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Non Habitual Resident

Tax Regime

NHR Status

In September 2009, the Portuguese Government approved new legislation establishing a regime for non-habitual residents, which could potentially give rise to tax-saving opportunities for expatriates.

This regime is applicable to individuals who meet the criteria to qualify as tax resident in Portugal under the applicable legal residency rules, (in particular if they stayed in Portugal more than 183 days during the year in question or if they had, on 31 December of that year, a place which they intend to use as their habitual residence, which may be in a property which they have invested, if applicable, or otherwise) and have not been taxed as tax residents in the last 5 (five) years.

The tax regime for non-habitual residents is part of the Investment Tax Code and is intended to attract certain individuals and qualified investments into our country.

Taxation

The Portuguese Government has published the list of activities to be considered as "activities of high added value of a scientific, artistic or technical nature" (relevant to self-employment or third-party income).

Under the rules of the regime, all income from "high value-added activities" earned by non-habitual residents in Portugal will be taxed at a flat rate of 20%.

In addition, the regime also establishes a tax exemption for income from foreign labor, labor income, property income, interest, dividends, as well as other income from the investment under certain specific conditions.

The main advantages of this tax regime are:

  • A special rate of 20% with an additional surcharge of 3.5% applies to income sources from "high added value" activities in Portugal (lawyers, doctors, businessmen, architects, scientists, etc.).
  • For income from abroad, an exemption may be applied in most cases:
  • for property income, investment income and capital gains, for example, the exemption applies if the income can be taxed in the country of origin based on (i) the rules of the double taxation treaty, (ii) the Model Convention Of the OECD if there is no treaty between Portugal and the country of origin of the income, provided that, in this case, in accordance with Portuguese domestic legislation, such income is not considered income from a Portuguese source;
  • For pensions, the exemption is granted provided that the income is (i) taxed in the country of origin on the basis of the double taxation rules or (ii) not considered as income from a Portuguese source in accordance with Portuguese internal rules.

The regime is applicable for a period of 10 (ten) consecutive years, provided that in each year the individual meets the criteria to qualify as a tax resident.

Conditions

The regime will apply to individual taxpayers who become Portuguese tax residents under Portuguese national law in 2009 and in subsequent years, provided that they have not been taxed as tax residents in Portugal in any of the previous five years. In these circumstances, individuals will be considered as non-habitual residents at the time of their registration with the tax authorities.

Practical Aspects

Non-habitual tax resident status becomes effective after registration of individuals with the Portuguese tax authorities by 31 March of the year following which the taxpayer becomes a tax resident in Portugal.