Save Tax With Portugal’s Non-Habitual Resident Scheme
Portugal’s Non-Habitual Resident scheme (NHR), which was introduced in 2009 and updated in 2020, is a tax regime offering foreign residents and investors reduced tax rates and exemptions on some taxes for their first ten years of residence. It is a great opportunity to retire to the sun and pay little or no tax on your foreign sourced income.
Benefits of the NHR Tax Regime
Many categories of foreign sourced income are tax free for ten years. Rental income, capital gains on real estate (but not shares), interest, dividends or any non-Portuguese employment income. This applies only if the income is taxable in the country of origin, for example, under the UK/Portugal double tax treaty. Take UK dividends; they are not taxed in Portugal because under the treaty they are taxable in the UK. This applies even though in practice the UK does not tax this income if you are not tax resident in the UK.
UK-source pension income is taxed at 10% in Portugal under the non-habitual residency scheme and is tax-free in the UK under the tax treaty (apart from government service pensions).
Income tax on income from professions regarded as high value added are tax-free if they are from a foreign source (employed and self-employed). They are taxed at a flat rate of 20% if they are Portugal-sourced or at the progressive rates if they are lower. If it is not from the list of eligible professions, it is taxed at the standard progressive rate.
Gifts or inheritance to family members are not taxed and there is no wealth tax under the scheme.
Eligibility for Portugal’s Non-Habitual Resident Scheme
To join the scheme you must have the right to be a resident in Portugal by being an EU/EEA/Swiss citizen or non-EU citizens must obtain Portugal’s Passive Income Visa (D7) or a Golden Visa. You must also not have been tax resident in Portugal in the preceding five years
To establish a tax resident status in Portugal, you must hold a place of abode by the 31st of December of that year to show your intention that Portugal will be your habitual home either by purchasing a home or by having a long term rental contract of 12 months or more.
After holding a place of abode, you should apply for the Non-Habitual Resident program in Portugal until the 31st of March of the next year.
How To Apply
You must apply for it before the 31st of March of the tax year when you became a tax resident in Portugal. To apply you will need to follow these steps:
Proof of Residency – The first step is to prove that you have the legal right to reside in Portugal.↓
Getting a Portuguese Tax Identity Number (NIF) – This is a nine-digit, tax identity number necessary required if you intend to do business or other official or legal activities in Portugal. You can get it through their representative/lawyer in Portugal or directly in the finanças (local tax offices). To apply you will need an ID card/passport and proof of residency.
Registering As A Tax Resident In Portugal – After you obtain your NIF, you must register as a tax resident in the finanças.
Application For NHR Status – You will need to register at the government website. To register, you will need your NIF number, email address, phone number, and address. Once registered, you will receive a password by post. You can then complete the application. For that, you need to submit the following documents:
- A document stating you were not a tax resident in Portugal in the preceding five years
- The past five years’ tax returns
- A rental agreement or deeds for a property in Portugal
You should generally get a decision on your application within a few weeks.
Although you can apply for the NHR program yourself, it can be advisable to make use of professional assistance in making your application.
Other tax benefits in Portugal
Even if you do not qualify for Portugal’s non-habitual resident scheme, Portugal offers very attractive tax benefits for UK expatriates.
Portuguese taxes are relatively low and, unlike Spain or France, there is no wealth tax. Inheritance tax is also softer – it only affects Portuguese assets, does not apply to spouses and children and is 10% for others. Portugal also offers opportunities to enjoy extremely favourable tax treatment on your investments.
If you qualify for non-habitual residence, you could combine these structures with the regime rules. For example, you could sell a UK property or draw your pension tax-free in Portugal and reinvest elsewhere to take advantage of tax-efficient opportunities. Ultimately, the best course of action for you will depend on your individual circumstances and aims.
While the NHR scheme offers significant benefits, like any tax regime it is also highly complex. You should seek professional, personalised advice – covering both tax and financial planning for Portugal – for tailor-made recommendations to meet your objectives.
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