Non-Habitual Residence in Portugal: A Tax-Free Opportunity
Portugal’s Non-Habitual Residence (NHR) program is a tax regime that has attracted expatriates and retirees from all over the world. It offers tax exemptions and reductions for ten years to those who move their tax residency to Portugal. This program is intended to attract high net-worth individuals and highly skilled workers who can contribute to the Portuguese economy. In this article, we will outline the benefits of the NHR program, eligibility criteria, and the application process.
Benefits of the NHR Program
The NHR program offers a range of tax incentives to those who move their tax residency to Portugal. Here are the main advantages:
1. Tax exemptions on foreign source income: Under the NHR regime, foreign source income is exempt from Portuguese taxation, provided that the income is subject to tax in the country of origin under the terms of a Double Taxation Agreement (DTA) signed by Portugal.
2. Reduced tax rate on Portuguese sourced income: For Portuguese sourced income, the NHR regime offers a flat tax rate of 20%. This is applicable to professions such as artists, architects, engineers, and musicians. For other professions, a progressive tax scale applies, but the overall tax burden is still lower than in many other EU countries.
3. No wealth tax: Portugal abolished the Wealth Tax in 2008. This means that individuals who reside in Portugal and earn income from foreign sources are not subject to wealth tax.
4. No inheritance or gift tax: There is no inheritance or gift tax in Portugal, which makes it attractive for retirees and wealthy expatriates who plan to transfer their assets to their heirs.
5. No double taxation on pension income: Under the NHR regime, pension income received by a non-habitual resident is subject to tax in the country of origin only. This prevents double taxation on pension income.
Eligibility Criteria
To be eligible for the NHR program, you must:
1. Not have been a tax resident in Portugal in the last five years.
2. Stay in Portugal for more than 183 days in a year or have a residential property that is not rented out and used as the main residence.
3. Register as a tax resident in Portugal and obtain a tax identification number.
4. Apply for the NHR regime within six months of becoming a tax resident in Portugal.
Application Process
The NHR application process is straightforward. It involves the following steps:
1. Register as a tax resident in Portugal and obtain a tax identification number.
2. Apply for the NHR regime at a tax office in Portugal or through a tax representative.
3. Provide evidence of residency in Portugal, such as utility bills, a rental agreement, or property deeds.
4. Declare your foreign income and assets to the Portuguese taxation authorities.
5. Wait for approval of the NHR application.
FAQs
1. Can I work in Portugal under the NHR regime?
Yes, you can work in Portugal while enjoying the benefits of the NHR regime. However, your income derived from employment in Portugal will be subject to Portuguese tax.
2. Can I own a company in Portugal under the NHR regime?
Yes, you can own a company in Portugal and enjoy the benefits of the NHR regime. However, any income derived from the company’s activities in Portugal will be subject to Portuguese tax.
3. What happens after ten years under the NHR regime?
After ten years under the NHR regime, you will be subject to Portuguese taxation on all worldwide income, including foreign source income. However, Portugal has several Double Taxation Agreements with other countries that can mitigate the impact of this change.
4. Can I check the status of my NHR application online?
No, there is no online portal to check the status of your NHR application. You can, however, enquire about the application process at a tax office in Portugal or through a tax representative.
Conclusion
The NHR program in Portugal offers a range of tax incentives that make it an attractive destination for expatriates and retirees. It offers a lower tax burden, exemptions and reductions for foreign source income, no wealth or inheritance tax, and a flat tax rate for some professions. The eligibility criteria and application process are straightforward, making it an accessible program for those who meet the requirements. With its relaxed lifestyle, good weather, and reasonable cost of living, Portugal provides an excellent quality of life for NHR holders.