The Non Habitual Tax Regime (NHR)
The non-habitual resident (NHR) regime is open to anyone who has the right to reside in Portugal (an EU/EEA/Swiss citizen or a holder of a residents permit who has not been a tax resident of the country during the previous 5 years.
Taxation Of Non Habitual Tax Residents
Under this regime, the following taxation rules apply:
Foreign-source self-employment or sole trader income derived from an eligible occupation (see below), royalties, capital gains and investment or rental income will be exempt from Portuguese tax as long as they may be taxed in the source country either under a double taxation agreement or under the OECD model tax convention. In addition, such income must not be deemed Portugal-sourced under applicable Portuguese law, and must not be sourced from a blacklisted tax haven;
- Foreign-source employment income will be exempt from Portuguese tax as long as it is liable to tax (at whatever rate) in the source country either under a double taxation treaty or under the OECD model tax convention, and is not deemed Portugal-sourced under applicable Portuguese law;
- Occupational pension income will be exempt from Portuguese tax as long as it is liable to tax in the source country under a double taxation treaty or it is deemed as not being Portuguese-source income under applicable Portuguese law.
- If your occupation is eligible (see below), Portugal-source employment or self-employment / sole trader income will be taxed at a flat rate of 20%, while other Portugal-sourced types of income will be taxed at the normal rates applicable to resident taxpayers, the calculation of the applicable marginal tax rate taking into account all income, including exempt income.
- In Portugal there is no wealth tax or capital duty, and an inheritance or a gift received by a spouse, descendant or ascendant is tax exempt. Inheritance or gifts received by other individuals will be either not taxable under territoriality rules, or else may be subject to a flat 10% stamp duty.
Applicability Of Double Taxation Agreements
One interesting feature of this regime is that many double taxation treaties (of which Portugal signed in 1979)
grant the source country the possibility of taxing income paid to residents of the other country, although in practice many countries abstain from using this possibility so as to attract foreign investment. This means that in practice many types of income will often be zero-taxed in the hands of the “non-habitual resident”, since Portugal will not tax them merely on account that they may be taxed in the other country.
Capital gains deserve careful consideration. Under article 13, they are treated differently according to whether they originate
from the disposal of immovable or movable property. While capital gains from the alienation of real estate may under
the double taxation treaty be taxed in the country in which the property is located and will therefore be exempt in Portugal,
capital gains from the alienation of other types of property (notably securities) are taxable only in the beneficiary’s country
of residence. As such, capital gains from the sale of securities will be subject to tax in Portugal, currently at a flat rate of 28%.
Before becoming a non-habitual resident of Portugal, tax advice should therefore be taken by anyone who anticipates significant capital gains from the sale of securities.
This is, of course, only a superficial initial approach and it is recommend that you take proper tax advise
in order to make sure all of your circumstances are taken into account.