What is the NHR tax regime in Portugal?

Movingto Editorial Team
December 23, 2022

The NHR (Non-Habitual Resident) tax regime in Portugal is a special tax regime designed to attract highly qualified individuals to work and live in Portugal. It allows individuals who are not tax residents in Portugal to be taxed at a flat rate of 20% on their foreign-source income, rather than being subject to the progressive tax rates that apply to Portuguese residents.

The Portuguese government established the Non-Habitual Resident (NHR) tax regime, offering attractive tax benefits for foreigners. Designed to attract skilled professionals and individuals with high net worth to the country, the NHR tax regime holds vast potential to transform your fiscal outlook.

What is Portugal's NHR Tax Regime?

The NHR tax regime is a Portuguese tax incentive that runs for ten consecutive years. It allows non-habitual residents to benefit from reduced tax rates or, in some instances, total exemption from taxation on certain income types. The scheme aims to draw qualified professionals and wealthy individuals to Portugal.

How to Become Eligible for the NHR Tax Regime in Portugal?

To qualify for Portugal's NHR tax regime, an individual must not have been a Portuguese tax resident in the last five years. Additionally, they must spend at least 183 days per year in Portugal or possess a home indicating the intention to reside in Portugal permanently.

1. Be a tax resident of Portugal: To be considered a tax resident of Portugal, an individual must either spend more than 183 days in Portugal in a tax year, or have their main home in Portugal.

2. Be a non-habitual resident of Portugal: To be considered a non-habitual resident, an individual must not have been a tax resident in Portugal for at least the previous five years.

3. Engage in a qualifying activity: To qualify for the NHR tax regime, an individual must engage in a qualifying activity, such as working as a freelancer or providing services as a professional.

4. Meet other requirements: There are a few other requirements that must be met in order to qualify for the NHR tax regime. For example, the individual must not receive a pension from the Portuguese state and must not be a shareholder or member of a company resident in Portugal.

If an individual meets these requirements, they can apply to the Portuguese tax authorities to become an NHR and benefit from the favorable tax treatment provided by the NHR tax regime. The NHR tax regime is valid for a period of 10 years, after which the individual will be subject to the regular tax rules that apply to Portuguese residents. Please, for more information check of NHR article.

Advantages of the NHR Tax Regime

Portugal's NHR tax regime offers significant tax advantages to foreign residents. Some of the benefits include a flat 20% tax rate on certain Portuguese-sourced income and tax exemption on almost all foreign-sourced income. The regime is attractive to pensioners, business owners, and professionals in high-value-added fields.

The Drawbacks of the NHR Tax Regime

Like any fiscal policy, the NHR tax regime is not without its drawbacks. There's the risk of double taxation on certain income types in your country of origin, as well as the implications of losing the NHR status should you fail to meet the requirements.

The NHR Regime and Brexit

The implications of Brexit on the NHR regime remain relatively neutral, thus UK citizens can still apply and benefit from the NHR tax regime. Despite the Brexit changes, the Portugal-UK double tax treaty remains in force, protecting individuals from dual taxation.

Understanding the NHR tax regime can be a complex process. However, with the right guidance, this fiscal incentive can offer significant benefits for individuals looking to relocate to Portugal.

Do you need more insights on the NHR tax regime in Portugal? Contact the Movingto team today for more detailed guidance tailored to your circumstances.

Remember, every fiscal situation is unique, and the benefits or drawbacks of the NHR tax regime will depend on your individual circumstances.

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