Portugal's Non-Habitual Resident (NHR) tax regime has gained significant popularity among expats and investors due to its attractive tax incentives. This comprehensive guide will provide you with all the information you need to understand and navigate the NHR tax regime in Portugal.

What is the NHR Tax Regime?

The Non-Habitual Resident (NHR) tax regime is a special tax status offered by Portugal to individuals who establish tax residency in the country. It allows qualifying individuals to enjoy reduced tax rates on income and capital gains for a period of ten years. The NHR regime aims to attract investors, professionals, and high-net-worth individuals who can contribute to Portugal's economy and cultural development.

Benefits of the NHR Tax Regime

The NHR tax regime offers several benefits that make Portugal an appealing destination for expats and investors:

• Tax Exemptions: NHR status provides tax exemptions on global income and income earned in Portugal, subject to certain conditions.

• Reduced Tax Rates: Income from self-employment or specific professions is taxed at a flat rate of 20%, significantly lower than the regular Portuguese income tax rates, which can go up to 48%.

• No Wealth Tax: Portugal does not impose a wealth tax on NHR residents.

• Free Remittance of Funds: NHR residents can freely remit funds to Portugal without incurring any tax implications.

• Tax Exemption on Gifts and Inheritance: NHR residents enjoy tax exemptions on gifts and inheritance to direct family members.

• No Minimum Stay Requirement: Unlike many other countries, Portugal does not impose a minimum stay requirement for NHR status.

Eligibility for NHR Status in Portugal

• To qualify for NHR status in Portugal, applicants must meet the following eligibility criteria:

• Residency Requirement: Applicants must have the right to reside in Portugal, either as an EU/EEA/Swiss citizen or through visa schemes such as the Portugal Golden Visa.

• Previous Portuguese Tax Residency: Applicants must not have been a Portuguese tax resident in the five years preceding their residency in Portugal.

Application Process for NHR Status

The application process for NHR status in Portugal involves the following steps:

• Register as a Taxpayer: Start by registering yourself as a taxpayer and obtaining your NIF (Número de Identificação Fiscal) number. You can request your NIF online or in-person at a tax office.

• Submit NHR Application: Once you have your NIF, submit your NHR application to the Portuguese Tax Authorities through their online portal or by using printed forms. Provide the necessary documents, such as a declaration stating your previous tax residency status and tax returns for the past five years.

• Proof of Residence: You must have a place of abode in Portugal on December 31 of the tax year, demonstrating your intention to maintain it as your habitual residence.

• Application Review: The Portuguese Tax Authorities will review your application, and if approved, you will be granted NHR status for a period of ten years.

Tax Treatment under the NHR Regime

Under the NHR regime, different types of income are subject to varying tax treatments:

• Foreign Source Income: Foreign source income is generally exempt from taxation in Portugal if it is already taxed abroad, due to double taxation agreements. However, if the income is not taxed abroad, it may be subject to the 20% flat tax rate.

• Portuguese Source Income: Income earned from self-employment or certain professions in Portugal is subject to a flat tax rate of 20%. Other Portuguese source income is subject to the regular Portuguese income tax rates.

• Capital Gains: Capital gains from the disposal of securities, real estate, and other assets are subject to specific tax rates depending on the nature of the gain and the country of origin.

• Pension Income: Foreign-sourced pension income is subject to a flat tax rate of 10%, providing a favorable tax treatment for retirees.

Double Taxation Agreements and the NHR Regime:

1. Portugal has signed double taxation agreements with 79 countries, which aim to avoid the double taxation of income. These agreements allow for most categories of income to be taxed in the country of the source of income, providing further tax benefits for NHR residents.

The Portugal Golden Visa Program and NHR Status

• Non-EU/EEA/Swiss citizens who wish to apply for NHR status in Portugal can do so through the Portugal Golden Visa program. The Golden Visa program offers residency-by-investment for individuals who purchase property worth more than €500,000 in designated areas. Once they obtain residency through the Golden Visa program, they become eligible for the NHR regime, further enhancing their tax benefits.

Local Taxes in Portugal

• Apart from income tax, individuals in Portugal are also subject to local taxes, such as the IMI (Imposto Municipal Sobre Imóveis). The IMI is similar to council tax and is paid by property owners to maintain public infrastructures. Additionally, properties valued at more than €600,000 may be subject to AIMI, a higher level of IMI considered as a form of "wealth" tax.

• Filing Income Tax Returns in Portugal

• Individuals in Portugal must file their income tax returns between April and June of the following year. It is important to file returns on time to avoid penalties. Hiring an accountant or bookkeeper is recommended, especially for those doing business in the country.

Portugal's Non-Habitual Resident (NHR) tax regime offers attractive tax incentives for expats and investors. By becoming an NHR resident, individuals can benefit from tax exemptions, reduced tax rates, and other advantages for a period of ten years. The NHR regime, combined with the Portugal Golden Visa program, makes Portugal an appealing destination for those seeking favorable tax conditions and a high quality of life.