In September 2009 Portugal introduced the Non-Habitual Resident (NHR) scheme, in other words, its own Expat Tax Regime.
Under the NHR scheme, expats can invoke special taxation rights (benefits), for a consecutive ten-year period, on their foreign and Portuguese sourced income, therefore benefiting from reduced tax rates or tax exemptions on their income.
How to benefit from Portugal’s Expat Tax?
Those expats wishing to benefit from the special expat tax regime need to become Portuguese resident taxpayers provided they were not taxed as residents in Portugal in the previous five years (supporting evidence may be requested at the moment of application).
Expats meeting the residency requirement and the five-year period abovementioned must apply for NHR status until 31 March of the year following that of registration as a resident, in order to assure the expat tax benefits.
How does one qualify as a resident, for taxation purposes, in Portugal?
Under Portuguese Tax Law (Personal Income Tax Code) one is deemed resident, for taxation purposes, if living more than 183 (consecutive or not) days in Portugal in any period of 12 months starting or ending in the relevant year; when herein living for an inferior period, having, in any day of the 12 months threshold, a house in such conditions that allow presuming the intention to hold and occupy it as his habitual place of residence.
Other conditions may apply to determine residency, for taxation purposes in Portugal, notwithstanding these usually do not apply to expats the effectively relocate to Portugal.
Portugal Expat Tax Benefits
Under the Non-Habitual Tax Resident Scheme expats are granted reduced tax rates on Portuguese sourced income and exemption on their foreign-sourced income, provided rules set out by the scheme are met.
Tax Benefits applicable to Foreign Income
Foreign sourced salaries are exempt from taxation in Portugal under the NHR scheme, provided that said income is taxed in the jurisdiction of origin according to the Double Tax Treaty entered into between Portugal and that jurisdiction; or if Portugal has not entered into a Double Tax Treaty with that jurisdiction of origin, the income will be taxed in that State as long as the income cannot be considered as obtained in Portugal according to domestic law.
Pension income of foreign source obtained by expats, benefiting from the NHR scheme, is, for the same portion, which was considered taxable, not considered tax-deductible in Portugal, is taxed at a 10% flat rate.
Self-employment income (from high-added-value activities), intellectual or industrial property income, as well as, from providing information regarding an experiment carried out in the commercial, industrial or scientific areas, capital income (interests and dividends), real estate income and capital gains (real-estate property sale and financial portfolio sales).
The abovementioned types of income are exempt from taxation in Portugal under the NHR scheme, provided that said income may be taxed in the jurisdiction of origin according to the Double Tax Treaty entered into between Portugal and the jurisdiction concerned, or in case Portugal has not entered into between a Double Tax Treaty with the jurisdiction of origin, the income may be taxed in conformity with the OECD Model Tax Convention (in this case, this exemption shall only apply if the State of origin is not considered a black listed jurisdiction and as long as the income cannot be considered as obtained in Portugal according to domestic law).
Portugal provides exemption on crypto gains, provided that said gains are paid to the investor in fiat currency and said gains are obtained as dividends paid to the investor as a company shareholder. Otherwise, the taxation exemption on said gains is not set in stone. For more detailed information on the current crypto taxation landscape in Portugal, please click here.
Tax Benefits applicable to Portuguese Income
Only income of a scientific, artistic and technical nature (salaried and self-employed workers) obtained in Portugal will be taxed at a fixed rate of 20%, rather than the progressive rate, applicable to normal tax residents, which can be as high as 48%.
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