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Portugal has become one of the most appealing countries for those looking to relocate, and it continues to live up to its fame. Acknowledging the ever-growing interest shown in moving to Portugal, since 2009 the Portuguese Government has sought to make relocation even more appealing with the Non-Habitual Residency (NHR) tax regime.
In the most recent edition of Abode2 Luxury Property Magazine MATLAW explains the essentials of this program which has become one of the most successful tax programs worldwide and a crucial factor for those making the final decision on whether to relocate to Portugal.
L-J Andrew talks to Joana Neto Mestre, Managing Partner of MATLAW, to learn how the Non- Habitual Residents’ programme might be perfectly suited for those planning to relocate to Portugal
With exceptional weather, glorious beaches and world class wines and gastronomy, Portugal has become one of the most appealing countries for those looking to relocate, and it continues to live up to its fame. Acknowledging the ever-growing interest shown in moving to Portugal, the Portuguese Government has sought to make relocation even more appealing with the Non- Habitual Residency (NHR) regime, one of the most successful tax programmes worldwide and a crucial factor for those making the final decision on whether to relocate to Portugal.
The NHR status
The Non-Habitual Residency status in Portugal represents a major step forward making Portugal a possible tax-free jurisdiction for individuals. Although it doesn’t constitute a residence permit in Portugal, it allows those who become Portuguese tax residents and successfully obtain approval on the programme, the opportunity to receive qualifying income tax free or lowly taxed both in Portugal and the source country.
Practicalities of the regime
The application to obtain the NHR status can be made by the 31st of March of the year following the relocation process and will be granted for as long as you are a Portuguese tax resident, with a maximum period of 10 years.
The only requirements of the scheme is to hold a valid residence permit, meaning you must apply for the change of tax residency to Portugal and not have been a Portuguese tax resident in the previous five years.
Qualifying income and taxation
There are several types of income that qualify as possible tax-exempt or lowly taxed income, such as pensions, dividends, royalties, interest and property income.
Besides that, professional income, received from high added-value activities, may benefit from a special flat rate of 20%. Some examples of high added-value activities are acting as a company’s director, a practising doctor or working as a university professor, IT specialist, engineer or journalist, among others. It’s also worth noting that, even if current income received is not within the limits to fall within the more beneficial tax rates applicable to non-habitual residents, any future income in the ten year-period that does, will be treated accordingly if duly declared in your Portuguese annual tax return.
Double taxation treaties
Some may be wary that any income may be taxed twice if two countries have the right to tax it, for example if its source is different than the country of residency.
Fortunately, most countries have signed double taxation agreements with Portugal, which generally sidesteps this problem. From having the amount of tax paid credited against the tax payable over your income in the country of your residence, to being exempt from taxation in your country of residence due to the mere possibility of it being taxed in the country of its source, the Non-Habitual Resident status offers numerous benefits.
The analysis of the double taxation agreements, as well as the national regulations for the taxation of your income under the NHR regime in Portugal is highly complex. As such, the support of qualified professionals to assure that the right decisions are made is vitally important.
This information is not legal advice of concrete cases, nor should it be, under any circumstances, deemed as such.
Joana Neto Mestre | MATLAW