What is the Portugal non-habitual residence tax regime?

The Portugal non-habitual residence tax regime, was established in 2009, and since then, it has attracted a great deal of interest and acclaim from around the world.

But as everyone who has tried to learn more about the system knows, it can easily become overwhelming.

The fact that NHR status provides a tax advantage for a wide variety of people, with varying ramifications for retirees, independent contractors, and business owners, among others, doesn’t help matters.

Also, some people may receive part of their income from a pension and part from profits, and these two forms of income may be subject to differing tax rates under NHR, with the latter perhaps being ineligible altogether.

The term “non-habitual resident” itself creates confusion, as it seems the program is intended for persons who do not regularly reside in Portugal. In reality, Portugal tax residency is a prerequisite for participation in the NHR scheme.

Some individuals incorrectly assume that non-habitual residency is a visa, similar to the D7 or golden visa. No, NHR is not a resident visa; rather, it is a tax regime. You must first become a resident before applying for NHR.

The goal of the NHR regime is to lure financially stable foreigners to Portugal, thus while the topic can be complicated, the objectives of the Portuguese government are well-meaning.

In this article, we will discuss the Portugal NHR tax regime, the high-value activities it considers, as well as all the other relevant details.

Take note that this is meant to be informational content only, and should not be considered as formal tax advice. Please seek the services of a tax attorney or a financial advisor familiar with Portugal’s NHR scheme instead.

Also be aware that details regarding the NHR tax regime might be changed or amended since the publication of this article.

If you want to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (advice@adamfayed.com) or use WhatsApp (+44-7393-450-837).

What is the Portugal non-habitual residence tax regime?

The Portuguese government introduced a tax regime that provides favorable tax treatment to new residents of Portugal in 2009; this regime is known as the non-habitual resident Portugal (NHR) scheme.

The regime is primarily targeted to foreigners. However, Portuguese residents who have not lived in Portugal for the preceding five years are also eligible for NHR.

In a nutshell, those who qualify for the non-habitual resident Portugal plan pay only 20% of their Portugal-earned income in taxes (instead of the maximum rate of 48% in normal Portugal).

Income earned outside of Portugal may also be excluded from Portuguese taxation if the individual meets specific criteria (such as being a dual tax resident of another country).

This applies not only to pensioners receiving pension payments, but to everyone receiving money from overseas, be it a wage, dividends, or investment returns.

This is a huge perk because Portugal is not normally a low-tax country. In actuality, tax rates for Portuguese citizens and permanent residents range from 14.5 percent to 48.2 percent on international income.

The primary goal of the Non-Habitual Resident plan is to entice residents with high value, such as retirees or professionals, to relocate to Portugal. Digital nomads may also find this to be an ideal situation.

Some people may be confused by the Non-Habitual Resident Portugal program’s name.

Despite the “non-habitual” label, you must become a tax resident of Portugal and maintain a permanent residence there in order to qualify for the NHR.

What are the requirements?

You must satisfy the following requirements to qualify:

You must be considered a fiscal resident, or tax resident, of Portugal.

You must first establish your legal right to reside in Portugal. This is possible, for instance, with the right of free movement inside the European Union (for EU citizens), or with a D7 visa or Golden Visa (for non-EU citizens).

Step two involves establishing tax residency in Portugal. You are considered a tax resident of Portugal if you spend more than six months of the year there.

You’ll also need a Portuguese tax ID (NIF) that’s associated with a physical address in Portugal. Finalizing your NHR application in this way is mandatory.

When you become a tax resident of Portugal, you are eligible for NHR benefits for a nonrenewable period of 10 years.

This is usually determined as of the date you officially set up residence in Portugal with the relevant tax authorities. The Finanças platform will provide you with the exact time.

You must also sign up with NHR.

After becoming a tax resident of Portugal, you have until March 31 of the year after your year of residency to submit your application for NHR.

This means that:

• You have until March 31 of the next year to register if you arrive between 1 April and 31 December.
• You have until March 31 of the following year to register if you arrive between January 1 and March 31.

The tax office will not acknowledge your application to be taxed according to the NHR method until you file your annual tax return, so you should complete it as soon as possible.

The tax office will get in touch with you if they suspect you’re involved in a high-value activity and ask for a contract or qualification to back up your claim.

How much will you pay in taxes under the NHR tax regime?

There is a great deal of misunderstanding about the taxation of income under the NHR plan.

This summary is not meant to take the place of consultation with a tax expert, but rather to provide a general idea of what you can expect.

If you want to know how NHR applies to your individual case, it is best to see a tax professional. Get in touch if you need a suggestion.

Whether or not the source of the income is within Portugal or outside of Portugal is a major factor in determining its treatment under NHR.

Below are some sample instances of tax rates you might enjoy under the regime, and it’s possible that they won’t work for you.

These tax rates are valid for a period of 10 years. After that, you would d be subject to the standard tax rates in Portugal, which are between 14.5 and 48 percent.

Pensions

Starting in March 2020, pensions are subject to a 10% flat tax rate under the NHR scheme. If taxed in Portugal, you might not have to pay again when you get to Portugal.

Since the annual tax-free allowance for retirees is somewhat minimal, some may find it preferable to be taxed at the standard rates in Portugal. A professional accountant can give you a rough idea of your tax liability in both jurisdictions.

Funds that originate in Portugal

According to the Portuguese tax authorities, two types of income earned in Portugal through professional activities qualify for the non-habitual residents scheme.

There are two types of workers in this country: category A employees and category B independent contractors.

You may be eligible for a flat rate of 20% tax if your income falls into either of these categories and comes from within Portugal, such as from a job or clients within Portugal.

If your line of work is eligible, starting up shop in Portugal as a self-employed individual can be a straightforward and tax-wise business decision.

Whether or whether your line of work falls within the category of “high added value activity” is a crucial criterion for qualifying as an NHR when earning money in Portugal.

This list was compiled expressly for the temporary non-resident program.

• Activities of a scientific, artistic, or technical nature that Portugal considers valuable to its economy fall under this category.
• Proof of professional qualifications, such as one or more of the following, may be requested from individuals.
• International Standard Classification of Education (ISC) Level 35, or Level 4 on the European Qualifications Framework
• At least five years of relevant work experience

High value activities

Professionals engaged in high-value activities in Portugal are eligible for a 20% flat tax rate plus social security, which, depending on your income, may be preferable to the usual Portuguese tax rates.

Each few years, Portugal updates its list of nationally significant pursuits. Journalists, dentists, IT specialists, linguists, business owners, hotel managers, jewelers, and electricians are just some of the vocations that have made the cut in recent years. 

Independent contractors and employees must provide high-value work to qualify for NHR. If no taxes are withheld at the time of employment, you’ll owe 20% plus social security; if taxes are withheld, you won’t owe anything.

The existing tax system may or may not be better than a flat rate of 20%. It’s also possible that it’s less beneficial than standard tax rates in Portugal.

The tax-free allowance and tax credits in Portugal can make the usual tax rates more attractive for those with lower incomes. Get an estimate of both rates from your accountant so you can decide which is better for you.

Business owners

If business owners elect to be taxed under NHR, they will typically pay 20% of their income plus social security.

What are the high value activities under the Portugal NHR tax regime?

Apart from the pleasant climate, delicious cuisine, and easygoing pace of life, Portugal’s NHR tax structure is a major selling point for the country among working professionals.

Those who meet the requirements might elect to have their income taxed at the lower NHR rates rather than the regular Portuguese rates. And being taxed under the NHR regime can make a lot of economic sense, depending on things like your income.

The NHR system imposes a flat tax rate of 20% (social security is computed separately) on “high value activity” occupations.

Unfortunately, NHR only applies to revenue from “high value activities,” which excludes some professions. As of January 1, 2020, the following high-value pursuits are NHR-eligible:

• 112 – A company’s top executive or general manager
• 12 – Administration and Business Service Directors
• 13 – Production and specialized service directors
• 14 – Managers and executives in the hospitality, dining, commercial, and service industries
• 21 – Scientists, mathematicians, and engineers and others who work in related technological sectors.
• 221 – Physicians
• 231 – Dentists and other dental professionals
• 2261 – College and university professors
• 231 – Authors, journalists, and linguists
• 264 – Performers and visual artists
• 265 – Musicians and composers
• 25 – Experts in technology and communication technologies (ICT)
• 31 – Technicians and engineers at the intermediate level
• 35 – Technicians in ICT (Information and Communication Technology)
• 61 – Commercially minded farmers and agriculturists with the appropriate credentials
• 62 – Commercially minded woodsmen, fishermen, and hunters with the appropriate credentials.
• 7 – Skilled laborers and tradespeople in industry and construction, including specialists in such areas as metalworking, food processing, woodworking, textile production, handiwork, printing, precision instrument making, jewelers, artisans, electricians, and electronics technicians
• 8 – Operators of permanent installations and machine operators, as well as assembly workers

Managers and executives at companies that advocate for increased investment in production may be eligible for tax breaks under new legislation passed on October 31st, 2014.

The list of value-added activities that are relevant to Portugal’s tax regime for non-habitual residents (NHR) has been amended per Ordinance 230/2019 of the 23rd.

The table, which had been in effect since 2010, has undergone a thorough revision to bring it in line with the codes of the Portuguese Classification of Professions (PCP) and to ensure that the activities listed therein are in line with the needs of the national labor market due to the demand for specialized skills and the recruiting difficulties that have been experienced.

Should you move to Portugal?

Portugal is a popular retirement destination because of its low cost of living, high quality of healthcare, sunny climate, and these recent revisions to tax law.

But if you don’t have an EU passport but still want to retire in Portugal, you’ll need to apply for a retirement visa, or a golden visa.

As the “entry point” to Europe, Portugal’s visa requirements are among the most relaxed in the European Union. Let us talk about the retirement requirements first.

How can I retire in Portugal?

There is a national (residency) visa for those from outside the European Union who don’t wish to work while they’re in Portugal but have enough money coming in from other sources to support themselves.

The following items are required to apply for a Portuguese retirement visa:

• A valid passport. It must have a minimum validity period of six months.
• Two photos of you taken within the last six months that are passport size, per Schengen regulations.
• Portuguese visa (nationality) application form. The application is available for download on the Portuguese Ministry of Foreign Affairs website.
• Documentation of monetary resources. You must show that you have sufficient funds from a pension, savings, or other legal sources to live on for the time you want to be in Portugal.
• Accommodating evidence. Evidence of housing arrangements in Portugal (rental agreement, purchase contract, etc.) is required.
• Insuring one’s health. Preparing for your move to Portugal by purchasing travel health insurance or an international health insurance plan for expats is a must. Then, once you’ve settled in, you can choose between keeping your current foreign health insurance and signing up for coverage with a local provider.
• Certificate of birth, marriage license, etc.
• Verification of lack of criminal history. You must not be facing charges for a crime that carries a minimum sentence of a year behind bars.
• Any supplementary materials specified by the Embassy or SEF.

Both English and Portuguese versions of all submitted materials are required. If not, you should have a professional translator do the translation and then have the document notarized.

Some papers, such as those pertaining to civil matters, may also require legalization by the Portuguese Embassy or Apostille.

Reach out to your nearest Portuguese Embassy or Consulate. Find the visa application submission location that is most convenient for you.

After which, you can schedule a time to apply so that it may be processed properly. Be sure to gather all the necessary paperwork for a smooth process.

Pay the application fee, which may be due either before or on the date of submission.

Bring the paperwork in on the scheduled appointment day. You may be able to apply by mail if the Embassy or Consulate is located in a country other than the one in which you now reside. You will be notified by the appropriate visa authorities.

The application will be processed as soon as possible.

If the result is favorable: The Embassy or Consulate will issue you a retirement visa that will be stamped in your passport. The visa is valid for entry into Portugal.

To apply for a residency permit in Portugal, visitors should schedule a meeting with the Portuguese Immigration and Borders Service (SEF) upon arrival.

When you apply for a visa, the Portuguese embassy or consulate may schedule an appointment for you and inquire as to when you plan to visit Portugal.

There are a number of fees that must be paid in order to apply for a Portuguese retirement visa.

The embassy or consulate will charge you €90 for a national visa.

The SEF application fee of $ €83 includes processing fees for a residency visa.

It will cost you €72 for a residence permit.

Take note that after you obtain a residence visa from Portugal, you will also be able to freely travel throughout the other 26 EU countries that are part of the Schengen Area.

You may visit the Schengen Area for tourism and leisure for up to 90 days in each 180-day period, but you may not reside, work, or attend school there.

How do you acquire a Portugal golden visa?

The Portugal Golden Visa program offers non-EU citizens a path to permanent residency in the country in exchange for a monetary commitment.

The program began in Portugal in October of 2012. The primary goal was to entice foreign investment into the country, which was desperately in need of funds following the economic collapse of 2008. Over €6 billion has been raised thanks to the initiative since it began.

In addition, the Portugal Golden Visa program allows eligible applicants to apply for permanent residency or Portuguese citizenship in just five years.

To qualify for this visa, you must invest at least €500,000 in a Portuguese property acquisition. In most cases, the residency requirements for a Golden Visa are far more lax than those for a standard retirement visa.

The Golden Visa is a more convenient and speedy (but more costly) route to residence in Portugal. You can qualify for a Golden Visa by making one of the following investments:

• Make a minimum €500,000 property purchase.
• To qualify for SEF funding, your project must involve an investment of at least €350,000 in a property located inside an urban regeneration region in Portugal.
• Send over at least one million euros in cash.
• Make a minimum €1,000,000 investment or share purchase in a Portuguese firm.
• Make 10 new positions available.
• Make a monetary contribution of at least €350,000 to support scientific or technological research at Portuguese academic institutions.
• Give at least €250,000 to help rebuild nation’s cultural institutions

Since the SEF has established a separate portal for Golden Visa applications, the process for applying for one of these visas is distinct from that for a standard retirement visa.

Your residence permit in Portugal will be valid for a full year from the date it is issued. You have the option of renewing it twice for an additional five years. If you’ve lived in Portugal for five years and meet all the other criteria, you can apply for permanent residency.

If you do not plan to stay in Portugal for more than 183 days in a year, the Portugal Golden Visa Program will not subject you to Portuguese taxes. Only after that circumstance is met are you considered a tax resident of Portugal.

Those who are considering making Portugal their permanent home might take advantage of the country’s welcoming tax climate.  Income tax relief is available for the first decade of residency through the NHR scheme.

You can live and work in Portugal if you apply for a Portuguese Golden Visa, but you are not obligated to.  If you are considering a move to Portugal, you should know that the country has a relatively low tax rate.

Golden Visa holders get visa-free access to the Schengen area of Europe. You can apply for Portuguese citizenship or permanent residency (and eventually a passport) after five years of holding a Golden Visa.

You can travel freely inside the European Union and access all EU member states with a Portuguese passport.

A permanent residence permit can be applied for after five years of temporary presence in Portugal, tax payments, and a clean criminal record. In order to qualify for a permanent resident card, you must have lived there for at least six months per year.

If you have a Golden Visa, you simply need to visit Portugal for around seven days a year to be considered a permanent resident.

Those who meet the conditions can apply for retirement visas together with their spouses if they wish to retire in Portugal.

If your husband or registered partner does not meet the requirements for a retirement visa because they do not have sufficient income from pensions or savings, they can still come live with you and your dependent minor (unmarried) children.

If you want to bring your loved ones to Portugal with you, you’ll need to satisfy the following conditions:

• You need to make sure they have access to adequate accommodation in Portugal.
• You need to be able to support them financially.
• Documentation of your family ties is required.
• They need to ensure that they can obtain a visa to enter Portugal.

What else should I know before moving to Portugal?

You may live happily in Portugal on €1,500 per month if you choose to reside in a smaller town or on the outskirts; if your income is €2,000 or more, you will have a little more luxury and freedom.

Even if the cost of living is greater in popular Portuguese destinations like Lisbon, Cascais, and Porto, a monthly budget of €2,000–€2,500 will get you by just fine. Perhaps even less if you’re willing to forego some conveniences and comforts.

Portugal is well recognized as one of Europe’s most cost-effective retirement destinations. The cost of living, however, will vary widely depending on your chosen area and way of life.

The Servicio Nacional de Saude (SNS) is Portugal’s national health service, and it covers all medical costs for Portuguese nationals and legal residents. You must be a permanent resident in order to join the SNS. Private medical care is mandatory upon arrival in Portugal.

The healthcare system in Portugal is also among the best in the world, boasting highly trained professionals and cutting-edge facilities. Subscription to the SNS provides extensive medical coverage; however, some costs will still apply.

Additional expat health insurance is available to cover medical expenses incurred while traveling as well as evacuation and repatriation expenses.

You can retire in Portugal without worrying about getting a visa or a residence permit if you are a citizen of the European Union, the European Economic Area, or Switzerland. A Registration Certificate is only required from the Local Council if you intend to stay for more than three months.

Your EHIC card will also grant you access to the SNS, Portugal’s national healthcare service.

Is Portugal a good country for digital nomads?

One last thing to note is that the Portugal NHR tax regime makes it a very attractive country for digital nomads to visit and live in.

Digital nomads are individuals who have the freedom to work from anywhere in the world, as long as they have a reliable internet connection.

Portugal has already become an increasingly popular destination for digital nomads due to its affordability, beautiful climate, and vibrant culture.

Portugal is one of the most affordable countries in Europe, making it an attractive destination for digital nomads.

The cost of living in Portugal is significantly lower than in other European countries, such as France, Germany, or the UK. Accommodation, food, and transportation are all reasonably priced, allowing digital nomads to stretch their budgets further.

Internet connectivity is essential for digital nomads, and Portugal has a reliable and fast internet connection.

The country has a well-developed infrastructure, with high-speed internet available in most cities and towns. Additionally, many cafes and coworking spaces offer free wifi, making it easy for digital nomads to work remotely.

For nomads who require a certain standard of living, Portugal is well known for its high quality of life, with a warm climate, beautiful beaches, and a relaxed lifestyle.

The country has a rich cultural heritage, with historic cities, stunning architecture, and delicious cuisine. The Portuguese people are friendly and welcoming, making it easy for digital nomads to integrate into the local community.

Portugal also has a growing coworking scene, with many spaces available in major cities such as Lisbon, Porto, and Faro.

Coworking spaces provide digital nomads with a professional environment to work, network, and collaborate with like-minded individuals. Many coworking spaces in Portugal offer flexible membership options, making it easy for digital nomads to find a workspace that suits their needs.

In conclusion, Portugal is an excellent country for digital nomads, retirees, and expats who want to enjoy a high standard of living and an attractive tax regime.

It offers an affordable cost of living, reliable internet connectivity, a high quality of life, and a growing coworking scene.

Portugal is also a safe and welcoming country, making it easy for anyone to live and work there. If you’re an expat looking for greener pastures, Portugal should be at the top of your list.

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