Non-Habitual Resident Regime Part 2
Article by Victor Queiroz of Viv Europe - Legal and relocation partner to KipperTree.
March 2023
Part 2 of 2
Read part 1 here
Important things to consider
It is important to note that the tax authority may request during the first 5 years after granting the benefit. These documents provide evidence that the professional really worked in the aforementioned profession during this period of the regime.
Qualified Professional ex-pats in Portugal have tax benefits
That’s why keeping all documents that prove the exercise of the professional activity is recommended.
Failure to prove professional practice will result in the payment of the Income Tax at the standard rate throughout the period in which the person has benefited from the incentive (20% rate), and also the possibility of paying a fine and interest.
Among the conditions for applying for this regime, it is important to mention that:
The profession developed by the applicant must correspond to the Portuguese Classification of Professions since there may be structural professional differences between countries.
The Tax Authority may require proof of the education level of at least 5 years of practice.
Passive Income Holders
One of the most frequent questions concerns the situation of the pensioner who intends to enrol in the NHR regime as a way to exempt himself from paying taxes on retirement income.
In this case, it is necessary to check some information related to your country of origin (where the retirement income comes from).
One of the objectives of the Non-Habitual Resident regime is to avoid double taxation from your country of origin and Portugal.
Therefore, in relation to the countries where retirement is taxed at source, such as Brazil, there is a benefit in tax conditions (related to the same income in Portugal). In other words, as Brazil has already collected its tax, Portugal’s taxes (for this same source) are reduced.
However, there are countries in which income tax charge isn’t a source, such as Finland and Sweden.
For this reason, many citizens of these countries were interested in applying for this regime as a way of being almost 100% exempt from taxation on their retirement income, either in the country of origin or in Portugal.
It is also important to note that taxation in Portugal also depends on the existence of bilateral or multilateral agreements between the respective countries.
As a rule, European countries have agreements between them to avoid double taxation. For this reason, in most cases, taxation takes place in Portugal.
Not Tax Eldorado
It’s also important to mention that, due to pressure from European countries like Finland and Sweden, which classified Portugal as a “Tax Eldorado” since its citizens were migrating to Portugal in order to take advantage of this tax incentive, the Portuguese government changed NHR rules in 2020.
Thus, with the changes affected, retirees who apply for NHR will be taxed at 10% (instead of a total tax exemption) on pensions paid by their country of origin.
This is, however, a rate still extremely low compared to other countries' taxation, which can even exceed 50%.
It is also important to note that the mentioned 10% rate is fixed. So it does not vary according to the amount of retirement income.
In a standard situation in Portugal, retirement income would have to be taxed by the general regime for Portuguese citizens, which may reach up to the rate of 48%.
It’s important to emphasize that this regime has received praise but also a lot of criticism, both internally (in Portugal) and abroad.
For this reason, regarding the possibility of further changes, we recommend you carry out the application as soon as possible. So that you profit from the current benefits.
What’s the procedure to apply for the Non-Habitual Resident regime?
The application for the Non-Habitual Resident regime must be made at the Tax Authority of Portugal.
Any misinformation can lead to the denial of the application. So you must place the order very carefully, preferably by qualified professionals.
The decision regarding the application is made at the discretion of the person responsible at an administrative level, and an applicant can appeal if they are not satisfied with it.
The applicant must register in Portuguese territory to process the application.
Things To Remember
In this article, we have verified the regulation of the Non-Habitual Resident Regime.
This regime attracts many citizens who want to benefit from its tax conditions.
It is important to note that this article has purely informative content and should not be based on decision-making since:
This subject has many legal and accounting details and implications. Each case has its particularities;
The decision to be made by the administrative agents is discretionary;
The regulation of this regime has enough scope for interpretation.
If you are planning to apply for the NHR regime as a retired person, we recommend reading the article All About The Passive Income Visa.
Do you need help with the Non-Habitual Resident Regime?
We know it’s quite confusing. There are a lot of legal complications, and obtaining a direct answer from this article may not be possible. If you wish to discuss your case with experienced professionals one-on-one, get in touch with Viv Europe today.
Read the full article here
