Tax Residency Portugal

Tax Residency Portugal

Non Habitual tax residency Portugal

Portugal’s non-habitual resident regime (NHTR) and its lack of wealth, inheritance or gift tax for close relatives have provided a loophole for some entrepreneurs, professionals, pensioners and high net worth individuals to be able to enjoy the luxury of tax-free income tax Portugal.

  •    Taxation for non-habitual residents Portugal,
  •    Applicability for double tax agreements Portugal,
  •    Portugal Tax residency Eligibility Requirements 
  •    NHTR program

Taxation of Non-Habitual Residents

Incomes from foreign source self-employment or sole trader that are derived from an eligible occupation, royalties, capital gains, investment or rentals are all exempted from Portuguese Tax Residency Portugal  tax. Exemptions are done on such incomes only when they have been taxed in the source country under a double taxation agreement or the OECD model tax convention. In addition to such restrictions, such incomes are not supposed to come from Portugal under applicable Portuguese law, and it must not be derived from a blacklisted tax haven that has no double tax treaty with Tax Residency Portugal . This rule also applies to occupational pension income from a foreign source.

But in a case where your occupation is eligible, Portugal-source employment or self-employment, your income will be taxed at a flat rate of 20% while other types of income earned in Portugal will be taxed at the normal rates that apply to resident taxpayers Tax Residency Portugal . The calculation of the applicable marginal tax rate is done taking into consideration all income not leaving out exempt income. Whether an income is subject to progressive or flat rates tax, a surcharge of 3.5% is applied to the slice of the total taxable income of which usually exceeds each taxpayer’s annual guaranteed minimum wage of €7,070.

Though Portugal has no wealth or capital tax nor an inheritance or gift tax received by the spouse, descendant or ascendant; inheritance or gifts received by others may not be taxed under territoriality rules or otherwise they will be subject to a 10% stamp duty.

Applicability of Double Taxation Agreements

Many double taxation treaties provide the source country with the possibility of taxing incomes Tax Residency Portugal  paid to residents of other countries it has signed treaties with. To attract foreign investment, most countries do not practically apply this possibility. This will mean that Portugal will not tax most types of income in the hands of ‘non-habitual residents’ Tax Residency Portugal  assuming that such incomes have been taxed in the other country they have a treaty with. Portugal has signed double taxation agreements with 71 other countries, and we shall highlight one of such agreements below for clarification.

Let’s consider the UK/Portugal treaty and two types of incomes. According to this treaty, if you are a resident of Portugal but receives your income from the UK, then the UK has the right to tax dividends under Article 10. Under Article 12, this right is limited if the recipient is not a UK resident Tax royalties.  This means that if you are receiving dividend or royalties from a UK company, the UK/Portugal agreement provides the UK with the possibility of taxing your income. But in practice, your income will not be taxed both in the UK and Portugal if you benefit from Tax Residency Portugal  ‘non-habitual resident’ status.

Under Article 13, capital gains are treated with a consideration whether they originate from the disposal of immovable or movable properties. But under the double taxation treaty, capital gains from the alienation of real estate may be taxed in the country where the property is located making it exempt from Portugal. Capital gains from other properties specifically securities are taxed only in the beneficiary’s country of residence. This allows Portugal to tax capital gains from the sales of securities which is currently at a flat rate of 28%.

All these have made capital gains to be an issue that needs careful consideration, and it will be to your benefit to seek tax advice before becoming a non-habitual resident of Portugal if you anticipate significant capital gains from the sale of securities. Taking proper Tax Residency Portugal  tax advice will ensure that all your circumstances are taken into account.

Tax Residency Portugal  Stay Requirements

Though you must be a resident of Portugal before applying for a non-habitual resident status, no minimum stay is later required, and there is even the possibility of you to stop being a Portuguese tax resident for one or more years without losing your non-habitual resident status.

Tax Residency Portugal  Equality Requirements

For you to receive the status of a Tax Residency Portugal  ‘no-habitual resident’, you must be a Portuguese national or a foreigner with the right to live in Portugal who have become a tax resident of Portugal after residing out of the country for at least five years. To be considered a resident for tax purpose, you must either spend more than 182 days per year in Portugal or you just have a place of abode in the country, ‘in a way that may lead to the supposition of an intention to keep and occupy it as a habitual home’. This can be a real estate you have bought or a rent accommodation.

This regime can be usefully combined with that of Golden Visa Portugal when you are a non-EU.EEA citizen.

To become recognised as a Tax Residency Portugal  non-habitual resident is not an automatic process. You can receive this status only after successfully applying to the Portuguese tax authorities from March 31st of the year after which you took up a Portuguese resident. Successful applications carry a ten years validity period. The application process involves filling a request and a statement to the effect that you were not resident for tax purposes in Portugal 5 years before your arrival in Portugal. Other documents such as tax residence certificate from your last country of residence and a document providing evidence that your economic interests were focused in another country during the past five years can only be demanded when the tax authorities doubt what you filled in your form.

LIST OF ELIGIBLE OCCUPATIONS Tax Residency Portugal

  •    Archaeologists
  •    Architects
  •    Auditors
  •    Biologists
  •    Computer programmers
  •    Data processing and hosting specialists
  •    Dentists
  •    Designers
  •    Engineers
  •    Geologists
  •    Investors, directors and managers of companies promoting eligible projects under tax incentive contracts.
  •    IT consultants
  •    IT professionals
  •    IT specialists (other)
  •    Life sciences specialists
  •    Medicine doctors
  •    News agency and other information professionals
  •    Painters (artistic)
  •    Psychologists
  •    Scientific research and development professionals
  •    Sculptors
  •    Senior management positions*Singers
  •    Tax consultants
  •    Theatre, ballet, cinema, radio and TV artistic professionals
  •    University teachers
  •    Web developers and designers

Although the Portuguese law does include senior management positions (“Quadros Superiores de Empresas”) among the eligible occupations, the Portuguese Tax Residency Portugal  tax administration strangely gave decided to issue circular letter to give this a restrictive interpretation by excluding  directors and other company officers from being eligible unless their company benefits from a special agreement with the Portuguese State as promoters of productive investment projects to which tax incentives have been granted. This circular letter defines “Quadros Superiores de Empresas” as individuals having a management position and the power to bind the company but then goes on to exclude company directors from this definition. It follows that a manager who has the power to bind the company is deemed to belong to an eligible occupation, but this is lost if the same manager is appointed as an executive director.

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