Established in 2009, NHR, Portugal’s non-habitual residency tax regime, is something that has gained a lot of international excitement and attention. As of late 2023, there is talk that the Portuguese government is thinking of ending it. In the meantime, however, qualifying residents can still take advantage of it.
To be eligible, you will need to meet the following criteria:
- You have become fiscal resident, or resident in Portugal for tax purposes.
Registering for NHR
The NHR application must be submitted after the registration as a tax resident in Portugal and until the 31st of March (inclusive) of the year after you became resident in the Portuguese territory.
In practice this means:
- If you arrive on the 1st of April until the 31st of December, you have until March 31st of the following year to register
- If you arrive between the 1st of January and the 31st of March, you have until the 31st of March the following year to register
Although registration is important, it isn’t until the annual tax return is submitted that the tax office sees that you want to be taxed under the NHR system. This is when the tax office will contact the individual and, in the case of someone with a high-value activity, request a contract or qualification that proves you are engaging in this high-value activity [source].
The following are some of the sample rates based on a recent Portugalist webinar [source]. Please note: these are examples and may not apply to your situation. As noted in the webinar, these rates apply for 10 years. After this point, you would move onto normal Portuguese tax rates, which range from 14.5% – 48% [source].
As of March 2020, pensions are now taxed at a flat-rate of 10% under the NHR scheme [source]. It may be exempt from Portuguese taxes if taxed at source [source]. Pensioners may also choose to be taxed under normal Portuguese tax rates which, due to the small annual tax-free allowance, may work out more beneficial in some instances. You should speak to an accountant who can estimate how you would be taxed under both tax systems.
Employees in Portugal
High-value activity professionals can benefit from a 20% flat rate of tax [source] (+ social security) which, depending on how much you’re earning, may be better than the standard Portuguese rates of tax.
Portugal has a unique list of activities that it considers high value, and this gets changed every few years. Example professions that have made the list in recent years include journalists, dentists, IT professionals, linguists, general managers and executive managers of companies, hotel managers, jewellers, and electricians.
Like employees, freelancers and the self-employed need to fall into the high value activity category to benefit from NHR [source]. If that’s the case, you would normally be subject to 20% + social security [source] if no taxes are paid at source or exempt if tax paid at source [source].
A 20% flat-rate may or may not be more advantageous than where you’re currently paying your taxes. It also may or may not be more advantageous than normal Portuguese tax rates. If your income isn’t that high, the normal tax rates may be more beneficial due to the tax-free allowance and the tax credits that are available in Portugal [source]. Speak to an accountant to get an estimation for both rates so that you can work out what’s best for you.
Entrepreneurs – 20%
Generally speaking, most entrepreneurs (those that own a company) end up paying 20% + social security if they choose to be taxed under NHR.
According to Newco, as of January 1st 2020, the following high-value activities qualify for NHR:
112 – The general director or executive manager of a company
12 – Directors of administrative and commercial services
13 – Directors of production and specialised services
14 – Directors of hotels, restaurants, commercial, or other services
21 – Specialists working in physical sciences, mathematics, engineering, and similar technical fields
221 – Physicians
2261 – Dentists and stomatologists
231 – Teachers at universities and higher learning establishments
25 – Specialists in information and communication technologies (ICT)
264 – Authors, journalists, and linguists
265 – Creative artists and performing artists
31 – Intermediate level science and engineering technicians and professionals
35 – Information and communication technologies technicians
61 – Market-oriented farmers and qualified agricultural and livestock workers
62 – Market-oriented qualified forestry, fisheries and hunting workers
7 – Qualified industrial, construction workers and craftsmen, including qualified workers in the fields of metallurgy, metalworking, food processing, wood manufacturing, clothing production, handicrafts, printing, manufacture of precision instruments, jewellers, artisans, electricity and electronics workers
8 – Operators of installations and machines and assembly workers, namely fixed installations and machine operators
Other types of income
Income from interest is tax-exempt if the income could be taxed abroad under Double Tax Agreement rules [source].
Income from dividends is tax-exempt if the income could be taxed abroad under Double Tax Agreement rules [source].
Income from long-term rentals abroad is tax-exempt if the income could be taxed abroad under Double Tax Agreement rules [source].
Are there tax obligations once I’ve obtained NHR status?
You will need to submit, in Portugal, an annual tax return (IRS) in the following year, between April and June, declaring worldwide income and expenses [source].
Do you need a minimum income amount to qualify for NHR?
No. However, you would need to have a minimum amount in order to qualify for residency, which is different.
Is becoming a resident and becoming a fiscal resident the same thing?
They’re separate. Obtaining residency is one thing (e.g. a certificate from the local council for EU or residency through AIMA for non-EU). After you have residency, you can register for fiscal residency with the tax authority [source].
If a pension is taxed in the USA, will it still be taxed in Portugal at 10%?
No, because there is a double taxation treaty between Portugal and the US. Portugal doesn’t have this with all countries. For example, Portugal does not have a double taxation treaty with Australia. If someone already pays taxes in Australia they would still have to pay taxes in Portugal.
What about capital gains?
Let’s say you have a property in Canada that you sell. That property is only subject to taxes in Canada. Stocks, on the other hand, will be taxed on the gain in Portugal at 28%[source].
If my employment status changes during the 10 years, does the 10-year period start again?
No. It’s 10 consecutive years, and NHR will always count from the first fiscal year in Portugal. You should always apply when you arrive as, even if you don’t benefit from NHR in the first year, a lot can happen in 10 years and you may benefit from NHR in the future.
If I moved to Portugal in September (and was accepted for NHR) do the NHR benefits count immediately or does it start from the following March.
The NHR benefits start from the fiscal year in which you become resident. If you arrive in September, and if you become fiscal resident in September, the first fiscal year will be from September to December 31st (as the Portuguese tax year runs from January 1st – December 31st)[source].
Is there a minimum amount of time that you need to stay in Portugal to continue to qualify for NHR?
According to the legislation, it’s 183 days that you need to be fiscal resident. However, it’s common for people to end up travelling a lot and, despite it being in the legislation, people aren’t typically chased for spending less than 183 days [source].
If I’m applying for the golden visa program, should I apply for NHR at the same time?
You would apply after you’ve become resident [source].
What happens to tax-free savings accounts?
Portugal will only tax when the sale takes place. If you keep growing the investment, it will not be taxed. Only on the gain [source].
If you’re self-employed and qualify for NHR, does income from services provided to Portuguese clients qualify?
Yes. Portuguese or international clients [source].
If my profession is listed as a high-value activity and I register for NHR but the list of high-valued activities changes in future years, will I still get my full 10 years?
Is NHR only available to non-Portuguese people?
No. It’s available to Portuguese people as well. The rule is that you must not have been a fiscal resident in the past five years. There is another program called Programa Regressar but that is only available to Portuguese returning home [source].
If someone comes from less than 183 days (say 3-4 months) are they considered a tax resident in Portugal?
No. They are still considered tourists because they are a tax resident somewhere else [source].
Are medical insurance contributions tax-deductible?
If income is declared under NHR, there are no tax credits and medical insurance won’t be considered a tax credit. It’s possible that some income will qualify for NHR, or be declared under NHR, and some won’t, and you could use your tax credits with the income that’s not being declared under the NHR system [source].
Do you get the same NHR benefits if your income comes from a Portuguese company rather than a non-Portuguese company?
As long as it’s a high-value activity and the contract between the company and individual mentions the specific activity. For self-employed people, the contract can be used to show the high-value activity or you can also show the qualification the individual has.