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Non-Habitual Residency

Non-Habitual Residency: Preparation is the key

If you're thinking of moving permanently or semi permanently to Portugal, it's worthwhile investigating and gaining advice on the non-habitial residency regime. As you'll see in the excerpt from The Sovereign Group below, NHR is a relatively complex regime. The application process is purposely robust, but providing you can support your application with facts, independent financial advisors in Portugal can help steer you in the right direction. 

We have a number of Clients that have decided to make the central Algarve their permanent home in both retirement and during working age, and all would agree that gaining advice on immigration, residency, taxation and healthcare is best done as part of the preparation to move, rather than in the first months of settling into their new home. 

We are more than happy to help outline matters that need consideration and recommend the services of professional bodies before, during and after your purchase. Please ask our Partners for information.

Non-Habitual Residency by The Sovereign Group

A special tax regime for non habitual residents (NHR) in Portugal was unveiled in September 2009 apparently as part of a general plan to stimulate growth and aiming to attract high level professionals and investors. The original regime has been slightly altered by legislation passed in 2012 but the main benefits still apply.

The principal effect is that an individual may benefit from the new regime for 10 consecutive years if he or she qualifies as a tax resident in Portugal and has not been taxed as a Portuguese tax resident in any of the 5 years preceding the year in which residence is established.

Under these circumstances any Portuguese source salary or self-employed income would be subject to a final flat rate tax of 20%.

Non-Portuguese income of most categories including self employment income gained from one of the qualifying employment categories listed below, real estate income (rentals), capital income, occupational and state pension income and capital gains on property, will be exempt from Portuguese personal income tax if the source country has the right to tax that income under the terms of a Double Tax Treaty (DTT) signed between Portugal and that country, or the income is taxed in the other country and is not considered as obtained in Portugal, or the income is taxable in any other country following the OECD Model of Taxation.

It should be noted that the right to enjoy the fiscal benefits mentioned above in each fiscal year, will only apply if the applicant has been considered resident in Portugal during that year. However if the applicant fails that test in any one or more years, he/she may enjoy the benefit in following years up to the 10 year limit.

Additionally any income earned in the 81 territories listed on the Finance Department list of preferential tax regimes – the so called DISCLAIMER “blacklist” would not qualify for this regime.

The qualifying activities covered by this new regime are established in a separate ruling and include the following:

• architects, engineers, and geologists; • artists (actors, musicians, painters, and sculptors); • auditors and tax consultants; • medical doctors and dentists; • university professors; • psychologists;

• learned professions, technicians, and related activities (archaeologists; biologists and experts in life science; computer programmers, consulting and computer programming, and activities related to information technology and computers; data processing activities, information hosting and related services, Web portals, and other information activities; news agencies; scientific research and development; R&D in natural and physical sciences; R&D in biotechnology; and designers);

•investors, directors, and managers of companies that promote productive investment, provided that they are allocated to eligible projects and have tax relief agreements under the Investment Tax Code; and • companies' senior officials.

Sportsmen and women are not included in the list which is believed to be due to problems encountered in Spain with the “Beckham Law” which created ill feeling amongst taxpayers with very highly paid players able to avoid, or pay reduced, tax whilst the ordinary tax payer could not.

Qualifying Requirements

The applicant:-

1. Must be non resident of Portugal and must present a written statement confirming that he or she has not qualified as a tax resident in Portugal in any of the previous 5 years;

2. Must take up residency of Portugal and produce a certified document of residency in Portugal;

3. May apply for NHR up to the 31st March in the year following registration as resident;

4.Must produce a document proving the occupation in Portugal to qualify for the NHR either as a freelance or employee of a company;

5. Must produce copy of valid passport or identity card;

6. Must obtain a Portuguese tax number.

Sovereign Consultoria Lda can assist with this process which may be somewhat arduous and require close liaison with the tax department.  

Sovereign Consultoria Lda. Tel: +351 282 340 480  Email: port@sovereigngroup.com  www.sovereigngroup.com/portugal 

© The Sovereign Group 2013 Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, this information does not constitute legal or other professional advice. We do not accept any responsibility, legal or otherwise, for any error or omission.