Portugal Non-Habitual Residents (NHR) Regime

Portugal’s special tax regime for Non-Habitual Residents (NHRs) enables qualifying entrepreneurs, professionals, retirees and high net worth individuals to enjoy reduced rates of tax on Portuguese-source income, while most foreign-source income is exempt from Portuguese taxation, for a decade.

Individuals of any nationality (including non-EU/EEA citizens) can potentially benefit from Portugal’s NHR regime for 10 consecutive years if they qualify as a tax resident in Portugal and have not been taxed as a Portuguese tax resident in any of the five years preceding the year in which residence is established.

You also need to meet the criteria for being a tax resident in the year of application – the simplest way of achieving this is to be present in Portugal for more than 183 days. Portuguese-source salary or self-employed income derived from one of the eligible professions (listed below), would then be subject to a final flat rate tax of 20%.

In addition, non-Portuguese income in most categories – including self-employed income, real estate income (rentals), capital income (interest and dividends) and capital gains on property – will be exempt from Portuguese personal income tax provided that:

• The source country has the right to tax that income under the terms of a Double Tax Agreement (DTA) signed between Portugal and that country; or
• The income is taxed in the other country and is not considered as obtained in Portugal; or
• The income is taxable in any other country under the OECD Model Tax Convention.

Until recently, the NHR regime also allowed for most foreign pension income to be received in Portugal free of tax, but a flat 10% tax rate was introduced in the 2020 Portuguese Budget. This new tax applied as of 1 April 2020, although existing NHR holders remain eligible for exemptions for the remainder of their ten-year NHR period.

However, this 10% tax rate is still a highly attractive option for NHR applicants because it will be lower than the rates that would apply in their home countries and is also significantly lower than Portugal’s standard tax rate of between 14.5% and 48%. There is also no inheritance tax, gift tax or wealth tax in Portugal for NHRs.

It should be noted that the right to enjoy NHR benefits in each fiscal year will only apply if the applicant has been considered resident in Portugal during that year. If, however, the applicant fails that test in any one or more years, he/she may still enjoy the benefit in following years up to the 10 year limit.

Additionally, any income earned in countries listed by the Portuguese Finance Department as ‘preferential tax regimes’ – the so called “blacklist” – will not qualify for the NHR regime unless the listed country has a DTA with Portugal

The qualifying professional activities covered by the NHR regime include the following: