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Portugal’s Non-Habitual Residence programme: How you can make your income tax-free

by Cláudia Mendes | Nov 12, 2019
  • There’s an increase in the number of people (and companies) wanting to know more about alternative residency options, whether for economic, political or various other reasons. Portugal’s Non-Habitual Residence programme is proving quite popular with expats.
    Portugal panaroma

    The truth about relocating

    Expats and those experienced with moving abroad can offer a wealth of knowledge when it comes to relocating to a new country.

    I relocated from South Africa to Portugal and had to undergo all the teething issues of uprooting from the country I’ve always called home, to moving to a country I’ve only ever been familiar with.

    Through this experience, I realised that the reasons for relocation are subjective and have quite an impact on how resilient you are to the way things work in your new country.

    Once you make peace with the fact that every country has its own set of admin hassles and elements of bureaucracy, you’ll be able to enjoy the country as you should. Relying on the experience and services of a reputable cross-border advisory firm gives you added peace of mind that your financial affairs will be taken care of.

    See also: South African investors set their eyes on Portugal’s booming property market

    The financial perks of moving to Portugal

    Aside from the exquisite beaches, delectable food, picturesque cities, fado bars (where traditional music echoes through the city streets), museums and gorgeous little chapels, there are many other factors bringing people to Portugal. One of these is the Non-Habitual Residence (NHR) tax regime, popular with many expats looking for alternative residency.

    The NHR was established in 2009 and is proving very successful at attracting pensioners and certain skilled professionals to establish residency in Portugal for tax purposes.

    In Portugal, there’s no wealth tax or inheritance/gift tax for close relatives. The NHR programme grants qualifying individuals the possibility of becoming tax residents of a whitelisted jurisdiction, while legally avoiding or minimising income tax on certain categories of non-Portugal sourced income and capital gains for a period of 10 years.

    To qualify for the NHR programme, you must:

    • Have the right to reside in Portugal either through being an EU/EEA/Swiss citizen, by way of permits or through schemes such as the Golden Visa programme 
    • Be physically resident in Portugal
    • Be a tax resident in Portugal
    • Not have been a Portuguese tax resident in the previous five years

    To maintain your residency status, you must have a place to live in Portugal by 31 December in the year you apply. It’s not necessary to purchase property – a rental contract of 12 months is sufficient proof of residence.

    See also: Why the Portugal Golden Visa remains the best in the world

    How Portugal’s tax exemption on foreign income works

    An important feature of Portugal’s NHR tax regime lies in its relationship with Double Taxation Agreements (DTAs). These allow for most categories of income to be taxed in the country of source. If your income comes from a country which has a double taxation treaty with Portugal, it will not be taxed in Portugal.

    We always recommend speaking to someone who is experienced with and knowledgeable about the NHR. It’s important that you first complete an eligibility assessment before you begin the application process. The assessment looks at issues such as the principles of tax residence, dual residency and whether any DTAs apply.

    Foreign-sourced employment income can be exempt under the NHR regime.

    NHR Portuguese tax rates on foreign-sourced income

    The table below outlines how various sources of income generated outside of Portugal are treated under the Portuguese tax system.

    Type of income

    Liable taxes in Portugal

    Pension

    Tax exempt

    Real estate rentals

    Tax exempt

    Interest

    Tax exempt

    Employment

    Tax exempt

    Capital gains

    Tax exempt

    Self-employment

    Exempt, provided it was obtained from abroad

    Note that sources of income from any of the 81 blacklisted territories will not qualify under the NHR tax code.

    How your income from Portugal will be taxed

    Type of income (Portuguese-sourced)

    Tax rate

    Employment income*

    20%

    Business and professional income**

    20%

    Interest

    28%

    Dividend

    28%

    Capital gains on sale of shares

    28%

    Capital gains on sale of real estate

    Marginal rates up to 48%

    Rental income

    Between 10% and 28%

    Pension income

    Marginal rates up to 48%

    * Taxpayer is required to file a tax return.

    **If derived from a “high-value-added” activity (otherwise, marginal rates up to 48% apply).

    See also: Silver Coast Portugal: Your guide to a dream expat destination

    Do your research and get the right advice

    As a Certified Financial Planner®, I advise South African-resident clients on the financial planning aspects of relocating to Portugal. It’s been interesting to see how effective planning can really provide significant tax benefits and ensure your relocation goes as smoothly as possible.

    When relocating we need to consider all relevant aspects such as tax residency, double tax treaties, rules regarding financial emigration (where needed) and the detail around restructuring investments.

    I’m in the fortunate position within a larger group where the financial planning part I manage dovetails nicely within all the other services we offer within the group. If you’re considering Portugal as a relocation option and need to understand how this would work for you, please get in touch.


    If you want to know more about the NHR programme or have any questions about Portugal, get in touch with us on +44 (0) 207 759 7581 (UK) or +27 (0) 21 657 1584 (South Africa), or at nhr@sableinternational.com.

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

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