Are you considering a move to Portugal and curious about the tax benefits that await? The Portugal NHR (Non-Habitual Resident) tax regime could be your gateway to significant savings. Designed to attract individuals to the country through tax incentives, the NHR program offers reduced income tax rates and potential exemptions for a period of ten years. In this comprehensive guide, we’ll explore the advantages of the NHR regime, outline the eligibility requirements, and walk you through the application process, ensuring you have the insights needed to potentially make the most of your move to Portugal.
- Portugal’s NHR tax regime offers significant tax advantages for a period of 10 years, including a flat income tax rate of 20% for high-value professions, foreign-sourced income tax exemption, and a beneficial rate for foreign-sourced pensions.
- To be eligible for NHR status, applicants must not have been a Portuguese tax resident in the previous five years, remain in Portugal for more than 183 days per year, and have a permanent home intended as their main residence.
- Recent changes indicate the end of the NHR program’s current form, with new applicants in 2024 no longer qualifying for the regime, though existing NHR residents can still enjoy the benefits until the completion of their 10-year period.
Understanding the Portuguese NHR Tax Regime
The Portuguese government introduced the NHR tax regime as an attractive incentive for individuals looking to relocate. It offers the following benefits for a period of 10 years:
- Decreased income tax rates
- Tax exemptions
- Reduced taxes on pension income and other wealth
- Lower taxation on self-employed or other income
This special tax regime has been designed to attract highly qualified professionals, high-net-worth individuals, and pensioners to Portugal.
Certain conditions must be met for new tax residents to qualify. These include:
- Residing in Portugal for more than 183 days in the previous year
- Acquiring residential real estate in Portugal
- Serving on a ship or aircraft of a Portuguese registered company on December 31st of the reporting year
- Professionals in specific, high-value fields are also eligible to participate in the NHR program.
Portuguese tax residents are granted NHR status for a ten-year period.
Key features of the NHR tax regime
The special tax status of the NHR tax regime in Portugal offers a fixed income tax rate of 20%. This rate applies to high-value professions that are considered to have high cultural and economic significance. These include roles such as:
- Specialized service professionals
- ICT specialists
- Skilled workers
To enjoy these tax benefits, obtaining a residence visa can be a prerequisite for applying for NHR status.
Additionally, foreign-sourced income is eligible for tax exemption under the NHR tax regime. This includes:
- capital gains
- rental income from real estate located outside Portugal
- employment income sourced from another country.
Eligibility criteria for NHR status
Becoming a Non-Habitual Resident in Portugal is not an overly complex process, but certain eligibility criteria must be met. To qualify for NHR status, individuals must not have been tax residents in Portugal for the preceding five years.
Furthermore, to be considered a tax resident in Portugal for the purpose of NHR status, an individual must spend more than 183 days in the country within any 12-month period commencing or ending in the fiscal year in question and should have a permanent home in Portugal with the intention to maintain and occupy it as their main residence.
How to Apply for Portugal's NHR Status
After gaining an understanding of the benefits and eligibility criteria of the NHR tax regime, you can proceed to the application phase. The application process involves a few key steps, including obtaining a Portuguese tax number (NIF), registering as a tax resident, and submitting your NHR application online.
Obtaining a Portuguese tax number (NIF) is a prerequisite before applying for NHR status. This 9-digit identification number is used for tax-related matters, and non-EU citizens can obtain one through a tax representative, such as a lawyer or law firm, without the need to physically visit the Portuguese tax office. They can use the representative’s address when submitting the application. This is a crucial step in availing NHR tax incentives.
With your NIF in hand, you can then move on to establishing tax residency in Portugal. This involves registering as a tax resident, which is a prerequisite for submitting the NHR application. Registering as a tax resident can help you avail of tax benefits on real estate income.
Preparing your documentation
A few important documents must be gathered when preparing your application. This includes proof of residency, rental or property ownership contracts, and professional qualifications for high-value professions.
To obtain proof of residency for the NHR application, you should log into the Portal das Finanças, navigate to the NHR section, submit your NHR request, and download your NHR Registration Document. If you’re renting or owning property in Portugal, you’ll also need to provide documented proof of address, such as a rental agreement or a deed of purchase for a property. Lastly, if you’re applying for a high-value profession, you’ll need to provide relevant professional qualifications.
Submitting your application
After all the required documents have been collected, you are ready to submit your application. You can submit your NHR application online through the official government financial portal, Portal das Finanças.
The process of submitting your NHR application involves the following steps:
- Log into Portal das Finanças.
- Navigate to the NHR section.
- Submit your NHR request.
- Download your NHR registration document.
Once you’ve submitted your application, you can monitor its progress through the online portal. Typically, it takes approximately two weeks to receive a response after submission.
Tax Benefits for Non-Habitual Residents
The wealth of tax benefits offered by the NHR tax regime is one of its main appealing factors. For starters, non-habitual residents in Portugal are entitled to a flat income tax rate of 20% on most types of income earned within Portugal, including high-value professions.
Furthermore, NHRs can also enjoy tax exemptions on foreign-sourced pensions, making it an attractive option for retirees. This means that if your pension is sourced from another country, it will not be subject to income tax in Portugal. However, if the pension is deemed to be sourced from Portugal, it will be subject to a flat tax rate of 10%.
In addition to these benefits, NHRs in Portugal can also avail of specific capital gains tax benefits on an international level. This includes exemptions from tax obligations related to capital gains from property sales, giving you more freedom and flexibility with your assets.
Income tax benefits
One of the significant benefits of the NHR regime is the flat income tax rate of 20% for high-value professions. This applies to Portuguese-sourced income and includes roles such as:
- specialized service professionals
- ICT specialists
- a variety of skilled workers
Under Portugal’s NHR regime, there's no specific cap on the income that can benefit from the 20% fixed tax rate.
In addition to the fixed tax rate, foreign-sourced income is also eligible for tax exemption under the NHR tax regime. This includes earnings generated from sources beyond the borders of Portugal, such as salaries, business and investment profits, and capital gains. As long as the income does not come from a jurisdiction classified as a blacklisted tax haven, it can be eligible for exemptions.
Pension tax benefits
Another significant benefit of the NHR regime is the tax exemptions available for foreign-sourced pensions. This means that if your pension comes from a foreign source, you won’t have to pay income tax on it in Portugal. This is a significant advantage for retirees considering moving to Portugal, as it can result in considerable savings.
However, it’s essential to note that if your pension is considered to be sourced from Portugal, it will be subject to a flat tax rate of 10%. Even then, this tax rate is competitive and often lower compared to pension tax rates in other European countries.
Capital gains tax benefits
Lastly, one of the significant advantages of the NHR regime is the capital gains tax benefits. If you’re a Non-Habitual Resident in Portugal, you can exempt yourself from tax obligations related to capital gains from property sales.
This means that if you sell property, either within Portugal or abroad, the capital gains from that sale may be exempt from taxation under the NHR tax regime. This applies as long as the gain is subject to taxation in the country of origin according to tax treaty rules.
If you sell property within Portugal, you’ll be required to pay capital gains taxes at a rate of 28% for individuals. However, residents are taxed on only 50% of their capital gains, effectively reducing the tax rate to 14% on the full gain.
Establishing Tax Residency in Portugal
Once you’ve decided to take advantage of the NHR tax regime, the next step is to establish tax residency in Portugal. This involves meeting certain requirements, such as staying in the country for at least 183 days per year and securing housing through rental or property ownership.
Establishing tax residency requires associating a Portuguese address with your NIF number and formally declaring yourself as a Portuguese tax resident to the tax authorities within two months of setting up your permanent residence in Portugal. The definition of a ‘day’ in the context of the 183-day rule for tax residency in Portugal is any part of a day physically spent in the country.
However, it’s important to note that if you fail to meet this requirement, you will lose your tax-resident status and subsequently become ineligible for the tax benefits associated with the Non-Habitual Resident status.
Duration of stay requirements
Maintaining NHR status in Portugal necessitates either spending at least 183 days per year in the country or having a residence in Portugal recognized as your habitual abode.
The 183-day requirement can be divided into different periods throughout the year, provided that the total number of days exceeds 183 days in any 12-month period starting or ending in the fiscal year concerned. If you fail to meet the 183-day stay requirement for NHR status in Portugal, you may be ineligible to benefit from NHR status for the full 10 consecutive years.
Housing options for NHRs
When it comes to housing, you have a couple of options. You can either rent or purchase property in Portugal. A 12-month rental contract in Portugal can be used as evidence of residency for the purpose of obtaining NHR status.
There are various types of properties available for rent or purchase, including:
- Resort properties
The cost of leasing or purchasing a property varies depending on the location, with the central area of Lisbon being one of the more expensive areas.
Portugal's Golden Visa Program and NHR Status
In addition to the NHR tax regime, Portugal also offers the Golden Visa program, which provides a route for non-EU citizens to obtain residency and potentially citizenship in Portugal. The Golden Visa program requires applicants to make a significant investment in the country, either through real estate or other forms of productive investment.
Investors who initially secure residency through Portugal’s Golden Visa program can subsequently become eligible for the NHR regime. This allows them to take advantage of the favorable tax benefits offered in the country. This means that you can enjoy the benefits of both programs simultaneously, providing additional advantages such as visa-free travel within the Schengen Area.
Eligibility for both programs
Meeting specific investment criteria is necessary to qualify for the Golden Visa program. This includes transferring 500,000 euros to one or more qualifying funds or making a real estate purchase of at least 500,000 euros.
In addition to meeting the investment criteria for the Golden Visa program, you also need to establish tax residency in Portugal to qualify for the NHR program. This involves possessing a place of residence in Portugal and spending a minimum of 183 days in the country.
Benefits of combining the Golden Visa and NHR programs
Combining the Golden Visa and NHR programs can result in a number of important benefits. For starters, you can benefit from a flat tax rate of 20% on income earned in Portugal for specific professions and exemptions from income tax for the first 10 years of residence.
Additionally, having a Golden Visa allows for increased mobility within Europe, as it provides visa-free travel within the Schengen Area. Furthermore, after five years of holding a Golden Visa, you may be eligible to apply for Portuguese citizenship, which would give you the rights and privileges of a European Union citizen.
Changes and Future Outlook for the NHR Tax Regime
Despite the substantial benefits the NHR tax regime has previously offered to foreign residents, recent changes have rendered the program’s future uncertain. The Portuguese government has proposed substantial changes to the NHR tax regime, signaling the conclusion of the regime in its current form.
The transitional tax regime, implemented in the latest budget proposal, is intended to enhance the regime and protect the rightful expectations of individuals who have already initiated the process of altering their tax residency to Portugal. However, individuals who establish tax residency in Portugal in 2024 will no longer meet the requirements to be enrolled in the NHR tax regime.
Recent changes to the NHR tax regime
The recent changes to the NHR tax regime were put into effect in 2023. The government's proposal to end the scheme in its current form in the 2024 Budget Bill was what spurred these changes.
However, a new transitional tax regime has been introduced, which allows individuals who are eligible for the NHR program before January 1, 2024, to apply for it until the completion of their 10-year period. This means that if you satisfy the NHR requirements by December 31, 2023, and possess a valid residence permit, you are required to submit your application before March 31, 2024, in order to avail of its benefits.
Future outlook for the NHR tax regime
Looking forward, the future of the Portuguese NHR tax regime remains uncertain. The new 2024 State Budget indicates that individuals who establish tax residency in Portugal in 2024 will no longer meet the requirements to enroll under the NHR tax regime.
However, individuals who have already obtained NHR status or who establish tax residency by December 31, 2023, will retain the tax advantages provided by the regime. As such, experts advise wealthy expats already on NHR to prepare for its end.
In conclusion, Portugal’s Non-Habitual Resident tax regime is a unique and appealing program that offers substantial tax benefits for eligible individuals. From reduced income tax rates for high-value professions to tax exemptions for foreign-sourced pensions and capital gains, the NHR regime makes Portugal an attractive destination for professionals, retirees, and investors. While recent changes have been made to the regime, those who meet the requirements and apply before the deadlines can still reap the benefits of this program. Despite the uncertainty surrounding its future, the NHR regime remains a golden opportunity for anyone looking to make Portugal their new home.
Frequently Asked Questions
How do you qualify for NHR in Portugal?
To qualify for NHR in Portugal, you must either stay for a minimum of 183 days in the country per year or maintain a place of abode as your habitual residence in Portugal.
Is Portugal getting rid of NHR?
Yes, Portugal is terminating its non-habitual resident tax regime after 14 years, which provided reduced tax benefits for foreigners moving to Portugal for the first 10 years. This is according to an announcement made by Portugal's prime minister, António Costa, in October.
Is NHR still available in Portugal?
No, the NHR program is not available for obtaining tax residence in Portugal in 2024.
What are the tax benefits under the NHR tax regime in Portugal?
Under the NHR tax regime in Portugal, you can benefit from a 20% flat income tax rate on Portuguese-sourced income, tax exemptions on foreign-sourced income, and capital gains tax benefits for property sales. April 2023
How can I apply for NHR status in Portugal?
To apply for NHR status in Portugal, you would need to obtain a Portuguese tax number, register as a tax resident, and submit your NHR application online through the official government financial portal, Portal das Finanças.
What is the NHR tax regime in Portugal?
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.
What is the double tax treaty with the UK and Portugal?
It is an agreement between the two countries that aims to prevent double taxation of individuals and businesses that are resident in both countries