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Introduction to the Non-Habitual Resident (NHR) Tax Regime in Portugal

For 15 years, Portugal's Non-Habitual Resident (NHR) tax regime has been a magnet for thousands of residents, offering reduced tax rates and even full tax exemptions for the first ten years of residence. Under this regime, NHRs are subject to a flat income tax rate of 20% and are exempt from paying taxes on global income.

However, in late 2023, the Portuguese parliament announced the impending end of the Non-Habitual Resident (NHR) tax regime, arguing that it was no longer beneficial for the country.

If you missed out on the NHR regime before its closure, there's still a chance to enjoy some tax benefits with the new NHR regime, dubbed NHR 2.0. While the benefits remain largely the same, the pool of eligible applicants has significantly narrowed. Additionally, the new regime now prioritizes employment in scientific research and innovation, no longer extending benefits to retirees and other high-value occupations.

Benefits of the Non-Habitual Resident (NHR) Tax Regime in Portugal

It's important to note that the benefits outlined below are applicable for a period of 10 years. After this period, individuals revert to regular tax resident status and must adhere to the standard fiscal regime.

Personal Income Tax (IRS): 20% Flat Tax

Under the NHR tax regime, individuals working in Portugal, whether freelancers or regular employees, are subject to a flat 20% tax rate on personal income tax (IRS).

Global Income

NHRs are also exempt from paying tax on dividends, interest, royalties, capital gains, rental income from real estate outside Portugal, and income from employment in another country. Taxes on these income sources are paid in the source country if a Double Taxation Agreement (DTA) exists between Portugal and the respective country. Notably, countries like the UK and USA have DTAs with Portugal, allowing for taxation in the source country.

Other Taxes

If pension income is taxed in Portugal due to ineligibility under a DTA, it is subject to a flat tax rate of 10%, inclusive of retirement savings and insurance. This is in contrast to non-NHR residents, who may face pension tax rates of up to 48%. Additionally, NHRs are exempt from inheritance or wealth tax.

Eligibility & Requirements: Who Qualifies for Non-Habitual Resident (NHR) Status in Portugal.

To qualify for NHR status in Portugal, individuals must have the right to reside in the country through a long-term residency visa, such as the Portugal Golden Visa, Portugal D7 Visa, or Portugal D2 Visa. Eligible candidates include:

Individuals engaged in educational activities in higher learning institutions and scientific research, including employment in scientific roles within affiliated entities, structures, and networks associated with the national science and technology system.

Employees serving on the boards of organizations receiving contractual tax incentives in Portugal through agreements with IAPMEI or AICEP. These incentives apply to significant investments exceeding €3 million.

Highly qualified professionals employed by entities benefiting from the Investment Promotion Tax Regime (RFAI) or industrial and service companies exporting at least 50% of their turnover.

Research and Development personnel eligible for the R&D tax incentive system (SIFIDE).

Members of entities certified as start-ups under Portuguese Start-Up Law, meeting specific criteria related to company age, employee count, turnover, ownership, and innovation status.

How to Apply for Non-Habitual Residency in Portugal

To become a non-habitual resident, individuals must have resided in Portugal for more than 183 days within a 12-month period. Alternatively, residency can be established by purchasing property in Portugal during the 12-month period or holding public positions on behalf of the Portuguese state during the last 12 months. If none of these conditions apply, residency must be obtained to qualify for the non-habitual tax regime.

Portugal offers attractive long-stay national visas, known as residency visas, allowing individuals to avail themselves of the 10-year tax incentives offered by NHR status. These visas include:

  • Portugal Golden Visa

  • Portugal D7 Visa

  • Portugal D2 Visa

Please note that the Portuguese Golden Visa no longer permits property investment since October 2023.

Portugal Golden Visa

Introduced in 2012 to stimulate foreign investment, the Portugal Golden Visa requires a minimum investment of €350,000. This visa allows non-EU/EEA/Swiss citizens to live, work, and travel freely within the Schengen area. Permanent residency is attainable after 5 years, with citizenship achievable after 6 years. While physical presence in Portugal is not mandatory, investors must spend at least 7 days in the first year and 14 days in subsequent years within the country.

Since 2023, the Golden Visa investment options have evolved, with property investment no longer available. Current investment routes include donations to the arts, venture capital/private equity funds, research activities, or company creation with specific criteria regarding employment generation.

Portugal D7 Visa

Designed for retirees, digital nomads, and remote workers with stable incomes, the Portugal D7 Visa grants permanent residency after 5 years and citizenship after 6 years without requiring investment. Applicants must demonstrate adequate passive income, such as retirement pensions, financial investments, or real estate earnings, and spend at least 16 months in Portugal during the first 2 years of the visa.

Portugal D2 Visa

Geared toward entrepreneurs, freelancers, and independent service providers, the Portugal D2 Visa enables non-EU/EEA/Swiss citizens to establish or relocate businesses to Portugal. To qualify, individuals must demonstrate financial resources to sustain their businesses, present viable business plans, and fulfill criteria related to social, economic, and cultural impact. Like other visa options, permanent residency is attainable after 5 years, with citizenship possible after 6 years.

While NHR status provides tax benefits on personal income, capital gains, and pension allowances, businesses under this regime remain subject to standard corporate tax rates and social security contributions.

In conclusion, Portugal's Non-Habitual Resident (NHR) tax regime offers attractive incentives for individuals seeking tax-efficient residency options. With eligibility criteria and visa requirements tailored to various professional and investment profiles, Portugal remains an appealing destination for those seeking favorable tax regimes and residency opportunities.

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