Portugal’s NHR

Portugal’s tax scheme for those who move to Portugal, the NHR

Portugal is seen everywhere as a recommendable place for expats and retired people to live. The good life, good weather, and traveling inside Europe are some of the good reasons that attracted the attention of expats and retired people and placed Portugal as a dream country. Amongst those benefits, Portugal’s tax benefits appear at the top as a decision-making reason to move to Portugal.

Many digital nomads, retired people, and investors wonder if and how they can enjoy tax benefits by moving to Portugal. The Non-Habitual Resident (NHR) program is a popular scheme in this sense.

NHR background

The NHR is a program that created a category of tax benefits for new tax residents in Portugal to decrease their annual tax liability. The NHR can be obtained through a single application for each natural person, regardless of nationality.

Also, and as a side note, even though Portuguese tax residency differs from Portuguese resident permission, they can sometimes be connected.

Tax Benefits

 Under the NHR, some income can benefit from tax exemptions and others can be taxed at fixed rates of 20% or 10%. These benefits are not granted automatically and may be accessible once the annual income tax declaration is filed with Portuguese authorities.

Benefits must be analyzed case by case. In broad terms, income from Portuguese sources from high value-added activity falling into Categories A (employees) or B (independent workers) may benefit from fixed tax rate of 20%. Income from foreign sources can benefit from tax exemptions. Determining if it is exempted or not will depend on the tax category of the income and the source country.  

Requirements

Although the name of this program at times makes people believe it is for non-tax residents in Portugal, a requirement for applying to NHR is to actually establish tax residence in Portugal. This means the person should apply for a tax number (“NIF”) and be registered as a Portuguese taxpayer.

Furthermore, the holder of NHR must comply with the annual tax declaration by considering all personal income obtained in Portugal and outside Portugal. Despite having to declare universal income, this does not mean that the holder of NHR will pay taxes in Portugal for all or some of its income. This will depend on the case.

The NHR program was designed for new tax residents. That is why the NHR applicant should not have been a tax resident in the previous five years of the NHR application. Also, there is a deadline for the application to be submitted. The person seeking NHR should apply for it until 31 March of the year after he or she obtained tax residence in Portugal.

Validity

 Once Portuguese tax authorities grant the NHR scheme, the NHR holder can enjoy the tax benefits for ten years. The period is not extendable. If the person moves out of and returns to Portugal during these ten years, they can still enjoy the program benefits.