Table of Contents
Introduction
Portugal’s Non Habitual Resident (NHR) tax program offers attractive tax benefits to new residents for a period of 10 years. In this comprehensive guide, we will explore the eligibility requirements, tax advantages, and the step-by-step process of applying for NHR status in Portugal. It is important to note that this guide is for informational purposes only and should not be considered tax advice. It is recommended to consult with a qualified tax professional for personalized advice based on your specific circumstances.
What Exactly is the Non Habitual Resident (NHR) Program?
The Non Habitual Resident (NHR) program is specifically designed to provide preferential tax treatment to individuals who become residents of Portugal. It is important to note that NHR is essentially a tax status and not a residency visa or permit. It is crucial to understand the distinction. In order to be eligible for NHR status, you must already have the legal right to reside in Portugal. This can be achieved either as an EU/EEA citizen or through a residency visa pathway such as the D7, Digital Nomad Visa, or Golden Visa.
Under the Portuguese Non-Habitual Resident (NHR) scheme, eligible applicants have the advantage of enjoying a flat 20% tax rate on Portugal-sourced income. This is a significant reduction compared to the regular Portuguese tax rates, which can reach up to 48%. Along with the preferential tax rate, NHR status can also lead to exemption from Portuguese taxation on income sourced from outside Portugal. However, it is important to note that this exemption is subject to certain criteria and double taxation agreements with other countries.
Planned Changes for 2024
The Portuguese government has announced plans to cancel the current NHR program, likely effective from January 1, 2024. However, existing NHR holders will be grandfathered into the scheme for the remaining duration of their 10-year period.
Despite the upcoming changes, there are still interesting options available for individuals seeking tax incentives in Portugal. One proposed program is the “new NHR” program, which offers tax benefits for scientific research and innovation. This program targets professionals such as professors, scientific researchers, and individuals working in specialized employment categories or research and development positions. Another option is the extension of the existing “Programa Regressar” (Return Program), which provides a 50% tax exemption on employment and self-employment Portugal-sourced income for the first five years of residency. These options are still under discussion and subject to potential amendments.
Eligibility For NHR Status Under Current 2023 Rules
To be eligible for NHR status in Portugal, under the current rules, several criteria must be met. First, you must not have been a resident in Portugal for the five years preceding your application. Second, you must be legally resident in Portugal, either as an EU citizen or through a residency visa such as the D7 visa or Golden Visa. Third, you must be a tax resident of Portugal, spending over 183 days per year physically in the country. Finally, you must have a Portuguese address linked to your tax identification number (NIF).
NHR benefits are available for a period of 10 years, starting from the date you become a tax resident of Portugal. This date is typically determined by the registration of your Portuguese address with the tax authorities. The NHR status in Portugal offers advantageous tax benefits to non habitual residents who qualify.
Overview of Taxes With NHR
Understanding how income is taxed under the NHR scheme is important to fully grasp its benefits. While it is always advisable to consult a tax advisor for personalized advice, the following overview provides insight into the taxation of different types of income under NHR.
Portugal-sourced income
Portugal-sourced income, including employment income (Category A) and income from freelancing or self-employment (Category B), may be eligible for the NHR scheme. This income is subject to a flat 20% tax rate. However, it is essential to note that eligibility for NHR status for Portugal-sourced income depends on the classification of the profession as a “high-added value activity.” This list includes professions in scientific, artistic, or technical fields that are deemed important to the Portuguese economy. Proof of professional qualifications or experience may be required.
Foreign sourced income
Foreign-sourced income can also benefit from the NHR scheme, depending on the nature of the income. Categories such as rental income, real estate gains, dividends, interest on savings, and royalties may be tax-exempt in Portugal, provided they originate from outside the country and are taxable in the country of origin. However, it is important to consider individual double tax treaties between Portugal and the country in question to determine the tax treatment.
It should be noted that foreign-sourced pensions, which used to be tax-free under NHR, are now subject to a flat 10% tax rate. Additionally, Portugal maintains a list of blacklisted tax havens, and income from these jurisdictions does not qualify for NHR benefits unless a double tax agreement exists.
How to Apply For NHR Status
Applying for NHR status involves several steps to ensure compliance with the Portuguese tax authorities. The process begins with registering as a tax resident in Portugal, which requires obtaining a tax identification number (NIF) and proof of habitual abodes, such as a rental contract or property deed. The application deadline for NHR status is typically March 31 of the year following the year in which you become a tax resident.
To apply for NHR status, you can use the online portal of the Portuguese tax authorities (Finanças). After obtaining your NIF and registering with the portal, you can navigate to the relevant section for the NHR application. Fill in the required fields with accurate information, including the year of registration and your country of foreign residence. Declare that you fulfill the conditions of non-residency in Portugal for the previous five years.
FAQs
Can I be a resident in Portugal but not a tax resident?
Yes, it is possible to maintain residency rights in Portugal through the Golden Visa program without becoming a tax resident. This allows individuals to retain their existing tax residency while spending limited time in Portugal.
What are the benefits of NHR in Portugal?
NHR status offers preferential tax treatment on most foreign-source income and certain categories of Portuguese-sourced income. It is valid for a period of 10 years, providing ample time for individuals to acquire Portuguese citizenship if desired.
How do I check my NHR status in Portugal?
You can check your NHR status on the Finanças portal by logging in with your NIF and password. Navigate to the section called “Dados Gerais de Identificação” to find details of your NHR status.
What happens after 10 years of NHR in Portugal?
After the 10-year period, individuals will revert to being regular Portuguese taxpayers, subject to the applicable tax rates and regulations.
Can a Portuguese citizen get NHR?
Yes, Portuguese citizens who have been residents outside of Portugal for five years before applying can also benefit from NHR status.
How long does NHR last?
NHR status is valid for 10 years, providing favorable tax treatment during this period.
Do expats pay taxes in Portugal?
Expats who are tax residents in Portugal are generally subject to Portuguese taxation. However, the NHR scheme provides exceptions and favorable tax treatment for eligible individuals.
What is Portuguese source income?
Portuguese source income refers to income derived from sources within Portugal, such as salaries, self-employment income, pensions, and rental income from properties located in Portugal.
Can I lose NHR status by being out of Portugal for too long?
To maintain NHR benefits, individuals must be tax residents in Portugal for each fiscal year. However, if the requirements are not met for one or more years during the 10-year NHR period, it is possible to regain NHR status until the end of the 10-year period.
Can I ‘freeze’ or suspend my NHR status?
NHR status can be suspended by suspending tax residency status in Portugal. However, the 10-year period remains consecutive and cannot be extended.
Conclusion
The Non Habitual Resident Portugal (NHR) program provides an attractive tax regime for individuals residing in Portugal. The eligibility criteria, tax advantages, and application process discussed in this guide offer valuable insights for those considering NHR status. It is important to seek personalized advice from a qualified tax advisor to ensure compliance and optimize the benefits of the NHR scheme. With its favorable tax treatment and other incentives, Portugal remains an appealing destination for those seeking tax advantages and a high quality of life.
