Portugal’s Non-Habitual Resident Taxation Regime

Portugal has become increasingly popular recently for people wanting to obtain residency in the country, because of its fiscal advantages and the opportunity to be able to live and travel throughout the European Union. Done correctly, the amount of tax payable on incomes earned outside of Portugal, can lead to one paying 0% in tax.

The program is called the “Non-Habitual Resident” (NHR) taxation regime and it came into force in Portugal in 2009 and is proving very successful at attracting individuals of independent means to establish residency in Portugal for tax purposes, while not being subject to minimum or maximum stay requirements. In addition to the non-existence in Portugal of a wealth tax, or of inheritance/gift tax for close relatives, the NHR regime essentially grants qualifying individuals the possibility of becoming tax residents while legally avoiding or minimising income tax on certain categories of non-Portugal sourced income and capital gains for a period of 10 years.

A major feature of the NHR regime lies in its interaction with the double tax conventions. In effect, most double tax conventions grant the possibility to tax most categories of income to the country of source of such income, although in practice, so as to attract foreign investment, many countries will not make use of that possibility to tax non-residents. Since most such categories will not be taxed in Portugal in the hands of a NHR because they may be taxed abroad, in practice most foreign-source income types will be zero taxed in such hands.

An example would be individuals who own investments in Ireland or Luxembourg, two countries who are known not to withhold the 15% double-taxation tax. So, by owning the popular ETFs that are domiciled in these two countries, because Portugal doesn’t tax, you end by not being taxed at all. This exemption is available on dividends, interest and real estate income. Capital gains, however, are taxed, at least when you do sell.

The program’s main benefits are:

  1. Residency of a white-listed, EU-member, country
  2. No minimum stay requirements in Portugal (but care must be taken to avoid deemed tax residence in another country)
  3. Possibility of enjoying a tax exemption on the following types of non-Portuguese source income during 10 years on dividends, interest earned, real estate income
  4. Any other income or gains that may be converted into one of the above through tax planning
  5. Possibility of paying tax at a flat rate of 20% during at least 10 years on Portuguese-source employment income, fees, profits and royalties if in connection with eligible occupations
  6. Ability to pass on wealth to a spouse, children or other close relatives without payment of inheritance or gift taxes

Some of this information has been taken from a great information booklet put together by Belion Partners. If you go to there website, you can download it or read it online, to find our more about this increasingly popular program, especially for French citizens!

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