The Non-Habitual Residency Tax Regime ("NHR") establishes a highly favorable regime for foreigners who decide to establish their tax residency in Portugal. The NHR is effectively one of the most competitive regimes in Europe in this regard, notably due to the absence of deemed/lump sum taxation as in other European jurisdictions, the absence of limits on the remittance of funds to Portugal, and the absence of wealth tax and inheritance or gift tax in favor of spouses, ascendants, or descendants. Finally, there are no costs associated with this regime, which is granted for a period of 10 years.
Who is eligible?
The status can be granted to individuals who, upon becoming residents in Portugal, have not been Portuguese tax residents in the previous five years. To be considered a tax resident in Portugal, the person must have a qualifying residence as their habitual residence.
A non-habitual resident is an individual who:
- Becomes a tax resident for the purposes of the Personal Income Tax Code ("IRS Code");
- Was not a tax resident for IRS purposes in the 5 years preceding the application of the regime.
As a general rule, an individual is considered a tax resident if:
- They spend more than 183 days in Portuguese territory; or
- Regardless of the time spent in Portuguese territory, they own a permanent home in Portugal as of December 31 of the relevant fiscal year.
Requirements based on citizenship
- Citizens of a European Union Member State: Changing residency does not require any special formalities; it is only necessary to prove ownership of an address in Portugal (through a lease agreement or the acquisition of a property for permanent residence).
- Citizens outside a European Union Member State: In addition to providing proof of ownership of a home in Portugal, it will be necessary to obtain a residence permit in advance, without which registration with the Tax and Customs Authority ("AT") cannot be completed.
Taxation of income
Income earned in Portugal
- Income from work or independent professional activity obtained in the context of a high value-added activity (as described in Decree-Law 249/2009): subject to a flat rate of 20% tax;
- Income from work or professional activity that is not obtained in the context of high value-added activities and pension income: subject to taxation according to general rules, applying progressive rates up to a maximum of 48%;
- Other income, including interest, dividends, capital gains, and rents obtained in Portugal (i.e., from entities with headquarters in Portugal): subject to taxation at a special rate of 28%.
Income earned abroad
- Income under a Double Taxation Agreement (DTA) concluded by Portugal: exempt from taxation in Portugal;
- Income earned without a Double Taxation Agreement (DTA): exemption from taxation in Portugal only if the income is subject to tax in the country of origin and cannot be considered as having originated in Portugal;
- Income derived from professional activity within a high value-added activity, as well as passive income (such as interest, dividends, rents, royalties, capital gains, etc.): exempt from tax in Portugal, provided they can be taxed abroad under a DTA
- Pensions paid by non-resident entities will be subject to a flat rate of 10% tax in Portugal.
If you are interested in learning more about this program, please contact us.