Living and working abroad has become increasingly popular over the last decade. Some destinations are famous for attracting wealthy individuals from around the world. Other tax systems have designed tax incentives to encourage expats to move and live in their countries. The Non-Habitual Residence Program (NHR – Portugal) is one such scheme in Portugal.
The tax incentive encourages higher-income professionals and individuals to become tax residents in Portugal. The program includes significant tax advantages for wealthy individuals, making it an excellent option for expats across Europe.
Here, we look at the most important aspects of this program and answer all of your biggest questions.
What Is NHR? Portugal and Tax Exemption Rules
The Non-Habitual Resident (NHR) program in Portugal is a tax incentive initiative designed to encourage foreign individuals to become tax residents. It is a system designed in particular for retirees and those with higher incomes. It is believed by some to have saved expats in Portugal more than 1 billion euros in taxes already.
Because of it’s popularity, the scheme is set to continue for the forseeable future. This is helpful, given that the government announced the end of the Golden Visa program in 2023.
The Non-Habitual Residency program offers 3 significant tax advantages to eligible participants:
- 0% tax on most forms of income earned outside Portugal
- 10% on Pension payments from outside the country
- 20% flat rate of tax for income earned in Portugal through specific skilled jobs
The first benefit of the NHR program is tax exemption on certain types of foreign income for a period of 10 years. This includes income from dividends, rental earnings, and interest. Essentially, under this program, individuals who become tax residents in Portugal do not need to pay income tax in Portugal on these types of foreign income during the specified 10-year period.
While pension payments were originally included in this list of exempt income types, since 2020, they have been taxed at 10% under the NHR program.
Then, for certain professions and skilled occupations, there is also a special flat tax rate of 20% on income generated within Portugal. Importantly, there is no wealth tax imposed under this program. In this way, wealthy individuals are encouraged to become tax residents in Portugal.
Does Portugal Have a Non-Habitual Resident Tax Exemption? What Benefits Does the Program Bring?
Portugal’s NHR tax exemption program provides tax exemptions and favorable tax rates to eligible individuals who become tax residents in the country. The key feature of the program is the tax exemption on certain types of foreign income for a period of 10 years.
Under the NHR program, qualified individuals can benefit from a 10-year tax exemption on specific categories of foreign income, including:
- Dividends: Foreign dividend income is also tax-exempt.
- Rental Income: Rental income from abroad is not subject to Portuguese income tax.
- Interest Income: Interest income from foreign sources is exempt from taxation in Portugal.
- Capital Gains: In some cases, capital gains on assets located abroad may also be exempt from Portuguese capital gains tax.
Since 2020, pension payments from outside Portugal are now taxed at a special rate of 10%.
Skilled Professions and the NHR Flat Rate of Tax
While the program is open to various individuals, it’s particularly attractive to professionals and skilled workers. Certain skilled occupations may enjoy a special flat tax rate of 20% on income they generate while working in Portugal. These relate to professions or skills that the government classes as “high-value-added” activities.
The full list of such activities includes:
- Director General and Executive Director of companies;
- Directors of Administrative and Commercial Services;
- Directors of production and specialized services;
- Hotel, restaurant, business and other hotel managers;
- Specialists in the physical sciences, mathematics, engineering, and related techniques;
- Doctors;
- Dentists and stomatologists;
- University and higher education teacher;
- Experts in information and communication technologies (ICT);
- Authors, journalists and linguists;
- Creative Arts and Entertainment Artists;
- Technicians and Intermediate Occupations in Science and Engineering;
- Information and Communication Technology Technicians;
- Farmers and skilled workers in agriculture and livestock breeding for trade;
- Skilled workers in forestry, fishing and hunting;
- Skilled workers in industry, construction and crafts, including: metallurgy, metalworking, food processing, woodworking, clothing, crafts, printing, precision instrument manufacturing, jewelers, craftsmen, electrical and electronic workers;
- Plant and machine operators and assembly workers (operators of stationary machines)
Who Qualifies for the NHR Program in Portugal? How to Apply for Qualify
Those eligible for Portugal’s Non-Habitual Resident (NHR) program is subject to specific criteria that aim at attracting foreign individuals, retirees, and high-net-worth individuals to become tax residents in Portugal. Here’s a breakdown of these criteria:
Non-Portuguese Tax Residency
To qualify for the NHR program, applicants must not have been tax residents in Portugal during the previous 5 years. In essence, you should not have lived in Portugal or been considered a tax resident during that time.
Application Timing
It’s essential to apply for the NHR program either before becoming a tax resident in Portugal or within the first 6 months of becoming one. Filing within this timeframe is crucial to benefit from the program’s tax advantages.
Citizenship, or Golden Visa Requirements
Eligible participants must be citizens of an EU/EEA country, Switzerland, or have obtained residency in Portugal through the Golden Visa program. This means that individuals from these regions have the right to apply for residency in Portugal under the NHR program.
What Is Non-Habitual Residency in Portugal?
A non-habitual resident (NHR) is an individual who has a specific tax status in a country that offers tax incentives to attract foreign individuals. These are often retirees and high-net-worth individuals who can become residents in that country. The term “non-habitual resident” is not universally the same. It can vary from one country to another, but the underlying concept is typically similar.
In some countries, becoming an NHR can result in significant tax benefits. This means reduced taxation on certain types of income, tax exemptions, or other financial advantages.
These incentives are usually designed to attract individuals who can contribute to the country’s economy. Therefore, it focuses on investments, spending, or specific skills.
In Portugal, a non-habitual resident refers to an individual who has gained Portuguese tax residency.
It requires a holder to be resident in Portugal for at least 183 days in a year or have a residence in the country. It’s important to note this doesn’t require someone to own a property in Portugal. Instead, simply registering a property as a residency is enough.
How to Apply for NHR Status in Portugal?
Applying for the Non-Habitual Residency (NHR) program in Portugal involves several key steps to ensure you can access and benefit from the favorable tax status. Here’s a simplified guide on how to apply:
Eligibility Check
Before applying, ensure you meet the program’s criteria. You must not have been a tax resident in Portugal for the 5 years preceding your application. Eligible participants typically include EU/EEA citizens, Swiss citizens, or individuals who have obtained residency through the Golden Visa program.
As Portugal ended their Golden Visa scheme in 2023, this is no longer applicable to new cases.
Obtain a Tax Number (NIF)
If you don’t already have a Portuguese tax identification number (NIF), you’ll need to obtain one. You can do this through a representative, such as a lawyer, or by yourself if you’re already resident in Portugal.
Register as a Tax Resident
Once you have your NIF, you’ll need to register as a tax resident in Portugal. This step formalizes your tax residency status in the country.
Gather the Required Documents
To complete your NHR application, you’ll need specific documents, including:
- A certificate verifying that you were not a tax resident in Portugal for the 5 years before applying.
- Tax returns for the last 5 years.
- Proof of housing in Portugal, either a rental agreement or property deed.
Submit the Application
You should submit your NHR application to the Portuguese tax authorities (Autoridade Tributária e Aduaneira). It’s crucial to apply either before becoming a tax resident or within the first 6 months of becoming one to benefit from the program’s tax advantages.
Wait for Approval
Once you submit your application, you’ll need to wait for the tax authorities to review and approve it. The processing time may vary.
What Happens After 5 Years of Residency in Portugal?
In many countries, 5 years of residency automatically means that you become eligible for full tax residency status. However, the tax benefits of the NHR program apply for the first 10 years.
This means that after the first 5 years, individuals in Portugal can still enjoy another 5 years of benefits. Once this 10 year period ends, individuals will then receive the same tax rates as everyone else.
As laws around tax and residency change often, it’s important to keep an eye on your case to ensure that you still qualify.
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FAQ
What Is the Tax Rate for Non-Habitual Residents in Portugal?
The NHR program does not always eliminate taxes for individuals but may impose a more favorable tax rate. This is 20% for local income for those involved in specific skilled jobs. Most foreign source income (besides specific pension payments) becomes exempt.
Are there any other conditions or requirements needed to maintain NHR status?
To maintain NHR status for the full 10 year period, you must meet the conditions outlined in the program. This includes not being a Portuguese tax resident in the previous 5 years and fulfilling the minimum stay requirements each year.
Can I work in Portugal at the same time as I am on the NHR program?
Yes, you can work in Portugal while benefiting from the NHR program. However, your income from this period will typically be taxed at the standard Portuguese tax rates.
What is the minimum stay requirement for NHR status each year?
The minimum stay requirement is at least 183 days in Portugal. After this point, you gain residency for tax purposes and are eligible for the program.
Is the NHR tax regime permanent? What happens after 10 years?
The NHR program typically lasts for 10 years. After which time, you will be subject to the same Portuguese tax rates as everyone else.
If you can fulfill the 5-year non-residency requirements again, it is possible to appeal to have NHR status reinstated.
Can I combine the NHR program with other similar tax incentives in Portugal?
Other tax incentives or tax treaties may be available for specific activities or investments performed in Portugal. These may apply at the same time as the NHR in special cases. However, our experts advise that it’s best to consult with a tax professional to explore available options before trying.
Are there any fees associated with applying for NHR status?
There is a €15 administrative fee that you must pay to complete the application process.
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