One of the most important things to know if you are considering migrating to Portugal is the tax residence laws. Portugal has always been desirable for expats because of its tax laws. However, the scene for tax residents in Portugal is changing with recent modifications in the 2024 State Budget, especially the abolition of the Non-Habitual Resident (NHR) system. The main points of becoming a tax resident in Portugal, who qualifies, what tax advantages are available, and what has changed recently will be covered on this article.
What Is Tax Residency in Portugal?
In simple terms, tax residency defines where an individual is obligated to pay taxes. Under Portuguese law, tax residency is pivotal in determining what portion of an individual’s domestic and foreign income is subject to Portuguese taxation.
How Is an Individual Defined as a Resident for Tax Purposes in Portugal?
To be considered a tax resident in Portugal, an individual must meet one of the following criteria:
- Physical Presence: The individual must spend more than 183 days in Portugal consecutively or intermittently within a 12-month period that overlaps with the relevant tax year.
- Permanent Accommodation: Even if the person spends fewer than 183 days in Portugal, they may still qualify if they maintain accommodation in Portugal during the same 12-month period and intend to use it as their habitual residence.
When Does Tax Residency Start and End?
Once an individual meets the criteria for tax residency, they are considered residents from the first day of their presence in Portugal until their departure. However, specific provisions in the law may extend their residency status for the entire tax year. For example, spending part of a day in Portugal, especially if it includes an overnight stay, counts toward residency.
The End of the Non-Habitual Resident (NHR) Regime
One of the most significant recent changes is the termination of the Non-Habitual Resident (NHR) tax regime as of January 1, 2024. This regime was a cornerstone of Portugal’s tax strategy for attracting expatriates by offering reduced tax rates on specific incomes. However, the NHR regime remains in effect for:
- Taxpayers already registered under the NHR regime and within its 10-year validity.
- Individuals who meet the requirements to apply for NHR status by December 31, 2023, and complete the registration by March 31, 2024.
Transitional Rules for the NHR Regime
While the NHR regime officially ended in 2024, individuals who establish tax residency by December 31, 2024, can still apply for NHR status under transitional rules, provided they demonstrate that they had planned to relocate to Portugal during 2023. Applications for NHR status must be submitted by March 31, 2025, to benefit from the unique tax treatments.
What Are the Tax Benefits of NHR Status?
For those who still qualify for the NHR regime, significant tax advantages include:
- 20% Tax Rate on Certain Professions: As defined by Portuguese law, income from high-value-added activities is taxed at a flat rate of 20%.
- Foreign Income Exemptions: Income from foreign sources, such as pensions or investments, may be exempt from Portuguese taxes if taxed in the source country or eligible for taxation under a double tax treaty (DTT).
New Tax Incentive: The NHR 2.0 (TISRI)
Portugal introduced a new tax incentive, the Tax Incentive for Scientific Research and Innovation (SRI), as part of the 2024 State Budget. Often referred to as the “NHR 2.0,” this regime is designed to attract highly skilled scientific research and innovation professionals. Key criteria include:
- Becoming a Portuguese tax resident.
- Not being a tax resident in Portugal in the five preceding years.
- Receiving income from specific activities, including academic research and development.
Qualified individuals can benefit from a 20% flat tax rate on income derived from their activities for up to 10 years.
Special Rules for Former Tax Residents
Portugal also offers favourable tax treatment for individuals who were former tax residents and returned to the country. Suppose you become a resident again in 2024, 2025, or 2026 and meet specific criteria (such as not being a resident in the previous five years). In that case, 50% of your employment or self-employment income may be tax-exempt for five years. However, this exemption is capped at €250,000.
General Taxation for Residents vs. Non-Residents
If you do not meet the residency criteria, you are classified as a non-resident for tax purposes. Non-residents are taxed only on their Portugal-sourced income at a flat rate of 25%. On the other hand, residents are taxed on their worldwide income, and the rates range from 14.5% to 48%, depending on income brackets.
Tax Obligations and Representative Requirements for Non-Residents
Non-residents who move abroad and change their tax status must update their residency with the Portuguese tax authorities within 60 days. If moving outside of the EU, they are required to appoint a Portuguese tax representative to handle any tax matters. Alternatively, they can opt to receive electronic notifications via the ViaCTT mailbox.
Conclusion
Becoming a tax resident in Portugal brings both obligations and opportunities. With the cessation of the NHR regime and the introduction of new tax incentives, such as the NHR 2.0 (TISRI), Portugal continues to offer competitive options for expatriates and returning residents. Understanding these tax residency rules, the tax benefits available, and the recent changes in legislation will help you make informed decisions if you plan to relocate or invest in Portugal.
FAQs
- What happens if I spend less than 183 days in Portugal? You may still qualify as a tax resident if you have permanent accommodation in Portugal and it’s evident that you intend to use it as your habitual residence.
- What are the new tax incentives introduced in 2024? The Tax Incentive for Scientific Research and Innovation (TISRI), or NHR 2.0, offers a 20% flat tax rate for individuals in scientific and research fields.
- Can I still apply for the NHR status in 2024? Under transitional rules, individuals who become tax residents by December 31, 2024, can apply for NHR status.
- What happens if I miss the deadline for NHR registration? If you miss the March 31, 2025, deadline, the special taxation regime will only apply from the year you submit your application, covering the remaining period of the 10-year benefit.
- Are former residents returning to Portugal eligible for tax benefits? Yes, for up to five years, former residents returning to Portugal between 2024 and 2026 may benefit from a 50% tax exemption on their income.
The information in this article on “portugal tax residency” is for general informational purposes only and is not intended to constitute legal advice. While every effort has been made to ensure the accuracy of the content, laws and legal procedures can change, and the specifics of each case can vary widely. Therefore, readers are advised to consult a qualified professional or attorney in Portugal for advice tailored to their circumstances before taking action. This article does not create an attorney-client relationship between the reader, the authors, or the publishers. The authors and publishers are not liable for any actions taken or not taken based on the content of this article.
Laurinda holds a Diploma in Business Administration from the South African Institute of Administration and Commerce… Read more
