Watch our quick NHR Program guide:
The State Budget proposal for 2024, revealed on 10th October, stipulates the discontinuation of the Non-Habitual Resident (NHR) regime.
This was previously announced by Portugal's Prime Minister during a TV interview. The NHR regime, established in 2009, enabled qualifying people to obtain tax residency in Portugal, thereby diminishing or bypassing income tax on certain income types for a decade. On January 2024, the regime will be terminated.
However, it will still apply to individuals who're already registered under the NHR when the State Budget Law takes effect and those meeting the regulations for regime access until 31st December 2023, including valid visa holders. The registration process must be initiated by 31st March 2024.
The tax terms for those already under the NHR will stay the same for the remaining ten years. At the same time, the proposal introduces a new tax incentive scheme for Scientific Research and Innovation applicable for newcomers who haven't lived in Portugal for the past five years. This involves academic and scientific research roles, certain positions in productive investments and R&D roles, especially for Ph.D. holders.
To leverage these advantages, these individuals must register with specific agencies such as the Foundation for Science and Technology, the Agency for Investment and Foreign Trade of Portugal, and the National Innovation Agency.
Further details for reporting to the tax authority are forthcoming.This new scheme dictates personal income tax of 20% on earnings from stipulated fields, with a tax exemption for foreign income like rents, self-employment income, investments, etc. However, this regime is a one-time offer and individuals who have taken up the NHR regime or the 'Former Residents' regime aren’t eligible.There will also be slight modifications to the "Return Programme", initiated in 2019 to support emigrants' return to Portugal through fiscal benefits.
It applies to those who have lived abroad for over 12 months, began or will start a job (self-employed or employee) between 2019 and 2026 in mainland Portugal among other criteria.
In view of these amendments, individuals impacted by the NHR regime's termination and those contemplating the new tax incentive scheme should act promptly to ensure their eligibility and adequately handle Portugal's changing tax environment.
Short Summary
- The Non-Habitual Resident (NHR) Program in Portugal offers reduced income tax rates and exemptions over a 10-year period.
- Eligibility for NHR status requires meeting legal and tax residency requirements, as well as obtaining a Portuguese Tax Number (NIF).
- The application process involves submitting an application with the required documents by March 31st of the year after registration as resident.
NHR Price
The Portugal NHR costs between €350 and €700, depending on the firm you choose.
Movingto offers the NHR for €350.
Benefits of the Portugal NHR Regime
0% tax on foreign income
This mostly applies to interest earned and dividends. Capital gains tax and rental income are not included.
0% tax on crypto
This is only the case if it's not your main source of income and you are not deemed a trader.
0% tax on dividends
You need to consider that the company should have directors and shareholders that aren't based in Portugal, or it can be classified as a Portuguese company, and you will be taxed in Portugal.
0% tax on wealth
There is no wealth tax in Portugal with this status
10% tax on pensions
If you have a foreign pension, it will be taxed at just 10%. Currently, the tax-free allowance is set at €10,841 per year
20% tax on freelancing
If you are deemed a high-value professional, your income tax as a freelancer is capped at 20%
Get an EU passport fast
This status entitles you to remain in Portugal for up to 10 years. After only five years, you are eligible for Portuguese citizenship.
It's affordable
Portugal is 80% cheaper than countries like Australia, the USA, or the UK. Housing costs in cities like Lisbon have increased quite dramatically over the years; however, other countries' housing costs are significantly lower.
We strongly advise traveling to Portugal first to fully appreciate its distinctive atmosphere and choose your ideal location. We've teamed up with a few companies in order to make your exploratory trip more affordable. You can experience Portugal firsthand before moving here; get in touch with us.
Understanding the NHR Program in Portugal
The Non-Habitual Resident (NHR) program in Portugal has been specifically designed to attract foreign professionals, investors, and retirees to the country by offering reduced income tax rates and exemptions on various income sources for a 10-year period. It targets individuals such as freelancers, pensioners, business owners, and other professionals of high cultural or economic value. The program is tailored to incentivize skilled professionals to make Portugal their primary residence for tax purposes, thereby becoming tax residents, boosting the country’s economy, and promoting investment as a Portuguese tax resident.
Established in 2009, the NHR program has successfully attracted thousands of individuals to Portugal, taking advantage of the generous tax exemptions and benefits it provides. The NHR status is valid for ten years, after which the standard Portuguese tax rates apply. This program is open to citizens from around the world, including those from the United States and other non-EU countries.
Key objectives of the NHR program
The primary objectives of the NHR program in Portugal are threefold: to stimulate the economy, attract skilled professionals, and encourage investment in the nation. By offering tax benefits on foreign-source income, the program lures foreign investment, contributing to job creation and economic growth. It also provides reduced inheritance tax rates for eligible individuals.
The NHR program achieves these goals by offering a range of tax benefits and exemptions for qualified professionals. This makes Portugal a viable option for those looking to relocate and take advantage of the favorable investment tax code. Additionally, the program provides tax incentives to foreign investors, making it an appealing option for those wishing to invest in Portugal and benefit from double taxation treaty agreements.
Eligibility Criteria for NHR Status
To be eligible for NHR status in Portugal, applicants must meet several requirements, including legal residency, tax residency, and not having been a tax resident in Portugal for the preceding 5 years. These requirements are broken down into two main categories: residency requirements and tax requirements.
Let’s explore these in more detail in the following subsections:
Residency requirements
To meet the residency requirements for obtaining NHR status, applicants must either reside in Portugal for a period of more than 183 days per year or own property in the country. The minimum stay requirement for NHR status is 183 days per year. The documentation needed to establish residency for NHR status includes a lease or loan agreement if renting a property or a purchase deed if buying a property.
For non-EU, EEA, or Swiss citizens, obtaining a residence permit is necessary before they can settle in Portugal. This can be achieved through the Golden Visa Program, passive income, or any other Portugal Visa.
EU/EEA/Swiss citizens, on the other hand, can register for residency in their region’s city hall, as long as they bring their passport and EHIC Card for the procedure.
Tax requirements
In addition to residency requirements, applicants for NHR status must also meet certain tax requirements. This includes obtaining a Portuguese tax number (NIF) and registering as a tax resident in Portugal. A Portuguese tax number is a nine-digit identifier used for taxation purposes. Applicants must have certain documents to obtain a NIF. These include proof of residence, such as a utility bill or rental contract, a residency certificate or visa, and a passport.
To be considered eligible for NHR status, applicants must meet certain criteria. They are not allowed to have been tax residents of Portugal for the preceding 5 years. This ensures that the NHR program is targeted at attracting new residents to the country rather than benefiting those who have already established their tax residency in Portugal.
Tax Benefits under the NHR Regime
The NHR tax regime offers numerous benefits for eligible individuals, including a flat 20% tax rate on employment and self-employment income and a 10% tax rate on foreign pension income. Additionally, favorable treatment of capital gains and tax-exempt status in certain cases make Portugal an appealing destination for professionals and retirees from around the world, especially considering the absence of a wealth tax.
Let’s dive deeper into the tax benefits for employment and self-employment income, real estate income, as well as pension income, and how they can impact the amount you need to pay taxes.
Employment and self-employment income
Under the NHR regime, employment and self-employment income generated in Portugal are subject to a flat rate of 20%. This favorable tax rate is designed to attract professionals with high added value, such as those in scientific, artistic, or technical fields. To qualify for this reduced tax rate, professionals must possess a level 4 qualification under the European Qualifications Framework, level 35 of the International Standard Classification of Education, or demonstrate five years of duly proven professional experience.
This tax benefit not only makes Portugal an attractive destination for skilled professionals but also helps the country boost its economy by attracting businesses and investments. With a flat 20% tax rate on employment and self-employment income, Portugal stands out as a competitive location for professionals looking to optimize their tax situation.
The Professions that are eligible for Portugal's NHR regime
Some occupations are thought to have a high added value to Portugal. These occupations are primarily economically and culturally valuable. Individuals who work in one of the following professions receive considerable tax breaks:
Pension income
The NHR regime also offers significant tax benefits for retirees. Foreign pension income for NHR residents is subject to a flat 10% rate of taxation after the current tax-free allowance, which is set at €10,841 per year. However, exemptions may apply in the case of countries that have a Double Taxation Agreement (DTA) with Portugal. This 10% tax rate is a significant incentive for retirees from around the world to consider Portugal as their retirement destination.
It is important to note that the taxation rate for pension income originating from a nation classified as a tax haven can range from 14.5% to 48%. Nevertheless, with a flat 10% tax rate on most foreign pension income, Portugal offers an attractive option for retirees seeking to optimize their tax situation while enjoying the country’s high quality of life.
Taxation of Foreign Source Income Under Portugal's NHR Regime
The Non-Habitual Resident (NHR) regime in Portugal offers a highly attractive tax environment for those seeking to relocate, especially in terms of foreign source income. Beneficiaries under this regime can enjoy tax exemptions on income sourced from other countries for a consecutive period of ten years. Essentially, if you're earning income from a country that has a Double Taxation Agreement (DTA) with Portugal, you won't have to pay tax on it in Portugal.
Understanding Double Taxation Treatment (DTA)
Double Taxation Treatment (DTA) is a treaty established between two or more nations with a primary goal to prevent the double taxation of income and property. DTA is designed to ensure a fair taxation division among the involved countries, curb tax evasion, secure taxpayers' rights, and eliminate tax-related discrepancies.
Countries That Have a DTA with Portugal
Types of Foreign Source Income and Their Tax Treatment under NHR
Employment Income
In Portugal's NHR regime, employment income is either entirely exempt from tax, or it's subjected to a 20% flat rate if it originates from a profession not on the eligible list.
Self-Employment Income
Self-employment income from an eligible profession, earned in a country with a DTA, is exempt from tax. The income can also be tax-exempt even in the absence of a DTA under the OECD model tax convention, given the country isn't considered a tax haven. If the income isn't from an eligible profession, it's taxed at a standard progressive rate and is also subject to social security contributions.
Royalties and Income from Financial Assets
This type of income is tax-exempt if it comes from a country with a DTA or a country without a DTA but isn't regarded as a tax haven. In the case of a blacklisted tax haven, the income is taxed at 28% or 35%.
Real Estate Income and Capital Gains
Real estate income and capital gains are tax-exempt if they come from a country with a DTA or a country without a DTA that isn't a blacklisted tax haven.
Capital Gains from the Disposal of Securities
If these gains are from a blacklisted tax haven, they will be taxed at an optional rate of 28%, or 35%.
Pension Income
Pension income is tax-exempt if it's sourced from a country with a DTA.
Taxation of Portuguese Source Income
Employment Income
Employment income not derived from the eligible professions list is taxed at the standard progressive rate. However, if the employment is from an eligible profession, a 20% rate can be applied. If the standard progressive rate is lower, it can be opted for instead.
Self-Employment Income
If it's not from an eligible profession, it's taxed at the standard progressive rate. If the employment is from an eligible profession, a 20% rate can be applied. Again, if the standard progressive rate is less, it can be opted for.
Real Estate Income and Capital Gains
Rental income is taxed at an optional rate of 28% or the standard progressive rates. Net capital gains are taxed at a rate of 50%, at the standard progressive rates.
Pension Income
Pension income is taxed at standard rates.
Portugal Income Tax Rates for 2023
Applying for NHR Status in Portugal
The process of applying for NHR status in Portugal involves a few key steps, including obtaining a residence permit, a Portuguese tax number, and submitting an application with the required documents.
In the following subsections, we will outline the necessary documents and the application timeline for NHR status.
Necessary documents
To apply for NHR status in Portugal, applicants must provide proof of residency, a tax number, and any other supporting documents required by the Portuguese tax authorities. Proof of residency may include a lease or loan agreement if renting a property or a purchase deed if buying a property. A valid passport, proof of address, proof of employment, and proof of income may also be required.
Once the necessary documents have been gathered, they must be presented to the Portuguese tax authorities to complete the NHR application process. This process can be complex and time-consuming, so it is crucial to ensure that all required documents are in order before submitting the application.
Application timeline
Normally, it takes 1-2 weeks after completing your application and submitting it to receive your official NHR status. This timeline is guaranteed with a professional's help, with the deadline being March 31st of the year following registration as a resident. This means that applicants have a limited window of time to submit their NHR application and should plan accordingly.
It is important to note that if an NHR application is submitted after the deadline, the application may be rejected. Therefore, it is essential to be aware of the deadline and ensure that all required documentation and procedures are completed well in advance to avoid potential delays or complications.
NHR and Portugal's Golden Visa
The Portugal Golden Visa program is a residency-by-investment program that allows individuals to reside and operate in Portugal. For non-EU/EEA/Swiss citizens looking to obtain NHR status, the Golden Visa program can be an excellent option, as it facilitates the acquisition of residency through investment in the country and fulfillment of residency requirements.
By participating in the Golden Visa program, applicants can gain access to Portugal’s attractive NHR tax benefits, making it an appealing choice for investors and professionals alike. This combination of residency by investment and favorable tax benefits positions Portugal as a standout destination for those looking to optimize their tax situation and enjoy a high quality of life.
Maintaining NHR Status
To maintain NHR status, individuals must continue to meet residency and tax requirements. This includes living in Portugal for more than 183 days per year and filing annual tax returns detailing their total worldwide income and expenses. Failing to meet these requirements may result in the loss of NHR status and its associated tax benefits.
It is worth noting that if an individual is not recognized as a tax resident in Portugal for a single year during the 10-year NHR period, their status is not forfeited, and they can still avail of the NHR plan during any of the remaining years of that period. This flexibility makes the NHR program even more attractive to individuals considering relocating to Portugal.
Potential Changes to the NHR Program
While there have been discussions about potential changes to the NHR program, it remains a valuable tool for attracting professionals and investors to Portugal, with no significant changes expected in the near future. The program has proven to be successful in drawing skilled professionals and investment to the country, boosting the economy, and promoting growth.
However, it is essential to stay informed about any potential changes to the program, as these could impact its benefits and requirements. For example, Brexit may make it more complicated for UK citizens to acquire NHR status in Portugal.
Despite these potential challenges, the NHR program continues to be a highly beneficial instrument for attracting professionals and investors to Portugal.Many individuals are concerned that the NHR program could come to an end in the near future, and their worries might not be unfounded. Given the government's potential for change every four years, there is a possibility that a new party could decide to halt the program. Nevertheless, if you have already been granted NHR status, rest assured that it remains valid for the next 10 years, irrespective of any future changes. Considering this uncertainty, it would be wise to secure your NHR status promptly.
NHR isn't a Visa
A lot of people make the mistake of thinking NHR is some kind of residency visa. It’s not. NHR is purely tax-related.
If you’re from outside the EU, EEA, or Switzerland and you don’t have an EU, EEA, or Swiss passport, you will most likely need to obtain a residency permit (such as the D7, D2, D6, D8, or Golden Visa) to move to Portugal. Once you have moved to Portugal, you will be able to apply for the NHR program, but the two are not connected.
NHR is an extremely confusing term, and many take it to mean it’s for people who don’t live in Portugal. In fact, the opposite is true: NHR is for people who live here and are tax resident he
Portugal: A Tax Haven for Crypto Investors
What else do you need to know about Portugal before considering a move? It holds a reputation for being the most crypto-friendly nation in Europe, Ethereum, from and with good reason.
Crypto earnings are tax-free in Portugal. Yes, you read that right. From Bitcoin to Ethereum, Dogecoin to Ripple, you won't pay taxes when you make money on individual crypto investments.
How is this possible? In Portugal, cryptocurrencies aren't considered money because they're not legal tender. What's more, they fall outside the legal definitions of taxable income in Portugal.
Of course, there's a caveat to this. Professional traders must pay taxes. The tax-free status only applies to individual trading.
If you are interested in learning more about NHR, check out all our articles to see how we can help you during your move!
Summary
In conclusion, the Non-Habitual Resident (NHR) program in Portugal offers a plethora of benefits for professionals, investors, and retirees looking to optimize their tax situation while enjoying a high quality of life. The program’s attractive tax rates, eligibility criteria, and application process make it an appealing option for individuals from around the world.
As you consider whether the NHR program is right for you, remember to carefully review the eligibility requirements, tax benefits, and application process. With its combination of beautiful landscapes, a pleasant climate, a vibrant culture, and a favorable tax regime, Portugal offers an unparalleled opportunity for those seeking an exceptional life experience.
Written by
Ana Fankhauser
Ana has worked in many startups and moved to a few countries, which led her to create MovingTo. She believes that remote work is a growing trend that is here to stay and that digital nomads will move to countries that have more to offer than the ones you were born into. She mostly writes opinion pieces for MovingTo.
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