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Tax-free retirement in Portugal with the Non-Habitual Residence programme

For many South African retirees, the plan is to finish up work in one of the major South African cities and then retire to the coast to spend one’s days soaking up sun and enjoying some well-deserved rest. However, the trajectory of South African politics (and the economy) are challenging those plans. The good news is there is another way to action that original plan, but with a European twist. The opportunity is in Portugal, and it’s all got to do with the Non-Habitual Residence programme.

The Non-Habitual Residence programme

The Non-Habitual Residence (NHR) programme was introduced in Portugal in 2009. Its aim is to attract foreign investment to the country by offering attractive tax benefits to incentivise expats to consider retirement in Portugal. The programme offers a 10-year tax break on qualifying foreign income. Qualifying income, amongst other things, includes private pensions and company dividends.

How to qualify for this programme

To qualify as a non-habitual tax resident in Portugal, you will first need to obtain residence in Portugal. This can be done through a special retirement visa. The retirement visa requires you to spend 183 days or more per year in Portugal or establish a place of abode there. Once you have done that, you will be able to get yourself designated as a non-habitual tax resident of Portugal.

As a non-habitual tax resident, you will be exempt from paying taxes on certain types of qualifying foreign retirement income in Portugal. Private pension and most other pension income is completely tax-free in Portugal. This is because most double taxation treaties grant exclusive taxation rights on pension income to the country of residence, which in this case would be Portugal. Since the NHR stipulates that foreign pension income may be excluded from taxation in Portugal, you’ll be receiving a tax-free pension.

This, with appropriate tax planning, means that you can take your pension as a lump sum or a series thereof within the first 10 years of the NHR and will not owe any tax in Portugal. If planned properly and thoroughly, this means you could significantly boost your net worth. What’s more, Portugal doesn’t have an inheritance tax regime, so all your assets can eventually be passed down to your family tax-free.

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Why South Africans are flocking to Portugal

Not only is this an excellent programme for retirement, the NHR also opens the door for South Africans to claim EU citizenship. After holding a Portuguese visa for a qualifying period (usually six years) you may be eligible to apply for Portuguese citizenship.

What you can do while you're "retired"

At retirement age (when you’re no longer beholden to an employer), you can:

  • Live in the sun for six months a year
  • Not pay Portuguese tax on any pension, dividend or annuity income
  • Be close to your children and grandchildren in the UK
  • Get Portuguese nationality (and a passport) after six years for you and your spouse

With a sunny, mild climate, plentiful beaches and exceptional local food and wines, it’s easy to see why so many South Africans have fallen in love with Portugal. It’s why so many have decided to move abroad and retire there.

Who wouldn’t want to move to Portugal on a retirement visa and live there six months a year as a non-habitual tax resident who is allowed to receive pension payments and continue earning money outside of Portugal tax-free? The fact that after six years, you and your spouse may be eligible for EU citizenship and a Portuguese passport is just more icing on a very large cake.

Not ready to retire? You don’t need to stop working just yet

Retirement doesn’t mean what it used to. The definition of “retirement” in terms of the NHR is loose. You only need to ensure you’re not employed in Portugal and you will be considered retired. Should you have any business interests in South Africa (or elsewhere in the world), you’ll still be able to keep these alive and running while you maintain your residency in Portugal.

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Speak to an NHR expert today 

The Portuguese government is welcoming non-EU investors with open arms. In an effort to attract wealthy individuals and their families to Portugal, the government offers attractive tax breaks and savings to expats who decide to make the southern European country their home.


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