The portuguese non-habitual tax resident regime
The Non-habitual Tax Resident Regime (“NHR”) foresees a competitive tax regime applicable to individuals transferring their tax residence to Portugal. The NHR is one of the most competitive European tax regimes, in particular due to the following key features: no deemed taxation/“lump-sum” taxation, no limitation on the remittance of funds, no wealth tax and no gift/inheritance tax on funds or assets transferred to spouses, ascendants (e.g. parents) or descendants (e.g. children). Moreover, this regime applies free of charge and is granted for a period of 10 years.
Who is eligible for Portugal non-habitual resident regime?
A non-habitual tax resident in Portugal is an individual that:
- Becomes a resident taxpayer for Portuguese Personal Income Tax Code (“PIT Code”); and
- Was not a resident taxpayer for PIT purposes in the 5 years prior to the application of the regime.
To qualify as a tax resident under Portuguese domestic rules, an individual is required to:
- Spend more than 183 days in Portuguese territory (on a 12 months period); or
- Own a dwelling that qualifies as a habitual residence in Portuguese territory (regardless of the number of days effectively spent in Portugal).
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The benefits provided in the NHR range from a full exemption on certain types of foreign sourced income and a reduced flat tax rate of 20% to other types of Portuguese sourced income (please note that the maximum Portuguese PIT rate may be higher than 50%).
Foreign - Source Income
1. Passive income for non-habitual resident status
- derived outside Portugal (e.g. dividends, interest, pensions and rental income) from non blacklisted jurisdictions is fully exempt in Portugal. This exemption applies irrespective of the taxation applicable at source (i.e. it is possible to achieve double non-taxation). Capital gains from securities remain, as a general rule, taxable at a rate of 28% and pension income is taxable at a rate of 10%.
2. Active income for non-habitual resident status
- (e.g. income from employment and also from self-employment derived in connection with “high value added activities”) may also be fully exempt provided specific conditions are met. The activities qualified as “high value added” are identified in a statutory shortlist (published in the Ministerial Order No. 230/2019) and includes certain teachers, science and engineering technicians and professionals, general directors and executive managers of companies, IT professionals, among others.
Portuguese - Source Income
1. Active income for non-habitual resident status
- derived in Portugal in connection with “high value added activities” will be subject to a flat rate of 20% (instead of the general progressive tax rates).
In order to provide additional comfort to the individual applicants, it is possible to obtain a tax ruling from tax authorities confirming that the individual is eligible and may claim the benefits of this regime of non-habitual resident in Portugal. This option may be particularly advisable in respect of more complex investment structures.
The NHR in Portugal is a straightforward procedure, however a previous case-by-case analysis is recommendable to understand (i) whether the applicant meets all the non-habitual resident Portugal requirements and (ii) what may be the scope of the benefits granted.
This information is of preliminary general nature and does not replace proper legal advice.