The 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 Viv Europe - Official Legal and Relocation Partner to KipperTree.

22 08 2023

Read the full in-depth article here

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%.

To find out who can apply for the non-habitual resident tax regime click here