There are opportunities that should not be missed. This is one of them.
Today, we will delve into the fascinating world of taxes and discuss Portugal NHR program.
We will explore the NHR Portugal program, which has gained popularity among expatriates and digital nomads seeking to establish their tax residence in Portugal.
Whether you are a retiree, an entrepreneur, or a remote worker, understanding the benefits and requirements of Portugal’s NHR program can have a substantial impact on your financial well-being.
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What is Portugal NHR Program for expats?
Before we dive into the details, let’s briefly explain what Portugal’s NHR program is. The Non-Habitual tax regime program a tax regime designed to attract foreign citizens and make them tax residents in Portugal. It offers highly favorable tax rates and exemptions for a period of ten years.
By becoming an NHR in Portugal, you can enjoy significant tax advantages and optimize your tax liability. However, it’s important to understand that this is a tax regime, not a migration procedure.
Therefore, you must come to Portugal legally and then apply for the NHR regime. The immigration and visa procedure, if required, will depend on your nationality and must be done before applying for Portugal’s NHR status.
So, what are the benefits of Portugal’s NHR program? Let’s take a closer look:
1. Income Tax Exemptions
Under Portugal’s NHR program, certain types of income, such as income from foreign sources, may be exempt from taxes in Portugal.
This can lead to substantial savings and more efficient use of your earnings. However, it’s important to note that not all foreign income is tax-exempt in Portugal.
The NHR individual will not pay taxes on passive income from foreign sources in Portugal if and only if that income may be subject to tax in the country of origin according to the double taxation treaty or according to the OECD model.
This doesn’t mean you will pay this tax in the other country; it depends on each specific country’s legislation. But it must be passive tax on personal income, not derived in Portugal and not obtained in any jurisdiction on the blacklist.
2. Exemption from Gift and Inheritance Taxes
Non-Habitual Residents can also enjoy an exemption from taxes on gifts and inheritances received from direct relatives. This advantage can be significant for those planning to transfer their wealth to future generations.
3. Reduced Income Tax Rates
For income generated in Portugal that does not qualify for exemption, NHR individuals benefit from a fixed income tax rate of 20%. This is significantly lower than regular tax rates, allowing you to retain more of your hard-earned money.
Since Portugal has a progressive tax system, it means that the more you earn, the higher the tax rate will be. So, depending on the income a person has in a year, the tax rate will vary from 14.5% to 48%, plus an additional solidarity surcharge of 2.5% or 5% for extremely high profits over 80,000 EUR.
Compared to those rates, a 20% tax sounds great in my opinion. However, bear in mind that not all income can get this preferential treatment of 20%, but only income coming from high value-added activities.
To avoid constant discussions about what activity has high added value and what does not, Portugal has drawn up a special list of such activities.
Most professions, such as IT, marketing, etc., are included in it. So the list is quite extensive. Furthermore, when you file your personal tax return, there will be a dropdown list of activities with codes, you choose your profession, and then file the return to be taxed at a 20% rate.
Which professionals can apply for the Portuguese NHR?
The NHR Portugal Tax Regime is an attractive option for freelancers who want to benefit from a reduced tax rate of 20%. However, to be eligible for this regime, it is essential to exercise a profession considered to have high added value, according to the list updated by the Portuguese government. Here are some of the professions that currently qualify for NHR:
- General managers and company directors.
- Directors of administrative and commercial services.
- Directors of production and specialized services.
- Directors of hospitality, restaurants, commerce, and other services.
- Specialists in sciences, mathematics, engineering, and related techniques.
- Medical doctors.
- Dentists and stomatologists.
- University and higher education teachers.
- Information and communication technology (ICT) specialists.
- Authors, journalists, and linguists.
- Visual and performing arts artists.
- Technicians in scientific and technical occupations.
- Technicians in information and communication technologies.
- Qualified workers in agriculture and animal production.
- Qualified workers in forestry, fishing, and hunting.
- Qualified workers in industry, construction, and handicrafts, including specialists in metallurgy, metal processing, food, wood, clothing, handicrafts, printing, precision instruments manufacturing, jewelry, electricity, and electronics.
- Operators of facilities and machines and assembly line workers.
If your profession is included in this list, you can significantly reduce your tax burden by availing of NHR Portugal. It is worth mentioning that, in the past, the definitions of high value-added activities were not well established, but the Portuguese government has worked to update it regularly.
It is essential to be aware of changes in the list of eligible professions, as if your activity is not on it, you will not be able to benefit from this reduced tax regime.
NHR Portugal: Tax Benefits for Foreign Companies and How to Obtain It
If you have a company abroad, NHR Portugal tax regime may be an interesting option for you. This regime is particularly attractive to entrepreneurs operating in countries with low corporate taxes or even no taxes.
Under NHR Portugal, dividends received from a foreign company are tax-free in Portuguese territory. However, it is essential to meet certain conditions to enjoy this advantage.
It is essential to highlight that Portugal has strict tax laws concerning foreign income. Therefore, the company from which you receive dividends must be genuinely located abroad for you to enjoy tax exemption in Portugal.
It is not enough to have a fictitious company abroad and manage it from Portugal, as this could entail the risk of having to pay taxes as if the company were in Portuguese territory.
Is it necessary to reside in Portugal to obtain the NHR?
To obtain NHR Portugal, you must indeed reside in the country. However, once you have obtained NHR, there is no official minimum stay to maintain it.
This has attracted many digital nomads who choose Portugal as their destination, as they can enjoy tax benefits without having to stay in the country all year round.
However, to benefit from Portugal’s double taxation treaties and obtain lower taxes with NHR, it is necessary to be a tax resident in Portugal, which implies living in the country for at least 183 days per year.
A lesser-known but interesting option is the simplified tax system, which is compatible with NHR Portugal. This system is aimed at companies or self-employed individuals with annual incomes below 200,000 EUR and who can demonstrate expenses equivalent to at least 15% of their earnings.
Under this system, taxes are only paid on a percentage of income, and that percentage varies depending on the activity. Additionally, during the first and second years under this regime, tax discounts of 50% and 25%, respectively, on taxes to be paid are granted. Furthermore, the first year includes free social security.
It is crucial to determine what percentage of income is subject to tax based on the activity performed:
- Sales of goods and products, services provided in hospitality, restaurants, and beverages (excluding accommodation establishments): 15%.
- Listed service activities (Article 151 of the IRS Code): 75%.
- Other services: 35%.
- Royalties and other income (investment income, capital gains, rentals): 95%.
- Non-business grants: 30%.
- Grants related to business activities and other income: 10%.
- Income derived from services provided by a partner to a company subject to the “tax transparency regime”: 100%.
- Income derived from the provision of services to an entity in which the taxpayer directly or indirectly owns at least 5% of the share capital or voting rights, or in which the taxpayer, spouse, and ascendants and descendants directly or indirectly own at least 25% of the respective share capital or voting rights: 100%.
For example, if you invoice 90,000 EUR per year, applying the tax discounts in the first and second years, the taxes to be paid would be considerably lower under NHR compared to the progressive tax system.
The process to obtain NHR Portugal is not automatic, but you must apply for it once you have become a tax resident in the country. To do so, you must complete a declaration certifying that you have not been a tax resident in Portugal for the last 5 years.
The application is done online through the “Portal das Finanças” of the Portuguese tax office, after obtaining a Portuguese tax number and creating an online account.
In general, the application is usually resolved within 5 business days. Although you can handle the process on your own, in exceptional cases, additional documents may be required.
Let’s talk about who can benefit from the NHR program:
- Retirees: If you plan to retire in Portugal, Portugal’s NHR program can be a game-changer. With its attractive tax advantages, you can stretch your retirement savings and enjoy a better quality of life with a taxation rate of just 10% in Portugal.
- Entrepreneurs: Entrepreneurs and business owners can benefit from the NHR Portugal program by establishing their tax residence in Portugal. It offers a favorable tax environment for business profits, dividends, and capital gains, providing a competitive edge and fostering business growth.
- Digital Nomads and Remote Workers: In today’s digital age, many professionals have the freedom to work from anywhere. By becoming an NHR Portugal, you can take advantage of Portugal’s welcoming tax regime while enjoying the vibrant culture and beautiful landscapes of the country.
How can I become an NHR Portugal?
Here’s a brief overview of the steps involved:
- You must move and transfer your tax residence to Portugal.
You can opt to be a tax resident of Portugal right after arriving in the country. So Portugal doesn’t have this obligatory criterion that you must spend first 183 days for them to consider you a tax resident. No, there you have the option to spend in the country 183 days or make a declaration that you have moved to Portugal, you have a residence there, and you will stay in Portugal. That’s enough to become a tax resident there.
So, first, you move to Portugal, become a tax resident there, and when that is granted, you must apply for the NHR status.
An important notice is that you won’t be able to apply for the NHR regime if you have been a tax resident in Portugal in the last 5 years. But if you haven’t, you can apply and enjoy its benefits for the next 10 years.
- Formal Application
It is necessary to submit a formal application to avail of the NHR regime, which must be done before becoming a tax resident in Portugal.
- Qualified Activities
Applicants must exercise one of the qualified activities mentioned above to benefit from the reduced income tax rate.
- Effective Residency
Applicants are expected to spend a minimum of 183 days per year in Portugal or have a residence indicating their intention to reside permanently in the country. Additionally, to be considered a tax resident in Portugal rather than in Spain, you must not have your main economic interests in Spain, and your family (spouse and children) must live with you in Portugal.
Conclusion: Assessment of NHR Portugal and Its Tax Benefits
NHR Portgual Tax Regime represents an excellent opportunity for those looking to reduce their tax burden by residing in this country. It is especially attractive for individuals with high-value-added professions, owners of foreign companies receiving periodic dividends, and those receiving pensions from countries with double taxation agreements that assign taxing rights to Portugal.
Portugal is a highly attractive nation, but it is important to note that it is not considered a tax haven by the European Union. The vast majority of countries have tax agreements with Portugal. However, due to high social security contributions and the requirement to pay 20% in taxes for those with high-value-added professions, Portugal does not stand out as the ideal country from a purely fiscal perspective.
We recommend considering the option of moving to Portugal under the NHR Regime only if you genuinely like the country and wish to settle there. While the tax savings are significant, compared to the tax systems of other nations such as Cyprus, Malta, or the United Arab Emirates, for example, the benefits in Portugal are more limited. It is also relevant to note that after 10 years, you will have to pay regular taxes applied in Portugal.
It is important to mention that personal taxes in Portugal are higher than those in Spain. However, during the first two years, the simplified tax system, along with the discounts and exemption from social security, make this option interesting and attractive.
NHR Portugal is an exceptional opportunity for those looking to establish tax residency in a country with a favorable tax policy. With a reduced tax rate, tax exemptions, and access to double taxation treaties, Portugal offers a conducive environment for financial growth and a prosperous life. If you need assistance from our specialists, do not hesitate to contact us here.
Frequently Asked Questions:
- Can I benefit from NHR Portugal if I am retired?
Yes, the NHR regime is also applicable to retirees who meet the established requirements.
- What is the duration of the NHR regime in Portugal?
The NHR regime has a duration of ten consecutive years.
- Do I need to hire a lawyer to apply for NHR Portugal?
It is not mandatory, but it can be helpful to have professional advice to ensure compliance with all requirements. You can request a consultation with our team here.
- Does the NHR regime in Portugal apply to all types of income?
No, it only applies to income derived from qualified activities mentioned in the legislation.
- Can I transfer my tax residence to Portugal if I am already a resident in another country?
Yes, as long as you have not been a tax resident in Portugal for the last five years, you can apply for the NHR regime.
- Who can benefit from NHR in Portugal?
NHR is ideal for retirees, entrepreneurs, and digital nomads seeking to optimize their tax situation and enjoy tax benefits in Portugal. High-value professionals from various fields also qualify.
- What are the tax benefits under NHR?
NHR allows for exemptions on certain foreign-sourced income and reduced tax rates on income generated in Portugal for qualified activities. It offers significant savings and tax efficiency.
- How can I apply for NHR in Portugal?
To apply for NHR, you must first establish tax residency in Portugal. Once you are a tax resident, you can submit a formal application for NHR status online through the “Portal das Finanças.”
- What is the duration of NHR in Portugal?
The NHR status in Portugal lasts for ten consecutive years. After the ten-year period, individuals will be subject to regular tax rates in Portugal.
- What is NHR Portugal?
NHR Portugal is a tax regime designed to attract foreign citizens to become tax residents in Portugal. It offers favorable tax rates and exemptions for a period of ten years.
