The resident-non-habitual NHR status is a fiscal regime that was created in 2009 by the Portuguese Government. It is a tax system that grants a 20% tax rate or a total exemption on the taxation of income of expatriates who choose to live in Portugal, for a period of 10 years. And this is not just about retirees ! In order to get the famous tax scheme, it is necessary to prepare well. In total more than 23,000 people benefited from this tax regime. Of course, certain conditions must be met in order to benefit from the non-habitual resident NHR status in Portugal, and becoming a resident is one of them. The NHR scheme is granted to both active and retired people if they meet certain criteria. What is the NHR status ? How do you qualify for NHR in Portugal ? What are the conditions to qualify for NHR status in Portugal ? What are the tax benefits of non-habitual resident status ? How to get NHR status ? Lisbob, the expatriate assistant in Portugal, tells you all about the non-habitual resident NHR tax status in 2023.
Update 30/01/2020 : Portuguese government has decided to tax foreign pension income at 10%. This will apply only for new NHR beneficiaries starting from 31/03/2020.
What is NHR non-habitual resident status ?
It is a tax status granted by Portugal in order to benefit from a special tax rate. In 2009 Portugal decided to create the non-habitual resident status, called NHR. The purpose of this new status is to attract foreigners with high value-added potential, such as retirees or skilled employees. Under certain conditions, the NHR status allows a tax rate on income of 20% or even a total tax exemption for pensions of private sector pensioners.
Conditions to benefit from NHR status
The NHR scheme is granted to persons who become resident and provided they have not been taxed in Portugal during the five years preceding the application. A tax residence certificate can be requested. These 2 conditions are ultimately simple, the most complicated being to prove it.
A person is considered to be a tax resident in Portugal if :
She has lived more than 183 days (consecutive or not) in Portugal during a 12-month period beginning or ending in the year of application for NHR status ;
She has lived in Portugal for a period of less than 183 days but has, at any time during the last 12 months, a real estate property under conditions that make it possible to presume the intention to keep it and to occupy it as her principal and usual place of residence ;
She was part of the crew of a ship or aircraft on 31 December ;
She performs public functions or duties abroad, in the service of the Portuguese State.
A person who qualifies for non-habitual resident NHR status in Portugal must file the complete application until 31 March of the year following the year of registration as a resident. We must be careful about this delay because often people who make the request too late are denied their application for NHR status, simply for a poorly prepared file and at the last moment.
The tax regime NHR in Portugal is granted for a period of 10 years non-renewable, as long as the individual continues to be considered as tax resident in Portugal during each of these 10 years. If for a year the person is not recognized as a tax resident in Portugal, then his status is not lost. In fact, a person who has not been able to benefit from the NHR plan during this 10-year period can always return and benefit from the plan during any of the remaining years of that period, beginning in the year in which he or she becomes a tax resident again in Portugal. Attention years are not postponed later.
DURATION
How long is NHR status ? The NHR tax regime in Portugal is granted for a non-renewable period of 10 years, as long as the beneficiary continues to be considered as a tax resident in Portugal during each of these 10 years, i.e. having resided more than 183 days per calendar year.
Also, it should be noted that the NHR status is granted for the full fiscal year, which runs from January 1st to December 31rd. This means that even if you are granted NHR status at the end of the year, it will have already begun on January 1st.
For example, if you are granted NHR status in October 2022, it will have already started on January 1st, 2023. This also means that the status actually lasts a little less than 10 years, since it will not end 10 years after the date of award, but on December 31st of the 10th year.
Example:
RNH status granted on October 1, 2022.
Start date of status: January 1, 2022
End date of status: December 31, 2031
DEADLINE FOR OBTAINING NHR STATUS
The date of March 31st is often mentioned as the deadline for applying for NHR status, and we will try to explain it as clearly as possible. The person who meets the requirements to be granted NHR status in Portugal must submit a complete application by March 31st of the year following the year of registration as a resident. It is important to pay attention to this deadline because often people who apply too late are denied their application for NHR status, simply because of an ill-prepared application or one made at the last moment.
Example:
You get your NIF and attach it to a Portuguese address during the year 2022, you have until March 31st, 2023 to file the application;
If you change your NIF to a Portuguese address during the year 2023, you will have until March 31st, 2024 to apply;
If your NIF was attached to a Portuguese address in 2021 or earlier, it is already too late to apply for NHR status because the March 31st, 2022 date has already passed.
Of course, the sooner you apply, the sooner you will receive a response from the Portuguese tax authorities and can start taking advantage of this status.
Taxation of the NHR tax regime
As mentioned above one of the main advantages for the beneficiaries of the NHR status in Portugal is to be granted a favorable tax rate. However, care must be taken to verify the criteria for granting NHR status to see if it can be used. Also, the tax rate assigned depends on the situation of each. The following are the different tax rates for non-usual resident status by source of income.
I. Income from Portuguese sources
Non-habitual residents who earn income in Portugal (category A) or self-employed persons such as freelance and autoentrepreneurs (category B) from high value-added activities are taxed at a flat rate of 20%, applicable to net income. won. Ministerial Decree no. 12/2010 of 7 January defines what is meant by "high added value activities" of a scientific, artistic or technical nature. As of January 1, 2020, the list has been modified and some occupations disappear (architects) for the benefit of others (farmers). The new list of professions with access to NHR status lists professional categories such as doctors, engineers, university professors or information and communication technology specialists. However, other professions, such as psychologists, architects, geologists or archaeologists, have simply disappeared.
New labor requirements include activities such as hotel, catering, trade and other services managers, farmers and skilled workers in the fields of agriculture and livestock farming, qualified forestry workers, fishermen and hunting workers or operators of factories, machinery and assemblers.Here are the activities that are eligible for obtaining NHR status in Portugal:
I - Professional activities (activity codes):
112 - Director General and Executive Director of companies;
12 - Directors of Administrative and Commercial Services;
13 - Directors of production and specialized services;
14 - Hotel, restaurant, business and other hotel managers;
21 - Specialists in the physical sciences, mathematics, engineering and related techniques;
221 - Doctors;
2261 - Dentists and stomatologists;
231 - University and higher education teacher;
25 - Experts in information and communication technologies (ICT);
264 - Authors, journalists and linguists;
265 - Creative Arts and Entertainment Artists;
31 - Technicians and Intermediate Occupations in Science and Engineering;
35 - Information and Communication Technology Technicians;
61 - Farmers and skilled workers in agriculture and livestock breeding for trade;
62 - Skilled workers in forestry, fishing and hunting;
7 - Skilled workers in industry, construction and crafts, including in particular metallurgy, metalworking, food processing, woodworking, clothing, crafts, printing, precision instrument manufacturing, jewelers, craftsmen, electrical and electronic workers;
8 - Plant and machine operators and assembly workers, namely operators of stationary machines.
Workers in the above-mentioned professional activities must have at least the level of qualification of the European Qualifications Framework Level 4 or the International Type Classification of Education of level 35 or five years of duly justified professional experience.
II - Other professional activities:
Directors of companies promoting productive investments, as long as they are eligible for eligible projects and tax concession agreements concluded under the Investment Tax Code, approved by Legislative Decree No. 162 / 2014 of 31 October »Salaried employment and commercial or professional income that is not considered as value added are taxed in accordance with the general rules of the Portuguese Tax Code.
III. Foreign source income
According to the rules of non-habitual resident NHR status in Portugal, most foreign source income is exempt from Portuguese income tax for ten consecutive years, as well as income taxable in another country. This means that foreign expatriates can potentially receive pensions, rental income, real estate gains, interest, dividends and income from non-Portuguese sources by being tax-exempt. It is important to note that this may apply even if income is not actually taxed in the country of origin. British dividends, for example, escape Portuguese taxation under the NHR scheme because they are taxable in Great Britain (according to the double taxation treaty concluded between the United Kingdom and Portugal). However, in practice, the "income not taken into account" rules can eliminate UK non-resident tax. As a result, you could pay no tax - in any country - on income (although gains on UK equities are not eligible for the HNR exemption). Here are the categories of income that are 100% exempt from income taxation in Portugal for beneficiaries of the NHR status.
• Category A income (employees) :
Exempt 100% tax:
If the same activity is imposed in the State of origin in accordance with the Double Taxation Agreement between Portugal and that State;
Or if Portugal has not concluded a double taxation agreement with that State of origin, the income will be taxed in that State as long as it cannot be considered as obtained in Portugal under domestic law.
• Category B income from high value-added activities obtained abroad by non-usual residents, or from intellectual or industrial property, capital income (category E), real estate income (category F) and gains in capital (category G) :
Exempt 100% tax:
If the income can be taxed in the State of origin in accordance with the Double Taxation Agreement between Portugal and the State;
Or if Portugal has not concluded a double taxation agreement with the State of origin, the income is taxed in accordance with the model tax treaty of the OECD (in this case, this exemption applies only if the State of origin is not considered to be on the blacklist of tax havens).
Any other type of category B income obtained and not included in the NHR scheme that does not come from high value-added activity will be taxed in Portugal in accordance with the general rules of the Portuguese Tax Code.
• Pension income (category H)
This may be directly relevant to you: pension income. Private sector pensions are the only ones accepted to qualify for NHR status in Portugal.
The flat rate is 10% if :
They are not taxed in the State of origin in accordance with the double taxation agreement concluded between Portugal and that State;
Or provided that income cannot be considered as obtained in Portugal under domestic law.
How to get NHR status?
So with all these info this is the most important question. How do I become a non habitual resident of Portugal ? Non-habitual resident NHR status is granted by the Portuguese tax authorities, the Finanças. In order to benefit from the NHR status it is important to do things in the right order and not to rush. We can never say it enough. Good preparation is the key to a successful expatriation. To obtain the NHR status it is necessary to:
Check that one can benefit from the NHR status ;
Get a NIF (Tax Number) ;
Form and file the application file with Finanças ;
Receive the answer ;
Report your income in Portugal.
The constitution, filing and monitoring of the application for NHR status can be complicated and difficult to access when one does not master the language and even less the subtleties of the Portuguese administration. Also, we will not be able to advise you better than to let you accompany for this step how important for your expatriation. Many expatriates have submitted an incomplete file or not in time and see their dream of non-taxation for 10 years fly away.
My team can handle your NHR status application procedures for you: trust the expatriation specialist in Portugal: we process your request in 48 hours and you are sure that your file is well-crafted, that either for retirement pensions or any other source of income.
Evolution of NHR status
Every year since the non-habitual status of resident has been established in Portugal, there are some voices demanding the modification or even the total elimination of this tax regime granted to expatriates. Indeed, some believe that the tax benefit granted to foreigners does not do good to the Portuguese economy or that this measure leads to a tax injustice compared to Portuguese already on the spot. Bloco de Esquerda, a left-wing political party, had even tabled a bill for the 2019 Portuguese State Budget to completely abolish the NHR status.
Since 2020, Portuguese government has decided to tax foreign pension income at 10%. This will apply only for new NHR beneficiaries starting from 31/03/2020. People who arrived before 31/03/2020 can still request current NHR status with 0% IRS tax until 31/03/2021.
