A popular reason among our clients for choosing Portugal as the country they want to live in, is the preferential tax regime known as the Non-Habitual Tax Resident (NHR).
This non habitual resident in Portugal system is meant to improve Portuguese economic competitiveness as it targets non-resident individuals who wish to establish a permanent or temporary residence in Portugal, allowing them to benefit from a sizeable reduction in the taxes they must pay.
While many are unaware that there have been a few changes over the years in this tax policy, it is still extremely beneficial to certain taxpayers.
1. Details of the Current System
As of today, the NHR regime establishes tax exemptions on foreign sourced income, in some cases, and those who register from April 2020 are liable to a 10% tax rate on pension income, instead of the previous full exemption.
Compared with other European countries this is a very interesting and appealing environment, especially if you also consider the high standard of living for an expat in Portugal, a country that offers not only an exceptional tax regime, but also great weather, high quality and almost free health care as well as business opportunities in a safe, legally certain part of Europe.
Why would you be interested in obtaining the NHR status in Portugal?
Actually, if one decides to work in Portugal, under the NHR regime, a limited 20% taxation of income from employment and independent personal services will be charged, in any case a much lower rate than the one would be charged in normal circumstances.
2. Application Process
Individuals who become resident for tax purposes in Portugal without having done so in the previous five years, may apply.
The application must be submitted up to March 31st of the tax year following that in which the Portuguese tax residency is acquired. Therefore, one must:
- register as non-resident taxpayers;
- obtain residence permits (for non-EU nationals) and residence certificates (for EU nationals);
- register as tax residents; and
- only then apply for the non-habitual resident status, considering the deadline.
We are frequently asked whether it is possible to register as NHR prior to obtaining residency. While an interesting question, we are afraid the answer is NO.
For instance, in the case of the D7 VISA, the applicant must obtain the D7 VISA in the origin country, travel to Portugal and attend the SEF appointment in order to get the residency card.
Only after this step should they change their tax address to the Portuguese address, becoming a tax resident, and only then, apply for the NHR.
Nowadays the application is managed online and be must be completed extremely carefully as it can jeopardise obtaining approval of NHR status.