Non-Habitual Resident Due Diligence

The Non-Habitual Resident regime/scheme is the special Portuguese taxation regime applicable to the foreign income of natural persons. This program is specially designed for people wishing to transfer their residence to Portugal.

Those qualifying for the Non-Habitual Resident (NHR) regime qualify as residents, for tax purposes in Portugal, and are taxed at reduced or zero rates.

NHR status is valid for a period of 10 consecutive years, provided that the applicant was deemed non-resident in 5 previous years prior to taking up residency.

Having tax residency in Portugal is key to obtain the NHR. Therefore, prior to applying for NHR status, one must be deemed resident for tax purposes in Portugal. According to Portuguese tax law one is resident:

  • Either by having lived for more than 183 days (consecutive or not) in Portugal in any period of 12 months starting or ending in the relevant year; or
  • Having a house, at any time throughout the 12-month period, in such conditions that allow to presume the intention to hold and occupy it as the habitual place of residence.

Usually proof of residency outside Portugal prior to becoming resident and applying for the NHR is not required, unless:

  • There is a random audit carried out to one’s application by the Portuguese Tax and Customs Authority; or
  • One is a Portuguese citizen who forgot to update their tax residency in their Portuguese ID card (Cartão de Cidadão) after relocating outside Portugal in the five previous years to application.
  • One has engaged in the previous five years with the Portuguese tax authority in any way that has enable the Portuguese Tax and Customs Authority to deem that person as resident for tax purposes.

Given the above, we always advise prospective NHR status applicants to obtain, prior to the moment of their application, all relevant and legal documents that can be accepted by the Portuguese Tax and Customs Authority as proof of tax residency abroad in the 5 years previous to their application.

These abovementioned documents that should be gathered by any NHR applicant in the jurisdiction of previous tax residency are:

  1. Tax Residency Certificate.
  2. Proof of income earned, and corresponding tax paid abroad (i.e. tax return filed and corresponding tax settlement notice).
  3. Rental agreement or property purchase deed showing permanent residency intention.
  4. Work contract or pension pay slips.
  5. Utility bills.

Notwithstanding the above, the most relevant documents are the ones mentioned in 1 and 2.

If you are thinking of relocating and obtaining the NHR status and prevent it from being granted, due to the causes above, get your paper work in order.

For more information on these matters please do not hesitate to contact us. MCS’s team has been assisting expats relocating to Madeira for over 20 years and in dealing the Portuguese Tax and Customs Authority in their behalf.

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