Posted on: 11-03-2022 in Expats
Portugal has long been a top destination for expats from all over the world.
According to official figures, over 34,000 British nationals alone live in Portugal. Aside from the weather and quality of life, Portugal also offers an attractive tax regime.
The Portuguese government introduced the non-habitual resident (NHR) scheme in 2009. The programme aims to attract foreigners by substantial savings through tax benefits and tax exemptions.
In this article, we look at Portugal’s non-habitual resident tax regime. Here, you will find everything you need to know about the favourable tax regime.
Let’s start by looking at the benefits for foreign nationals.
There are two key benefits associated with non-habitual resident status. This has to do with how taxable income works for Portuguese residents.
Portuguese income tax works on a scale system in the same way it does in the UK. The rate of tax starts at 14.5% and scales up to 48%.
However, if you qualify as a non-habitual tax resident, your income tax is capped at a flat rate of 20%. This special treatment for personal income tax lasts for a 10-year period, meaning the total savings could be huge.
The second benefit is nearly all foreign sources of income are exempt from tax in Portugal. This includes foreign employment income and capital gains.
So far, we have covered the main benefits, but there are other advantages of becoming a non-habitual tax resident. The graphic below highlights some of the other benefits of the special tax regime.
As we mentioned above, income from a foreign source is exempt from tax in Portugal under the NHR scheme. However, this doesn’t mean it is not taxed at all.
The NHR tax regime works with double taxation agreements (DTAs). A DTA is a treaty between two countries that try to prevent you from being taxed in two countries on one source of income.
Portugal has DTAs in place with a large number of countries, including the UK. What this means is UK-based income is liable for tax in the UK. While the source countries can apply tax, most tend not to for non-residents.
Because under the NHR scheme, most foreign-sourced income avoids tax in Portugal, it could avoid tax altogether. You should also note that foreign-source pension income from a country with a DTA is exempt from tax.
The rules around taxation in one country are complex enough. Once another country is in the mix, things can be even more unclear. Not only do you need to know the tax rules in both countries, but you also need to know how the relationship between the two affects the rules.
If you are unsure, you should speak with an expert who will advise you based on your situation.
Income from employment is taxed at the flat rate of 20% if you work in one of the eligible professions mentioned above.
If you work in another field, income is taxed are the usual progressive rates (14.5%-48%). This rule applies to both employed and self-employed income.
The NHR regime also covers rental income, taxed at either an optional rate of 28% or the standard progressive rates.
A tax rate of 50% applies to net capital gains, or in some cases, the progressive rates.
You should be aware that changes to the tax regime in 2020 affected foreign pensions. As of March 2020, Portuguese-based pension income increased from 0% to 10%.
To be eligible, you should not have been a Portuguese tax resident in the last five years before applying.
You will also need to have the right to be a resident in Portugal. This means being an EU/EEA or Swiss citizen. So, what about non-EU/EEA citizens?
British citizens fall into this category following the UK’s departure from the EU. Non-EU nationals can still apply for the NHR regime by taking advantage of the Portugal Golden Visa Programme.
The Golden Visa programme allows you to make an investment to acquire residency in Portugal. Once you have your residence permits, you become eligible for the NHR scheme.
It’s important to note that you must establish a Portuguese tax residence by December 31st of that year. Although proof of residence is required, you do not need to purchase a property to qualify for the NHR regime.
There are benefits to buying a property in Portugal; however, a rental contract is sufficient. If you are renting, a 12-month contract will be enough for proof of residency.
The last point to consider is what you do for work.
The idea of the NHR scheme is to attract highly skilled professionals that bring economic and cultural value to Portugal. Skilled workers include university professors, executive managers and those working in natural sciences, to name a few.
The table below shows the professions that receive tax exemptions under the special regime:
|NHR regime – high added value professions|
|Geologists||Musicians||Clinical Surgeons||Psychologists||News agencies||Managers|
|Architects||Painters||Ship’s Doctors||Archaeologists||Other information |
|Biologists and |
|Research and |
|Research and |
The following is an overview of the NHR application process:
For EU/EEA and Swiss citizens, this step is straightforward. You simply need to register for residency with a passport and required documents.
Non-EU citizens will need a residence permit. The Portugal Golden Visa programme is one of the most common ways of getting a permit.
Be aware there were some big changes made to the golden visa that went live on January 1st 2022.
Once you have your proof of residency, you will need a NIF number.
This is a nine-digit tax identity number. Having one is essential if you intend to live or do business in Portugal.
When you have your NIF number, you need to use it to register as a tax resident in Portugal.
Once everything above is in place, you can begin your NHR application.
With the UK no longer a part of the EU, becoming a Portuguese non-habitual resident is not as simple as it once was. Still, there are options available to British citizens.
The golden visa programme is one of the best ways to become a resident in Portugal and apply for NHR status.
At Holborn Assets, our team of experts work closely with some of the world’s biggest and most trusted golden visa schemes, including Portugal.
We can help guide you through the process and find an investment option that is right for you. We will even take care of the paperwork.
For those looking for financial advice in Portugal or managing international assets, we can help.
Contact us using the form below to find out how we can help you.
Complete our form below and one of our consultants will arrange a free consultation to guide you through our services.