In this article, we will provide a comprehensive guide on everything you need to know about Portugal NHR tax program, including its benefits, the taxes it covers, and expert tips for maximizing your savings. As tax advisors, we have seen many clients seek ways to minimize their tax obligations while maximizing their savings, and Portugal’s NHR tax program is one of these programs.
Introduction to Portugal’s NHR Tax Program
Portugal’s NHR tax program is a scheme that offers tax benefits to non-habitual residents who move to Portugal with a legal residence permit. The program was introduced in 2009 to attract foreign investment and skilled professionals to the country. Under the NHR tax program, eligible individuals can enjoy a tax exemption or a reduced tax rate on their income for ten years.
To qualify for the NHR tax program, individuals must meet specific criteria. Firstly, they must be a tax resident of Portugal and have not been tax residents of Portugal in the previous five years. Secondly, they must spend more than 183 days in Portugal or have permanent residence in Portugal.
Understanding the Benefits of the NHR
The NHR tax program offers several benefits to eligible individuals. Firstly, the program provides a tax exemption or a reduced tax rate on income derived from a foreign source. This means that if you receive income from outside Portugal, such as dividends or capital gains, you may not have to pay tax on that income in Portugal. Secondly, the program offers a reduced tax rate of 20% on income (salary or freelancer income) derived from certain professions classified as high-added-value jobs. This reduced tax rate applies for ten years.
Another benefit of the NHR tax program is the absence of wealth tax in Portugal. If you have assets, such as property or investments, you will not have to pay tax on those assets in Portugal. Additionally, Portugal has a vast network of double taxation agreements, which means that if you pay tax on your income in another country, you may be able to avoid paying tax on that income in Portugal.
Taxation of Retirement Income under the NHR Tax Program
Under the NHR tax program, retirement income received from a foreign source is taxed at 10% flat rate in Portugal. This means that if you receive a pension from another country, you will have to pay a 10% tax on that pension in Portugal instead of being subject to progressive tax rates. However, if you receive a pension from a Portuguese source, you will be subject to tax in Portugal.
Taxation of Dividends and Interest Income under the NHR Tax Program
Dividends and interest income received from a foreign source are also tax-exempt under the NHR tax program (except if paid by entities based on a blacklisted jurisdiction). This means that if you receive dividends or interest income from another country, you will not have to pay tax on that income in Portugal. However, if you receive dividends or interest income from a Portuguese source, you will be subject to tax in Portugal (28%).
Taxation of Salary Income under the NHR
Portuguese-sourced salary income derived from certain professions and high-added-value jobs is subject to a reduced tax rate of 20% under the NHR tax program. The exact rate applies to foreign freelancer income derived from high-added value jobs (unless said income is taxed abroad and therefore exempt, under NHR rules, from further taxation in Portugal). This reduced tax rate applies for ten years. However, if you work in a profession not covered by the reduced tax rate, you will be subject to the regular progressive tax rates in Portugal.
Foreign-sourced salaries are exempt from taxation in Portugal, provided said salaries are taxed at source as foreseen by the double taxation agreement in force between Portugal and the source jurisdiction.
Common Misconceptions about the NHR Tax Program
There are several misconceptions about the NHR tax program that are worth addressing. Firstly, some believe the program is only available to wealthy individuals. This is not true. The program is open to anyone who meets the eligibility criteria, regardless of their income level.
Secondly, some people believe that the program is only available to retirees. While the program does offer tax benefits for retirement income, it is also available to individuals who work in certain professions and receive income from a foreign source.
Finally, some people believe that the program is too good to be accurate and that there must be a catch. While it is true that the program offers significant tax benefits, it is crucial to understand the eligibility criteria and the taxes covered under the program. It is also essential that, before relocation, you seek advice from a tax consultant in Portugal and your home country (concerning the implications of your exit).
Expert Tips for Maximizing Savings under the NHR
To maximize your savings under the NHR tax program, it is essential to seek the advice of a tax advisor familiar with the program. They can help you navigate the eligibility criteria and provide guidance on the types of income that are covered under the program.
It is also essential to keep accurate records of your income and expenses, as this will make filing your tax returns in Portugal easier. Additionally, it is worth considering the tax implications of any investments or property you may own in Portugal or another country.
Conclusion
Portugal’s NHR tax program is a scheme that offers tax benefits to non-habitual residents who move to Portugal. The program provides a tax exemption or a reduced tax rate on income derived from a foreign source and offers a reduced tax rate of 20% on income derived from certain professions. To qualify for the program, individuals must meet specific eligibility criteria. By understanding the benefits of the program, the taxes that are covered, and seeking the advice of a tax advisor, you can maximize your savings under the NHR tax program.
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
