Non-Habitual Resident Regime
Interested in the Non-Habitual Resident tax benefits in Portugal? Know the regime criteria and procedures for pensioners and professionals.
Article by Victor Queiroz of Viv Europe - Legal and relocation partner to KipperTree.
March 2023
Ten years of tax savings are a pretty big deal. Portugal has attracted many foreigners thanks to this competitive regime, and you can be the next one to benefit from this. The Non-Habitual Resident Regime was created in 2009.
This tax regime intends to attract highly qualified professionals and passive incomers to Portugal by offering excellent tax benefits. In this article, we will cover this regime’s framework and regulation.
If you meet the requirements of Decree-Law No. 249/2009, you can save money that, under normal conditions, would have to be spent on taxes. Keep reading to know all about the Non-Habitual Resident Regime!
What is the non-habitual resident tax regime?
To begin with, it is worth mentioning that the Non-Habitual Resident (NHR) tax regime does not concede a complete tax exemption, but tax incentives.
Even if you’re granted this tax regime, you will have to pay taxes. However, with these tax benefits, the amount to be paid will be much lower than that supported by most taxpayer residents in Portugal.
All information in this article is based on Decree-Law No. 249/2009, Law No. 02/2020, and also our lawyers’ experience.
However, it is important to emphasize that the content of this guide is eminently informative and should not be used for decision-making. We strongly recommend hiring professionals who can help you in this process.
We also have a very friendly FAQ about Taxation in Portugal that may answer your questions.
Features
The NHR Tax Regime is regulated by the Decree-Law no. 249/2009, that is, the Investment Tax Code.
The term “Non-Habitual” is related to the fact that only citizens who have not had a tax residence in Portugal for the last 5 years can benefit from this regime.
The granted person can benefit from this regime for 10 years, which is a competitive regime compared to tax regimes in other countries.
It mainly targets individuals who fall into the category of:
Passive incomers;
Highly qualified workers.
As we will address in this article, the NHR regime is a distinguished tax regime for these reasons:
10 years of tax benefits;
20% IRS tax rate for internal income;
10% rate on foreign income;
No country restriction;
Benefits.
What are the main benefits of this tax regime?
The benefits resulting from this regime, which attracts foreign citizens so much, are as follows:
Tax rate of only 10% on passive income outside Portugal;
Tax rate of fixed 20% on work income in Portugal (related to some areas of activity).
Income sourced outside Portugal
For example, let’s consider that you receive income from renting a property in your country of origin. As a rule, this income is usually taxed in your country and also in Portugal at the rate of 10%.
Below you can check some of the passive income that is taxed at the 10% rate:
Pensions;
Dividends;
Royalties;
Capital gains;
Property gain.
The taxation procedure can vary depending on the country of origin.
Some countries discount the passive income tax at the base (that is, taxed upon receipt of income). Others collect the tax only when the taxpayer declares their annual Income Tax.
In the first case, taxes will apply to this income in the country of origin and Portugal.
In the second case, there’s the possibility of taxation only in Portugal, and the NHR regime can be even very advantageous.
Income generated in Portugal
Also, if you perform a professional activity in Portugal, at the end of the base period of one year, you must submit the Income Tax Declaration (IRS).
The tax rate will be 20% if you’ve applied to the NHR regime and the activity categorizes as highly qualified.
So, simply put, if you have a taxable income of €35,000, you will pay IRS in the amount of €7,000.
However, not every worker will be able to benefit from the 20% rate; only those who fall under the category of Highly Qualified Worker (HQW) and, also, provided that they are exercising the profession regulated in the NHR regime.
As for the income related to other activities not covered by this law, the standard tax rate in Portugal must be applied, and it can vary from 14.5% to almost 50%.
Who can apply for the non-habitual resident tax regime?
In order to profit from the benefits resulting from the NHR regime, citizens must meet the following requirements:
Have not had a tax residence in Portugal for the last five years (not to be confused with owning a property in Portugal).
Must have stayed in Portugal for more than 183 days. If you stayed less than 183 days in Portugal, you must have an address here (such as a lease or deed of a property). This is the condition for becoming a tax resident in Portugal.
Registration as a Non-Habitual Resident at the Tax Authority (Finance) until the following March 31st.
Professions
The professionals that can benefit from the Non-Habitual Resident regime are those listed in Ordinance No. 230/2019, updated in 2020. Check out the list below with all the included professionals and positions:
Director and executive manager of companies;
Directors of administrative and commercial services;
Production and specialized service directors;
Directors of hotels, restaurants, commerce, and other services;
Specialists in physical sciences, mathematics, engineering, and related techniques;
Doctors;
Dentists and stomatologists;
University and higher education teacher;
Specialists in information and communication technologies (IT);
Authors, journalists, and linguists;
Creative and performing arts artists;
Intermediate science and engineering technicians and professions;
Information and communication technology technicians;
Market-oriented farmers and skilled agricultural and livestock workers;
Skilled market-oriented forestry, fishing, and hunting workers;
Skilled workers in the industry, construction, and craftsmen, including skilled workers in metallurgy, metalworking, food processing, wood, clothing, crafts, printing, manufacturing precision instruments, jewellers, artisans, electricity workers, and in electronics;
Plant and machine operators and assembly workers, namely fixed plant and machine operators;
Workers in the professional activities mentioned above must have at least level 4 of qualification in the European Qualifications Framework or level 35 of the International Standard Classification of Education or have five years of duly proven professional experience;
Other professional activities: Administrators and managers of companies that promote productive investment, provided they are assigned to eligible projects and with contracts for granting tax benefits entered into under the Investment Tax Code, approved by Decree-Law No. 162/2014, of October 31st.
To read part two of the article click here.