Moving to Portugal: the Non-Habitual Residency Scheme

By Mario Gastaldi

The Portuguese Non-Habitual Residency Scheme 

The Portuguese Non-Habitual Residency Scheme was introduced in 2009 with the aim of making Portugal an attractive destination with a friendly tax environment, together with the other well-known beauties of the country: sun, art and beaches.

Non-Habitual residents can enjoy life, carry out their projects and grow their wealth in a European, white list, tax friendly environment.

Portugal is part of the European Union and the Schengen Area. It features a stable political and social environment.

With the Non-Habitual Residency Scheme, Portugal emerges as a destination for international expats from North America, South Africa and Europe whom, for different reasons, look for an attractive place to live, work and enjoy life.

The main feature of the Non-Habitual Resident status is an applicable tax rate fixed at 20% for ten years, with a straightforward application process.

Benagil sea cave, West Algarve, Portugal

Requirements for the status of Non-Habitual Resident

To become a Portuguese Non-Habitual Resident, you need to not have been a resident in Portugal during the 5 years preceding your application.

You should be a tax resident in Portugal the year you want your NHR status to begin. Your application to become a Non-Habitual Resident should be registered before the 15th of March of the following year. It can be submitted both online or at the local tax office.

The online process is smooth, and it does allow you to verify the progress of your application starting 48 hours after submission.

You can hire us to support you with the documents and application.

Upon positive evaluation of the application, you acquire the status of Portuguese Non-Habitual Resident for 10 years.

When the term of 10 years comes to an end, your residency will be considered ordinary.

In those cases where the non-habitual resident ceases to benefit from the special tax treatment for one or more years within the term of 10 years, they may resume it, and enjoy the beneficial treatment for the remaining years.

Taxation: domestic income

A feature of the Non-Habitual Resident status is an applicable flat tax rate of 20%.

It is applicable for domestic income derived from independent or dependent work.

The Non-Habitual Resident is entitled to that tax rate as long as the income is related to one of the “high value added” professions or activities, such as:

  • Auditors
  • Architects, engineers
  • Doctors and Dentists
  • Teachers
  • Liberal professions
  • Senior Managers

Porto, Portugal

Taxation on Foreign Income: exemptions

Foreign income derived from employment (Category A)

Foreign income derived from employment (Category A according to the law) may enjoy total exemption in two ways:

  1. The income is taxed in the source state according to an existing double taxation agreement between Portugal and the Jurisdiction where the income is sourced, or
  2. If there is no double taxation agreement, the income is taxed in the state of origin, as long as it cannot be considered as sourced in Portuguese territory.

Foreign income derived from independent work (Category B)

Foreign income derived from independent work, including provision of services of high added value, investment income, capital gains, dividends, rental property (Category B), may be exempt in the following cases:

  1. The income may suffer taxation in the source jurisdiction, in accordance with an existing double taxation agreement between Portugal and the source state.
  2. When no double taxation agreement between the two countries is available, the OECD model convention may be applied, as long as any observation coming from Portugal is taken into consideration and the source jurisdiction does not have a privileged tax regime, and, again, as long as the income cannot be considered having been sourced in Portuguese territory.

Foreign income derived from pensions (Category H)

Pension income is exempt if:

  1. it is originated and taxed at the country of origin, in accordance with a double taxation agreement in place between Portugal and the country of origin;
  2. the pension is not to be considered as obtained in Portugal; and
  3. the related contributions have not allowed deduction on personal tax in Portugal.

Portugal has signed more than 60 double taxation agreements including Malta and Hong Kong. It has more than 15 tax information exchange agreements.

If you are looking to relocate to a new country that has a combination of nice weather and friendly taxation, Portugal may be one of your choices.

If you want support to move to Portugal, or you are not sure, and want to explore even better options, you can contact us.