How Moving to Portugal Can Eliminate Your Income Tax
Are you planning to buy a property in Portugal or move to Portugal?
Do you receive income from a country other than Portugal (e.g the UK)?
Did you know that if you have answered yes to both of the above questions then you may be eligible to receive your income tax-free?!
Portugal’s Non-Habitual Resident tax program was established by the Portuguese Government in 2009 in an attempt to encourage people from other countries to come to Portugal to provide a boost to Portugal’s economy after the global financial crisis. The scheme ensures that for 10 years, people who become tax resident in Portugal can receive certain income (including pensions) tax-free both in Portugal and in the country in which the income is received.
In order to qualify you must:
- Not have been a tax resident in Portugal during the last 5 years before applying for Non-habitual residence status.
- Have the right to live in Portugal. (If you are a EU or EEA citizen, then you have the right to live in Portugal. For non EU/EEA citizens, the non-habitual residence scheme can be combined with the Golden Visa).
- Become a Portuguese tax resident. You are considered to be a tax resident in Portugal if you have been in Portugal for more than 183 days in the tax year (1st January- 31st December) or if you spend less than 183 days in the tax year but own a permanent home in Portugal.
If you meet all of the above criteria and successfully apply for the non-habitual residence scheme, then your foreign-source income (i.e your income coming from outside of Portugal) is exempt from income tax. This means that you can receive income from pensions, employment, investments (including dividends and interest) and rental income tax-free!
How Portugal’s Non-Habitual Resident Scheme can eliminate your income tax liability
It might sound very complicated but basically put, due to double tax treaties between the Portugal and 71 other countries (including the UK), any income received from those countries will not be liable to tax in Portugal.
The double tax treaties give the source country the option to tax income paid to residents of Portugal, although most countries (including the UK) do not exercise this option. This therefore means that for those with non-habitual resident status in Portugal, most income derived from the countries outside of Portugal will not be liable to tax in either your home country or in Portugal.
Furthermore, for those granted NHR status in Portugal, a reduced rate of tax can be applied to any income received in Portugal from what is considered a high value added activity of a scientific, artistic or technical nature. This includes Architects, Engineers, Doctors, Dentists and Psychologists.
There are also capital gains tax advantages; although this will depend on the type of asset, so specific tax advice should be sought.
All successful applicants to the Non-Habitual Residents scheme are also entitled to similar benefits to a Portuguese tax resident, including healthcare.
Important points to remember about Portugal’s non-habitual residence scheme
- In order to receive the benefits of NHR scheme, you MUST complete an application for Non-Habitual Resident status.
- There are deadlines for making an application. You must apply when you have become a Portuguese tax resident (see criteria above) or before 31st March the following year. It is possible to backdate your NHR registration to the date that you became tax resident in Portugal. However, it is important to remember that the deadline for making the NHR application is 31st March of the tax year after you became tax resident in Portugal.
- Whilst there is currently no sign of the scheme coming to an end anytime soon, the scheme may not last forever. If you are considering making an application, it is important to seek advice as soon as possible.
- You do not have to own a property in Portugal in order to apply. You can apply for Non-habitual residents status if you rent a property in Portugal.
- Don’t be misled by the term ‘non-habitual resident’. This does confuse people into thinking they are can not be resident in Portugal to apply. In fact, you are required to be a resident in Portugal for at least 183 days in the year you apply for NHR status. Although you must be a tax resident in Portugal in order to apply for Non-habitual residence, you do not have to live in Portugal for any particular time after obtaining your Non-habitual residence status.
For anyone looking to buy property in Portugal or planning to spend significant amounts of time there are advised to see advise regarding whether they would be eligible for the Non-Habitual Residents Scheme.
Advice should be sought from a professional with experience in making applications for NHR to ensure that all of your specific circumstances are taken into account.
Here at Total Buying Abroad, we can put you in touch with recommended Portuguese lawyers, who can provide you with advice in English, relating to the Non-Habitual Residents scheme and, if required, assist you with your application. Call us on 01244 478911 or email us at email@example.com.
For more information about buying property in Portugal, download our FREE Guide to Buying Property in Portugal from the right hand side of this page.
Article published: December 20, 2016