As a US Citizen, you may have heard about the Non-Habitual Residency (NHR) program in Portugal. Portugal NHR program aims to attract foreign taxpayers by offering tax benefits. In this guide, I will explain what Portugal NHR is, who is eligible for it, its benefits, and how to apply for it. I will also provide real-life examples of US Citizens who have benefited from Portugal NHR.
Introduction to the NHR Program
Portugal NHR is a program that was introduced in 2009 to attract foreign investors and retirees to Portugal. The program offers tax benefits to those who become tax residents in Portugal. Portugal NHR allows US Citizens to pay little or no tax on their foreign income for ten years. This program is particularly attractive to US Citizens looking to escape high taxes in the United States.
What is Portugal NHR?
Portugal NHR is a program that offers tax benefits to foreign residents who become tax residents in Portugal. The program was introduced in 2009 to attract foreign investors and retirees to Portugal. The program allows individuals to pay little or no tax on their foreign income for ten years. This program is particularly attractive to US Citizens looking to escape high taxes in the United States.
Who is eligible for Portugal NHR?
To be eligible for Portugal NHR, you must meet the following criteria:
- You must be a non-resident of Portugal for the past five years.
- You must become a tax resident in Portugal.
- You must not have been a tax resident in Portugal in the past five years.
- You must spend more than 183 days in Portugal or have a home in Portugal that is available for your use.
Benefits of Portugal NHR for US Citizens
The benefits of Portugal NHR for US Citizens are significant. US Citizens who become tax residents in Portugal can pay little or no tax on their foreign income for ten years. This program is particularly attractive to US Citizens looking to escape high taxes in the United States. Other benefits of Portugal NHR include:
- No wealth tax
- No inheritance tax for close relatives
- Reduced tax rate of 20% for certain types of income
- Tax exemption on pensions and Social Security payments
Taxation under Portugal NHR
Under Portugal NHR, US Citizens who become tax residents in Portugal can pay little or no tax on their foreign income for ten years. However, it is essential to note that Portugal NHR only applies to foreign income. Any income earned in Portugal will be taxed at the standard rate. US Citizens who become tax residents in Portugal will also be subject to the same tax rules as Portuguese residents.
How to apply for Portugal NHR
To apply for Portugal NHR, you must follow these steps:
- Obtain a Portuguese tax number (NIF).
- Register as a non-habitual resident with the Portuguese tax authority.
- Provide proof of residency in Portugal.
- Wait for approval from the Portuguese tax authority.
- Declare your foreign income to the Portuguese tax authority on an annual basis.
Real-life examples of US Citizens benefiting from NHR
Many real-life examples of US Citizens have benefited from Portugal NHR. One such example is John, a retiree from New York. John has a pension of $100,000 per year and Social Security payments of $25,000 per year. In the United States, John would pay around $20,000 in federal income tax and $5,000 in state income tax. However, by becoming a tax resident in Portugal, John pays a flat 10% tax on his foreign income for ten years.
Portugal NHR FAQs
- How long does Portugal NHR last? Portugal NHR lasts for ten consecutive years.
- Can I apply for Portugal NHR if I have been a tax resident in Portugal before? No, you cannot apply for Portugal NHR if you have been a tax resident in Portugal in the past five years.
- Do I have to live in Portugal to benefit from Portugal NHR? No, you do not have to live in Portugal to benefit from Portugal NHR. However, you must become a tax resident in Portugal and spend more than 183 days in Portugal or have a home in Portugal that is available for your use. This will imply obtaining a residency visa.
- What types of income are subject to the reduced tax rate of 20%? The reduced tax rate of 20% applies to certain types of income, freelancer income (derived from foreign sources) and salaries paid by Portuguese companies related to high-added-value jobs.
Conclusion
Portugal NHR is a program that offers significant tax benefits to US Citizens who become tax residents in Portugal and Madeira Island The program allows individuals to pay little or no tax on their foreign income for ten years. This program is particularly attractive to US Citizens who are looking to escape high taxes in the United States. If you are considering becoming a tax resident in Portugal and Madeira Island, it is essential to consult with a tax professional, such as those in our team at MCS, to ensure that you understand the tax implications of the move.
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
