etc.)

• Subject to an optional rate of 28%, 35% if from a blacklisted tax haven

Pension income

• Taxed at a flat rate of 10% (since March 2020)

Tax treatment of Portuguese source income under the NHR regime

Employment income

• Usual progressive tax rates apply if employment does not fall under the list of eligible professions
• If employment falls under eligible NHR professions, an optional tax rate of 20% is applicable, although usual progressive tax rates can also be applied if this comes to less

Self-employment income

• Usual progressive tax rates apply if employment does not fall under the list of eligible professions
• If employment falls under eligible NHR professions, an optional tax rate of 20% is applicable, although usual progressive tax rates can also be applied if this comes to less

Real estate income and capital gains

• Rental income is taxed at an optional rate of 28% or otherwise at normal progressive rates
• Net capital gains are taxed at 50%, at the normal progressive rates

Pension income

• Taxed at usual rates (10%)

Portuguese tax table for 2020

Timeline and important dates for NHR application

In order to register for the NHR regime in Portugal, applicants must be registered as a Portuguese resident and tax resident.

NHR regime applicants must have proof of a habitual abode by December 31. The NHR application then has to be made before March 31.

It usually takes about two weeks for an application for the NHR regime to be accepted or declined.

NHR status is granted for a period of 10 years, retroactively effective from the date on which the applicant became resident.

Step-by-step application guide: non-habitual resident tax regime in Portugal

Step 1 – Proof of residency

The first step towards applying for the non-habitual resident regime in Portugal is securing residency status in the country. To do so, you must have the legal right to reside in Portugal.

EU/EEA/Swiss citizens

EU/EEA/Swiss are allowed to register for residency without a visa. All that is needed to register citizens can register for residency at their local town hall (Sítio da Câmara). Be sure to take with you:

• Passport
• EHIC card
• You will need to give a current address, but will not require proof of residency

At the town hall, you will need to find the correct ticket to register as a “Cidadão Europeu”. The process is fairly straightforward, and the attendant should fill out the form for you. You will then have to pay a fee of around €16.

Non-EU citizens

Non-EU citizens who wish to apply for the NHR regime must first obtain a residence permit to be allowed to settle in Portugal. This can be granted through a number of different methods, but the most common is through the Golden Visa or through Passive Income.

Each process must be done either through “Serviço de Estrangeiros e Fronteiras” (SEF) or in a Portuguese embassy in your country of origin.

Take a look at our Golden Visa guide for more information.

Step 2 – Find a specialist accountant for professional advice

The safest way to apply for NHR status in Portugal is with the help of a specialist. This way you can ensure that you have the best understanding of Portuguese tax law and find the best solution for your needs. However, should you wish to apply on your own, you can follow the steps below.

Step 3 – Obtain a Portuguese tax number (NIF)

Everyone who intends to reside or do business in Portugal must have a tax identification number (NIF) in Portugal  (Numero de Identificação Fiscal). This is a 9-digit number that serves as an identification for tax purposes.

There are a number of different ways to acquire a NIF, though if you are already in Portugal, you can go to your local government finance office (finanças).  To get a NIF at a finanças in Portugal you will need proof of residence (such as a utility bill or rental contract), and your residency certificate or visa, as well as your passport.

Step 4 – Register as a tax resident in Portugal

After you have your NIF, you must register as a tax resident in Portugal. This can also be done at finanças.

Step 5 – Apply for your NHR Status

If you choose to apply for the NHR on your own, the easiest way is online through the government’s financial portal. To use the online service, you must first register to the website.

To do this you will need your NIF, your fiscal address, email address, and phone number. These should be all of the same details which you initially used to register for your NIF. You will also be asked to provide a secret question and answer.

Once you have registered, a password will be sent to you by post. It should take at most two weeks to arrive.

When your password arrives, you can log into the finanças portal and register your application for the NHR regime. You can do this by accessing Aceda aos Serviços Tributários, clicking on Entregar Pedido and then finally Inscrição Residente Não Habitual.

To complete your application you will be required to submit the following documents:

• A declaration stating that you have not been a tax resident in Portugal for the previous 5 years
• Tax returns for the past 5 years
• Proof of purchase of property in Portugal or a rental contract

Request for further evidence

One of the main reasons for which NHR applications are rejected is that not enough supporting evidence has been provided. It may be required for you to verify that you have not been a tax resident in Portugal within the past 5 years. This means submitting further evidence to prove that you have been a tax resident in another country.

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NHR regime for UK residents

With uncertainty over the direction of Brexit, it is difficult to know how the NHR regime in Portugal might change for British citizens. Portugal has a double tax agreement with the UK, which means that taxation for British citizens will remain the same under the NHR regime. Issues may arise in regards to residency, however, those who have already secured a residency in Portugal are likely to be protected. The Portuguese government has indicated that British citizens registered as living in Portugal will retain all of their current rights even after Brexit.

British citizens who are considering applying for the NHR regime in Portugal might wish to consider doing so before Brexit comes into effect.

NHR regime for US citizens

US citizens can certainly apply for the scheme. Anyone who meets three requirements can request NHR status. You must live abroad, not have been a resident in Portugal within the last five years, and want to move to Portugal. To be considered a resident, you must remain in the country for 183 days a year or have your primary home there.

Frequently asked questions about the Portugal NHR tax regime