The economic consequences of the 2008 Crisis forced several countries to create solutions to leverage their economy and, thus, make them raise more revenue. Portugal was no exception to this planning and, in this context, created the Non-Habitual Resident Statute, which came into force through the Investment Tax Code, approved by Decree-Law no. 249/2009.
The Non-Habitual Resident (NHR) tax regime was designed with the aim of attracting to Portugal a certain group of – until then – non-residents, namely professionals qualified in high added value activities (defined by Ordinance) and also high net worth individuals that could contribute to increase the consumption and thus allow for an increase in State tax revenues.
In summary, it is a regime that exempts, in terms of the IRS, some passive income from foreign sources (real estate, dividends, interest, royalties) and applies a fixed rate of 20% for active income (employment or self-employment) derived from activities established as having high added value. However, it is necessary to comply with certain minimum criteria for the individual to be able to benefit from the NHR: they must not have been a tax resident in Portugal for the 5 years prior to their application for the Statute and, in addition, they must prove the permanence in Portuguese territory for at least 183 days a year.
Alternatively, if you do not meet the minimum stay requirement, you must demonstrate that you have an address that makes it presumable that you intend to settle in Portugal on a permanent basis (lease agreement or deed). These benefits will be valid for a period of 10 non-renewable years – after that, the income will be subject to the progressive rate of IRS normally applicable to the rest of the citizens residing in Portuguese territory.
This is the general framework of the regime, which seems, and in fact could be, quite attractive for those wishing to immigrate to Portugal. However, caution must be taken with the generalization of benefits. It is necessary to take into account the source country of the income, as well as to analyze the Conventions to Avoid Double Taxation that are celebrated between Portugal and these countries. Some passive income may not benefit from the exemption depending on its source (namely those obtained in the so-called “tax havens”), so legal advice is essential to know if you may be eligible for the special IRS rates granted by the NHR.