Portugal implemented a Personal Income tax system for the non-regular resident, with the purpose of attracting to Portugal non-resident professionals qualified for activities with high added value intellectual or industrial propriety or knowhow, as well as beneficiaries of pension schemes granted abroad.
This regime offers multiple advantages at individual income tax rate (IRS) in the several types of income, obtained in Portugal or abroad.
1) Anyone who has not been deemed tax resident on Portuguese territory during the five years prior to the year pretended to be taxed as a non-regular resident and has stayed in Portugal for a period longer than 183 days, consecutive or not, in the last 12 months, or in the case has spent less time, owns a property as an ordinary residence by 31st December of the same year.
A citizen deemed non-regular resident has the right to be taxed according to the non-regular resident tax regime during a period of 10 consecutive years, from the year of the registration as a resident on Portuguese territory, as long as continues to be deemed resident in each of the 10 years.
This period of 10 years is not extendable.
The request for registration as a non-regular resident must be made only after the registration as a resident in the Portuguese territory, or
must be done until March 31, inclusive, of the year following the one in which he became a resident in the Portuguese territory.
Advantages of the NHR special tax regime:
The special tax regime offers low effective tax rates on personal income to people who decide to live in Portugal. Rates are applied to Portuguese and to foreign income.
PROFESSIONAL INCOME – EMPLOYMENT – CATEGORY A in the tax code
Employment income obtained from the high added value activities by non-regular residents on Portuguese territory are taxed at the special rate of 20% for 10 years. It’s is important to remember that these high value activities are altered every year. If your activity was on the high added value activities list when you applied for the NHR status and in a subsequent year removed from the list you will still keep your status.
INDEPENDENT INCOME – SELF EMPLOYMENT – CATEGORY B in the tax code
Employment income obtained from the listed high added value activitiesare also subject to a withholding tax of 20%,
1 – FOREIGN EMPLOYMENT INCOME
Foreign Employment Income earned abroad by non-regular residents on Portuguese territory is exempted from taxation in Portugal if one of the conditions described below is met :
a) The Person is taxed by the source State (Nation), according to the convention to eliminate double taxation entered into by Portugal and the source State (Nation); or
b)The Person can be taxed in another country, in cases where the convention to eliminate double taxation has not been held, as long as the income obtained is not considered to have been obtained in Portuguese territory.
2 – FOREIGN SELF EMPLOYMENT INCOME
Income obtained through high added value rendering of services are exempt if
- a) It is taxed by the source State/nation, according to the convention to terminate double taxation entered into by Portugal and the source State; or
- b) They can be taxed in another country, in cases where the convention to terminate double taxation has not been held into under the terms defined by the OECD Model Tax Convention on Income and Capital, as long as it is not a territory subject to privileged tax systems and, as long as the corresponding income, cannot be considered to have been obtained on Portuguese territory
3- OTHER INCOME E (Capital Income), F (Real State Income) and G (Increase in Wealth)
Income from category E, F and G, obtained abroad by non-regular residents, are exempt if alternatively:
a) They are taxed by the source State/nation, according to the convention to terminate double taxation entered into by Portugal and the source State; or
b) They can be taxed in another country, in cases where the convention to terminate double taxation has not been held into under the terms defined by the OECD Model Tax Convention on Income and Capital, as long as it is not a territory subject to privileged tax systems and, as long as the corresponding income, cannot be considered to have been obtained on Portuguese territory,
4 – Income in category H (pensions)
Portuguese non-regular residents that have obtained category H incomes in foreign countries, were previously exempt and are now taxable in Portugal at a flat rate of 10% tory
Who is considered to be an investor, director and/or manager
a) Investors can only benefit from the non-regular resident tax regime if their income is obtained as a director or manager;
b) A Manager is considered to be: 1) Anyone under the scope of Decree-Law n. 71/2007, March 27 (Status of Public Manager); 2) Anyone responsible for permanent establishments of non-resident entities;
c) Upper management includes all people at a director position and with binding powers of the legal person