Press Room

4 Feb 2022

Taxation of a Non-Habitual Tax Resident (“NHR”) in Portugal


Guest contributor from Andersen Portugal, Tiago Cid, examines the taxation of non-habitual residents in Portugal.

Since 2009, an inward expatriate tax regime has been in place in Portugal that designates the taxpayer benefitting from this regime as a NHR resident. This regime combines a reduced flat tax rate applicable on qualifying domestic-source income with an exemption (with progression) regarding qualified foreign sourced income aimed at eliminating double international taxation.

Conditions

To qualify for the regime, the individual needs to fulfil two basic requirements:

  1. become a full Portuguese tax resident under Portuguese domestic law; and
  2. must not have been taxed as resident during the previous five years before taking up tax residence in Portugal (in accordance with Paragraph 8, of Article 16 of the Portuguese Personal Income Tax Code, hereinafter “PPITC”).

To become a full Portuguese tax resident, the applicant must:

  1. fulfil the 183 days test of physical presence in Portugal in a given calendar year; or
  2. hold on 31 December a dwelling that implies an intention of setting up a permanent residence in Portugal (as established in Paragraph 1, of Article 16 of the PPITC.

Benefits

Thus, if the applicant fulfils the requirements set out above, they should be able to benefit from the favourable tax treatment for a maximum period of 10 years through their registration in the tax authority’s taxpayer register.

For Portuguese Personal Income Tax (“PIT”) purposes, taxable income is separated into six categories, namely:

  • Category A (employment income)
  • Category B (business income)
  • Category E (investment income)
  • Category F (real estate income) Category G (capital gains income) and
  • Category H (pension and annuity income)[1].

Tax Benefits of the NHR regime

Portuguese source income derived by NHR regime (per type of income)

Domestic source income derived from high added value activities (as defined by Ministerial Order 12/2010 and Order 230/2019) deemed to fall either under employment (category A)[2] or business and professional income (category B)[3] is taxed at 20% flat rate[4], in accordance with Paragraph 10, of Article 72 of the PPTIC.

Other types of domestic income derived by a qualifying NHR resident are subject to either standard progressive rates (for example employment income falling outside the list of activities or domestic pensions), or at special flat rates for certain types of Portuguese source income (for example Portuguese sourced investment income and capital gains is taxed at 28% flat rate). This is because specific rules are not established for the NHR regime.

Foreign income derived by NHR regime (per type of income)

In accordance with paragraph 4, of Article 81 of the PPTIC, foreign source employment income (Category A) is PIT exempt as long as the income is either:

  1. subject to tax in the source State according to the provisions of a tax treaty; or
  2. in cases where no Double Tax Treaty (“DTT”) is in force, such income is subject to tax in the source state, and it is not deemed to be of a Portuguese source, as defined in the PPTIC.

There is no requirement for foreign source employment income that such income is derived from high added value activities exercised outside Portugal.

According to Paragraph 5, of Article 81 of the PPTIC, foreign sourced business or entrepreneurial income (Category B) is PIT exempt only if derived from high added value activities (as defined in Ministerial Order 12/2010 and Order 230/2019) and provided that either:

  1. such income may be taxed at source under the provisions of a DTT; or
  2. if no DTT applies, it may be taxed at source according to the OECD Model Convention, as interpreted by Portugal, is not derived from a blacklisted tax haven jurisdiction (as defined in Ministerial Order 150/2004, amended by Ministerial Order 345-A/2016), nor deemed as a Portuguese source under domestic law.

Paragraph 5, of Article 81 of the PPTIC also establishes that foreign source investment income (Category E)[5], real estate income (Category F)[6] and capital gains (Category G)[7] is PIT exempt provided that either:

  1. such income may be taxed at source under the provisions of a DTT; or
  2. if no DTT applies, it may be taxed at source according to the OECD Model Convention, as interpreted by Portugal and is not derived from a blacklisted tax haven jurisdiction, nor deemed as a Portuguese source under domestic law.

Alternative Option for Foreign Income derived under the NHR regime

The holders of the above-mentioned exempted income obtained abroad may opt for the tax credit method provided for by the international double taxation referred to in Paragraph 1, of Article 81 of the PPITC, and in this case the income is compulsorily included for the purposes of Portuguese taxation, except for income provided under, paragraphs 1 and 6 of Article 72 of the PPITC, according to Paragraph 8, of Article 81 of the PPITC.

Note that, in most cases, capital gains from foreign sources are taxed in Portugal, when obtained by NHR holders, at a rate of 28%.


[1] According to Article 1, of the PPITC.
[2] Category A comprises of income from dependent personal services under an employment contract and includes any remuneration of members of statutory boards of entities, except of those exercising the role of statutory auditor.
[3] Category B comprises of professional and entrepreneurial income which encompasses profits derived from individual trading/professional or self-employed activities or intellectual and industrial royalties derived by an individual.
[4] The list of both Ministerial Order includes for instance, engineers and technicians similar, artists, actors and musicians, doctors and dentists, university professors, biologists, computer programmers, information technology consultants, management and operation of computer equipment, activities of information services, activities of news agencies, activities of scientific research and development, designers and investors, board members and managers of companies promoting productive investment.
[5] Category E includes, amongst others, interest income, dividends, income derived from participating units in investment funds, IP income when not derived by the respective author or original owner and gains from certain swap agreements.
[6] Category F comprises income from actual (not imputed) rents paid for the use land or buildings.
[7] Category G comprises of income from capital gains (including sale of real estate) and certain income derived from indemnities.