Portugal, and the Autonomous Region of Madeira, are popular destinations among expats due to the Non-Habitual Resident Tax scheme. Access to the 10-year tax holiday entails fulfilling certain requirements from an immigration and income structure standpoint.
1. You need to be resident.
Accessing the tax benefits foreseen under the NHR implies being resident in Portuguese territory for immigration and taxation purposes. This means that:
- if you are an EU/EEA/Swiss citizen, you are required to apply for an EU Residence Certificate at the city/town hall with jurisdiction over your residential address; or
- if you are a third-country national, you must obtain a residence visa and the corresponding residence permit.
One must apply for the above documents must be applied for before taking up tax residency in the Portuguese territory (i.e. informing the Portuguese Tax and Customs Authority of your Portuguese residential address).
Please note that third-country national residence visas, except for the Golden Visa, require
2. Bring your tax history.
One of the conditions to be eligible for the Non-Habitual Resident tax scheme is that one must have been non-resident, for tax purposes, in Portugal in the five calendar years before the date of application.
More often than not, potential NHR status holders have their applications audited by the Portuguese Tax and Customs Authority. When such an audit happens, applicants are given 15 days to submit proof of their non-resident status concerning the previous years. Given this, it is advised that applicants bring with them the tax returns filled abroad, corresponding tax settlement notices and tax residency certificates as a way to prove their prior non-residency status in Portugal.
Should you come from a jurisdiction where the above documents are not issued (for various reasons), please engage a local tax advisor who can guide you in obtaining tax-relevant documentation that may help you prove your tax residency status in said jurisdiction.
3. The Non-Habitual Resident scheme does not exempt all types of income.
Although the Non-Habitual Resident tax scheme exempts many types of income, provided conditions are met, such is not the case with capital gains obtained from selling directly owned investment portfolios. Under most treaties to avoid double taxation signed between Portugal and other jurisdictions, the country reserves the right to tax its residents on this income at the flat tax rate of 28%.
Given the above, we recommend our clients hold a tax orientation meeting before applying for the NHR status to review their income structure and its compliance with the regime’s exemption requirements. Hence, no surprises arise when the tax bill arrives by post.
4. Ten years, non-renewable.
The tax benefits under the Non-Habitual Resident tax scheme are granted for ten consecutive years, non-renewable, should you wish to keep living in Portugal and qualify as a resident for tax purposes. This means that should you remain in Portuguese territory after the ten-year period, you will be subject to the standard progressive tax rates on your income (if applicable). Said rates can go up to 48%, should you earn more than eighty-thousand euros a year.
Notwithstanding the above, after the ten-year period, should you move abroad for a five-year period and then return, you can apply for the NHR status once more.
5. You must disclose your worldwide income.
As a Non-Habitual Resident status holder, you are required, like all residents, to disclose your worldwide income, corresponding taxes paid abroad and social security contributions (if applicable). Failure to do so qualifies as a breach of your obligations under Portuguese Tax Law.
Filling out your taxes in Portugal is daunting as all forms are written in Portuguese and tend to change every year. Be sure to engage a tax advisor and board-certified accountant to ensure that you comply with your tax reporting obligations in the country and benefit the most from the existing ten-year tax holiday.
This article is provided for general information purposes only and is not intended to be, nor should it be construed as, legal or professional advice of any kind.
Miguel Pinto-Correia holds a Master Degree in International Economics and European Studies from ISEG – Lisbon School of Economics & Management and a Bachelor Degree in Economics from Nova School of Business and Economics. He is a permanent member of the Order of the Economists (Ordem dos Economistas)… Read more