Non Habitual Resident Tax Regime
Although it seems to be related, the non-habitual residents tax regime (NHR regime) is not tied to any type of residence permit in Portugal.
The Investment Tax Code, approved by Decree-Law n. 249/2009, of September 23rd, created a special tax regime for the non-habitual resident, with regard to the Personal Income Tax (“IRS”), in order to attract to Portugal qualified professionals in high value-added activities, as well as beneficiaries of pensions obtained abroad.
The NHR regime establishes, under certain conditions, IRS exemptions on some types of foreign sourced income, as well as a limited 20% taxation of income in relation to employment and self-employment income, in both cases, if derived from high value-added activities, according to a list published by the Portuguese Government.
Who may apply for the NHR regime?
The NHR regime is available for citizens who meet the following conditions:
- Have not been considered as tax resident in Portugal in any of the previous five years;
- Are considered to be resident in Portugal, in the year in which it intends to start taxation as NHR, which occurs in the following situations:
(i) Staying for more than 183 days, consecutive or interpolated, in any 12-month period, starting or ending in the year in question; or
(ii) having stayed for less time but, on any day of the twelve-month period, have available a permanent address under conditions which suggest the intention to keep it and occupy it as their habitual place of residence.
We note, however, that a foreign citizen who needs a visa to enter in Portugal and the respective residence permit to live in this country, should proceed with the beginning of this process before the NHR application.
For how long may I benefit the NHR status?
An individual registered under the NHR regime may benefit from this scheme for a period of 10 consecutive years, starting from the year of registration as a tax resident in Portugal, as long as it continues to be considered as a tax resident in Portugal during that period. The 10-year period cannot be extended.
At the end of this period, the individuals will be subject to taxation in accordance with the general taxation rules applicable to the “normal” tax residents in Portugal.
Taxation of the foreign income:
- The employment income may be exempt from taxation if certain conditions are met, for example, as long as they are effectively taxed on the State of source of the income, in accordance with a Double Taxation Agreement (“DTA”) celebrated between Portugal and that State;
- The self-employment income derived from high value-added activities in accordance with a list published by the Portuguese Government may be exempt from taxation in Portugal provided that some conditions are met, for example, as long as they may be taxed on the State of source of the income, in accordance with a DTA celebrated between Portugal and that State;
- The passive income such as dividends, interest, certain types of royalties, rental income and capital gains may be exempt from taxation in Portugal, provided that some conditions are met.
In case the abovementioned types of income do not meet the necessary conditions in order to be exempt, it will be applied the general tax rates (progressive ones), which may vary between 14,5% and 48%.
- Pension income: the 2020 State Budget Law brought some changes to the taxation of pension income from the abroad. In this sense, individuals who become tax residents in Portugal as from the entry into force of the referred Law (i.e., 1 of April 2020) and who meet the criteria in order to be registered in the NHR regime, are subject to taxation at a flat tax rate of 10% on foreign pension income.
On the other hand, the exemption will continue to be applicable to individuals who obtained the NHR regime before 1 of April 2020 and to those who were considered as tax residents in Portugal up to that date (and who will apply for the NHR regime within the proper legal deadline). We note, however, that this exemption will only be applicable if the pension is taxed in the State of source in accordance with a DTA between Portugal and this State or, alternatively, when such income is not considered to be earned in Portugal.
Notwithstanding, the individuals who were already registered under the NHR regime or signed up for it before 1 of April 2020, may choose to be subject to taxation under the previous regime (i.e., exemption of taxation when the legal conditions are met) or under the new rules (i.e., in which the pensions will be subject to taxation at a tax rate of 10%).
Taxation of Portuguese income
- The employment/self-employment income derived from high value-added activities in accordance with a list published by the Portuguese Government will be subject to taxation at a flat tax rate of 20% (click here to check the list of high value-added activities);
- In the capital gains from the sale of immovable properties it will only be considered 50% of the value of the profit, being applicable the progressive tax rates to the referred half of the gain;
- Capital gains on the sale of shares/securities, income from interest and dividends will be subject to taxation at 28%;
- The rental income will be taxed at 28%.
Submission of a tax return
As tax residents in Portugal, the individuals are obliged to submit an annual tax return, where they should report the worldwide income received in the period of residency in Portugal, even though the referred income may be exempt or partially exempt from taxation in Portugal, under the NHR regime.