The Portuguese Non-Habitual Residency status enables those who become tax resident in Portugal, and are accepted as NHR, the opportunity to receive qualifying income tax free both in Portugal and in the country of source of the income.
The NHR regime represents a major step forward in making Portugal a tax free jurisdiction for individuals in receipt of qualifying non-resident income. Qualifying income includes pension, dividend, royalty and interest income.
This attractive regime also covers professional income from high value-added activities, which benefit from a special flat tax rate of 20%.
The sole requirement to benefit from this preferential treatment is to become a Portuguese tax resident, not having been a tax resident in Portugal in the previous five years. This status is granted for 10 years.
WHAT ARE THE BENEFITS?
A Non-Habitual Resident (“NHR”) will be exempt from personal income tax on certain types of qualifying income if this income is subject to tax in the country of source under an existing Double Tax Treaty that allows for this or, if no Tax Treaty exists, were subject to tax in another jurisdiction and are not considered as Portuguese source income under domestic rules. Certain types of qualifying income under the regime will also benefit from a double tax exemption i.e. an exemption in Portugal and in the source jurisdiction. A special flat rate of 20% is also applicable for certain types of income arising from a number of highly qualified activities.
WHY WAS THE REGIME INTRODUCED?
The government introduced the Non-Habitual Resident (NHR) regime in 2009 to encourage wealthy individuals and families to move to Portugal to live and work. It provides beneficial tax treatment for the first 10 years of residence, and is open to those in employment, as well as retirees who could potentially find their foreign pension income is tax free.
WHAT TYPES OF INCOME ARE ELIGIBLE FOR EXEMPTION UNDER NHR STATUS?
Pensions, dividends, royalties and interest from non-Portuguese sourced income are exempt from personal income tax in Portugal. Certain types of salaries, provided they are paid from a non-Portuguese source, can also be exempt from tax.
HOW DO YOU APPLY?
You may apply when you have become a Portuguese tax resident or before 31st March of the following tax year. If you wish to apply for the NHR regime Mialex can offer support. It is possible to receive a response on elegi
HOW LONG DOES IT TAKE?
If you wish to obtain a prompt decision on your NHR application, EDGE can guide you through the process enabling you to obtain a decision within a timeframe of less than a week after the application has been made. The status will be backdated to the date of becoming Portuguese tax resident.
ARE THERE ANY GUARANTEES?
Whilst there are no guarantees that applications will be successful, EDGE has a 100% success rate to date. As long as the NHR applicant fulfils all the legal requirements of Portuguese tax residency and the specific requirements to become a NHR, there is no reason for the registration to be rejected.
HOW MUCH DOES IT COST?
Our fees for processing the application for NHR status are fixed on a case-by-case basis but we can assure that the fees are very competitive, particularly in light of the high level of service given. Prior to making the application we will conduct a due diligence on your income and, where appropriate, suggest any restructuring in order to maximize the benefit under the programme. You will be updated regularly in relation to the process and the NHR team will ensure that your application is processed promptly and efficiently and followed through with the Tax Department regularly.
Outside of the NHR regime, Portugal can still provide tax advantages. Unlike countries like Spain and France there is no wealth tax here and the inheritance tax regime is benign (it only applies to Portugal assets; the tax rate is 10% and spouses and children are exempt). Also, there are arrangements available here which allow you to enjoy extremely favourable tax treatment on your capital investments and pension income.
Indeed, if you are eligible for the NHR regime, often combining these structures with the regime rules produces the best results.
While the non-habitual resident’s regime can offer significant tax benefits, it is complex and has pros and cons. This is only a summary and it is important to take professional personalised advice to establish what would be most advantageous for you.