NHR - Non-Habitual Residents in Portugal: How does this tax regime work?
For those who live abroad and intend to live in Portugal or even Portuguese who have emigrated and intend to return, the NHR is a special income tax regime that can save you a lot of money!
The Non-Habitual Resident (NHR) status is a special income tax regime for new residents in Portugal that offers excellent tax opportunities at extremely competitive conditions, when compared internationally with other favourable tax regimes.
The tax benefits vary depending on the type of income of the taxpayers that can benefit from this status.
Can I benefit from the NHR tax regime, and what are the benefits?
This regime is aimed at individuals in three income groups:
Pensioners;
Individuals with income from employment;
Individuals with passive income.
1. Pensioners
Under this regime, which was updated in April 2020, private pensions obtained abroad benefit from a special income tax rate of 10%, provided they are not already taxed in the country of origin (in accordance with double taxation agreements between Portugal and that country).
Although this 10% flat rate is not as advantageous as the zero tax practised under this scheme before April 2020 (which was only valid for a 10-year period), it is still lower than most of the tax rates in Portugal and in other European countries. Another advantage is that this separate income tax rate does not contribute to the increase in the progressive IRS rates to be levied on other income that a pensioner may receive.
2. Individuals with income from employment
Income from employment in Portugal - Income from employment in Portugal (either category A - dependent work, or category B - independent work) benefits from a special income tax rate of 20%, for a 10-year period, provided it results from activities considered "high value-added".
The list of jobs classified by Portuguese legislation as being "high value-added" is quite extensive, and includes professionals who have scientific, artistic and technical qualifications. Some jobs in this list are:
Directors and executive company managers;
Specialists in physical sciences, mathematics, engineering and related fields;
Doctors and dentists;
University professors;
Specialists in information and communication technologies;
Authors, journalists, and linguists;
Creative and performing artists;
Technicians and science and engineering professions;
Farmers and skilled agricultural and animal production workers;
Skilled forestry, fisheries and hunting workers;
Skilled industrial, construction and crafts workers;
Plant and machine operators;
Among others.
(For a more complete list, please refer to the Portuguese legislation currently applicable, namely Portaria n.º 230/2019, or seek assistance from an Accountant with experience with foreign residents in Portugal.)
Income from Portuguese jobs that are not included in the "high value-added" list will be taxed according to the same rules as normal residents in Portugal.
Income from employment obtained outside of Portugal - Employment income from a foreign source is free of tax in Portugal, for a 10-year period, if it meets these two conditions:
The income is obtained from a high value-added activity, according to Portuguese law;
And the income may be subject to tax in the country of residence, under the terms of the agreement signed between Portugal and that country (it is not mandatory that this income is actually taxed, only that the agreement includes the possibility of it being taxed in the country of residence).
Income from foreign sources which does not derive from high value-added activities will be taxed according to the same rules as normal residents in Portugal, safeguarding any agreements to eliminate double taxation that may exist between Portugal and each country.
3. Individuals with passive income
Foreign-source passive income – where interest dividends, royalties and capital gains are included – is also exempt from income taxes in Portugal, for a 10-year period, if it is subject to tax in the country of origin, under the terms of the agreement between Portugal and that country.
Since Portuguese law does not require effective taxation in the country of origin, with a well-structured tax management plan it is possible to achieve double non-taxation of this income.
How can I qualify as a "Non-Habitual Resident"?
To qualify as a "Non-Habitual Resident" in Portugal, it is necessary to:
Become a tax resident in Portugal under Portuguese law;
Not to have been taxed as a resident in Portugal in the 5 years prior to the year in which you become a resident in Portugal. This condition applies both to foreign citizens and Portuguese citizens who are living abroad and wish to return to Portugal.
In order to become a tax resident in Portugal you must:
Remain in Portugal for more than 183 days in a calendar year;
Or, on December 31, own a house in Portugal that you intend to keep and use as your usual residence. It is not necessary to buy a property (renting is also possible).
When should I apply for registration as Non-Habitual Resident?
In order to start this process, the first step is to register as a tax resident in Portugal in any Local Tax Office (Serviço de Finanças) or Loja do Cidadão. This request must be made by the 31st of March of the year following the one in which the taxpayer became a resident in Portugal.
After registering as a taxpayer, you can now apply for the Non-Habitual Resident status. If you are not fluent in Portuguese or would like to have professional help to make this process as simple and hassle-free as possible, we advise you to contact an experienced Accountant in Portugal.
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