NHR (Residente Não Habitual) Portugal
Portugal’s NHR (non-habitual resident) tax regime has prompted many foreigners to move to Portugal from USA and other countries. It allows them to benefit from special tax breaks while enjoying the country’s affordable lifestyle, scenic views, delicious seafood, warm climate, and friendly people.
But what is the NHR program, what are its advantages, and how can expats and retirees apply for it? Let’s find out!
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What Is NHR?
In 2009, the government introduced the Portugal NHR tax regime, a program designed to enhance Portugal’s global competitiveness by attracting highly skilled professionals to the country and boosting foreign investment.
The scheme minimizes the tax burden of foreigners living in Portugal by providing tax exemptions, and a flat rate of just 20% on any income earned (both abroad and in Portugal). However, NHR doesn’t help with getting legal residency in Portugal. Instead, it’s a tax status for foreigners already allowed to live in the country.
Who can apply for the NHR in Portugal?
- EU, EEA, and Swiss citizens
- Foreign investors who have a Golden Visa
- D7 Visa holders
- D3 Visa holders
Benefits of the NHR
The NHR tax regime is an excellent option to maximize your savings if you live and work in Portugal – here’s why:
- Special Personal Income Tax Treatment – You can benefit from a 10-year period of exemptions and lower tax rates on your personal income taxes.
- Tax Exemption on Income Earned Abroad – The NHR status grants you tax exemption on nearly all foreign income.
- Flat Tax Rate – For self-employment and certain professions, the NHR regime offers a flat rate of 20% on incomes earned in Portugal, as opposed to the national income tax rates that can go as high as 48%.
- No Minimum Stay Required – You don’t have to stay for a minimum amount of time to maintain NHR status.
- White-Listed Tax Environment – Becoming part of a tax environment that is white-listed in the EU can offer you greater financial flexibility and tax benefits.
- Tax Exemption for Gifts or Inheritance – You can enjoy tax exemption on inheritance or gifts to direct family members.
- 0% Wealth Tax – There’s no wealth tax applicable for NHR status holders.
- Free Remittance – You can transfer your funds to Portugal for free, making it easier for you to manage your finances.
WHAT ARE THE DISADVANTAGES OF THE NHR STATUS?
- Exclusion of many occupations from the regime
- Can only apply to the individual
- It’s non-extendable past the 10-year period
How to be considered a tax resident in Portugal
- Reside in the country for over 183 days within a period of 12 months
- Prove that you reside in Portugal by providing evidence of a rental contract that spans at least 12 months, or owning a property in Portugal with the intention of residing there regularly
- Be part of a crew on a Portuguese-operated aircraft or ship operated on December 31st of any year
- Hold public office in another country on behalf of Portugal’s government
Steps to Obtain NHR Status in Portugal
Step 1: Proving your legal residency
To prove that you are a legal resident of Portugal as an EU, EEA, or Swiss citizen, simply register at the “Câmara Municipal”, which is the local town hall. You will need to bring one of the following documents:
- European Health Insurance Card (EHIC)
- Valid ID or Passport
- Copy of your health insurance
At this stage, you won’t have to provide any evidence of address.
Step 2: Registering as a tax resident in Portugal
To obtain Portuguese tax residency, you need to get a Número de Identificação Fiscal (NIF) and use it to register at the government finance office in your area.
Step 3: Registering on the government’s financial portal
Next, you must register on the government’s financial portal by clicking on the “Registrar-se” button. About two weeks later, you’ll be sent an access code via mail.
Step 4: Applying online for NHR status
Using your NIF, financial portal account, and proof of Portuguese residency, you can now submit your application for the NHR status online. To do this, click on these buttons in the following order:
Cidadãos -> Serviços -> Dados Cadastrais -> Residente Não Habitual -> Entregar Pedido de Inscrição
You will be asked to sign a form that states you are a new Portuguese tax resident and haven’t been one for the past five years. To prove this, you also need to submit tax returns covering the last five years, a rental contract, or Portuguese property ownership documents.
Domestic and Foreign Income Under the NHR
With NHR status, you may qualify for tax exemptions on income earned abroad and reduced taxes on income earned in Portugal. All this could lead to “double non-taxation,” which means you either don’t pay any or receive heavily reduced income taxes.
To qualify for tax exemptions on income sourced abroad, the country where you earn your income must either have a DTA (a double taxation agreement) with Portugal or be on the country’s whitelist (meaning Portugal does not blacklist them as tax havens). If neither of these conditions is met, you may still enjoy NHR-related tax breaks based on the OECD model tax convention.
To illustrate this better, let’s look at some examples:
- If you receive income from Austria, you qualify for tax breaks because Austria is on Portugal’s whitelist in addition to having a double taxation agreement with Portugal.
- If you receive income from Barbados, you still qualify for tax breaks even though it is on Portugal’s list of blacklisted tax havens. That’s because the two countries have a DTA.
- If you earn money in Thailand, you also qualify for tax breaks even though Portugal and Thailand have no DTA. However, Thailand is on Portugal’s whitelist, meaning NHR applies according to OECD taxes.
- If you receive income from Bermuda, you do not qualify for tax breaks because Portugal blacklists it as a tax haven and the two countries don’t have a DTA.
Domestic Income on the NHR
While domestic income tax in Portugal is progressive, ranging between 14.5% and 48%, foreigners in high-value professions may be eligible for a 20% flat rate. In addition, social tax is levied for employees at 11% and for employers at 23.75%.
Self-employed individuals pay social security on their own at a rate of 0% for the first 12 months, followed by a 21.4% rate on 70% of their income. Solo entrepreneurs may qualify for a 25% reduction, but this limits their coverage to the mandatory protection scheme. You’ll still need to pay at least €20 per month, even if you don’t have any income.
Individuals who pay social security in a country within the EU or one with which Portugal has a bilateral social agreement may be exempt from social tax by providing the necessary documentation.
Foreign Income
Income earned abroad is taxed in Portugal according to a specific treaty. Those who don’t have such a treaty with Portugal will have to pay income taxes in the country where it’s earned.
Although many believe that the NHR mainly reduces taxes on employment, income tax is paid in the country where the job takes place. For example, if you are based in Portugal but work with foreign clients, your income is considered domestic and taxed at 20% (that is, if you qualify as a high-value professional).
Some foreigners who live in Portugal and own a company that is registered abroad pay themselves tax-exempt dividends plus a freelancer income equal to the minimum wage in Portugal. However, local tax authorities know about this loophole, so we advise against it. While you may think you can use NHR status to be taxed at 0%, that’s only possible if you pay income taxes in another country.
Other Income
In addition to employment income, certain types of income earned abroad, such as royalties, capital gains on real estate, and dividends, are exempted from taxes in Portugal if they come from specific countries.
Other capital gains like those from selling bonds or shares are taxed domestically in Portugal at regular rates. NHR status is also useful for those looking to retire in Portugal. Taxes on foreign pensions were once 0%, but this was increased to 10% to satisfy some countries’ tax treaties. Though, it’s still considered low compared to the usual pension tax rates in Portugal and other countries.
Which Professions Are Considered to Be High-Value in Portugal?
Here’s a list of high-value professions that may qualify for the NHR:
- General directors and executive managers of companies
- Hotel, restaurant, trade and other services managers
- Physical, mathematical, engineering and related technical specialists
- Doctors
- Dentists and stomatologists
- University teachers
- IT specialists
- Authors, journalists, and linguists
- Creative and performing artists
- Technicians and science and engineering professions, intermediate level
- Skilled agricultural, animal production, fishery and hunting workers
- Skilled industrial, construction and crafts workers
- Plant and machine operators
Workers in the above occupations should have at least a level 4 qualification on the European Qualifications Framework or level 35 of the International Standard Classification of Education or have five years of proven work experience.
Timeline and Important Dates for NHR Application
All new tax residents must submit their NHR Portugal application by March 31st of the year after they become tax residents. Once approved, their NHR will start during the fiscal year they became tax residents and last for 10 years.
For example, if your tax residency starts in May 2023, you can apply for NHR status until 31 March 2024. Once your application is approved, your NHR status starts 1 January 2023, and lasts until 31 December 2032.
As a Golden Visa holder, your NHR depends on when you move to Portugal. For instance, if you receive approval for the Golden Visa in April 2021 but don’t move to Portugal until February 2023, you must apply for the NHR by 31 March 2024. Once approved, you can enjoy NHR status starting on 1 January 2023 until 31 December 2032.
Pearls of Portugal Can Help
The NHR program offers significant tax savings, greater financial flexibility, and a hassle-free way to manage your money. Applying for NHR status in Portugal can be straightforward and easy if you have all the required documentation and follow the necessary steps. If you’re planning to obtain NHR Portugal and would like expert assistance, don’t hesitate to consult us at Pearls of Portugal to help you navigate the process.
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