The NHR (Non-Habitual Resident) regime is a Portuguese government tax incentive that aims to attract foreign professionals to work in Portugal. The scheme aims to stimulate the economy by bringing in highly skilled workers and their expertise — it includes a reduced tax rate on eligible income, the ability to claim tax credits and deductions, and potential exemption from Portuguese social security contributions. Only non-habitual residents of Portugal are eligible for the tax scheme. Here we discuss these benefits in more detail and the requirements for obtaining and maintaining NHR status.
Benefits of the NHR Tax Scheme
Reduced Tax Rate on Eligible Income
Foreign professionals who obtain NHR status are subject to a flat tax rate of 10% on certain income earned in Portugal, including salary, pension, and business income. Portugal's standard progressive tax rate ranges from 14.5% to 48%.
Tax Credits and Deductions
They may include deductions for expenses related to the individual's work in Portugal, such as business travel and professional development courses.
Exemption From Portuguese Social Security Contributions
When granted NHR status, you can opt out of the Portuguese social security system, provided you have social security coverage in your home country. It can result in significant savings on social security contributions, which can be as high as 28.8% of an individual's salary in Portugal.
Others include:
- Gifts or inheritance to direct family members are exempt from tax
- You can remit funds free of charge to Portugal
- You do not have to pay a wealth tax
Requirements for NHR Status
First, one must be allowed to live in Portugal through the Golden Visa program or by being an EEA/EU/Swiss citizen. You must also hold a place of abode in Portugal by the 31st of December of the year you apply.
The other requirements include the following:
1. Not a Tax Resident for 5 Years
Someone who has been tax resident in Portugal for at least five years before taking residence is not eligible for NHR status. They must have spent fewer than 183 days in that tax year in Portugal and not have had a tax home (i.e., where the individual conducts their professional activities) in Portugal.
2. Start Working Within 6 Months
You must start working in Portugal within six months of obtaining NHR status. Employment, self-employment, or the provision of professional services all count. You must have a contract with a Portuguese company or a foreign company with a permanent establishment in Portugal.
3. Minimum Income
You must earn a minimum of €7,000 annually from your work in Portugal. The income can include salary, pension, or business income.
4. Eligible Professions
The NHR tax scheme is not limited to a specific set of professions. However, the Portuguese government has identified certain activities as being of particular economic interest, and individuals who work in these areas may be given priority when applying for NHR status.
Overall, the requirements for NHR status are designed to attract highly skilled professionals who can contribute to the Portuguese economy.
How to Apply for NHR Status
To apply for the NHR tax status, an individual must submit an application to the Portuguese tax authorities within the first three months of becoming a tax resident in Portugal. The application process generally involves filling out a form and providing documentation to demonstrate that the individual meets the eligibility requirements for the NHR tax benefit.
The specific documentation an individual must provide will depend on their circ*mstances. However, as a general rule, they will need to provide proof of their tax resident status, such as a certificate of tax residence or a statement from their employer. They may also need proof of their foreign-source income, such as bank statements or tax returns from the country where the income is generated. The NHR tax benefit is only available to individuals who become tax residents in Portugal. If an individual is already a tax resident in Portugal, they are not eligible for the NHR tax benefit.
The timeline for approval of an NHR application can vary, but it is typically within a few weeks. Once your application is approved, you will receive a certificate of NHR status, which you will need to present to your employer or clients to benefit from the reduced tax rate. A tax professional or the Portuguese tax authorities can provide more detailed information on the specific requirements for the NHR tax benefit.
Note that the NHR tax scheme is competitive, and not all applicants will be approved. Seek professional advice when preparing your application to increase your chances of success.
Maintaining NHR Status
Once approved for NHR status, you will need to maintain your eligibility to continue benefiting from the reduced tax rate. If you cannot maintain the eligibility requirements, you may lose your NHR status and be subject to the standard tax rate in Portugal. Keep track of your time in Portugal and your income from work to maintain your NHR status.
After the maximum duration of 10 years lapse, you will no longer be eligible for the reduced tax rate and will be subject to the standard tax rate in Portugal. However, you may still be able to benefit from tax credits and deductions if you continue to meet the eligibility criteria.
Conclusion
The NHR tax scheme offers a reduced tax rate of 10% on eligible income, the ability to claim tax credits and deductions, and the possibility of exemption from Portuguese social security contributions.
To qualify for the NHR tax scheme, individuals must meet certain requirements, including being a non-habitual resident of Portugal, starting work in Portugal within six months of obtaining NHR status, and earning a minimum of €7,000 per year from their work in Portugal.
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Certainly! The Non-Habitual Resident (NHR) regime in Portugal is an intriguing tax incentive aimed at luring skilled foreign professionals to work within the country. Let's break down the essential concepts and intricacies encapsulated in this article:
Benefits of the NHR Tax Scheme:
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Reduced Tax Rate on Eligible Income: Foreign professionals under the NHR status enjoy a significantly reduced flat tax rate of 10% on specific types of income earned in Portugal, including salaries, pensions, and business income, as opposed to the standard progressive tax rate ranging from 14.5% to 48%.
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Tax Credits and Deductions: Eligible individuals can claim deductions for various work-related expenses incurred in Portugal, such as business travel and professional development courses.
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Exemption From Portuguese Social Security Contributions: NHR status holders have the option to opt out of the Portuguese social security system if they maintain coverage in their home country, resulting in substantial savings, considering the high social security contributions in Portugal (up to 28.8% of an individual's salary).
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Other Benefits: Additional advantages include exemptions on gifts or inheritances to direct family members, free fund remittance to Portugal, and exemption from wealth tax.
Requirements for NHR Status:
To qualify for NHR status, individuals must fulfill specific criteria:
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Residency Status: Non-habitual residency status is applicable to those who have not been tax residents in Portugal for the past five years.
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Commencement of Work: Starting work in Portugal within six months of obtaining NHR status is essential. This includes employment, self-employment, or providing professional services under contract with a Portuguese or foreign company with a base in Portugal.
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Minimum Income: A minimum annual income of €7,000 from work in Portugal (salary, pension, or business income) is required.
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Eligible Professions: While the scheme isn't confined to specific professions, certain economic interest sectors may receive priority for NHR status applications.
Application and Maintenance of NHR Status:
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Application Process: Applicants must submit documentation demonstrating eligibility to the Portuguese tax authorities within three months of becoming tax residents in Portugal.
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Maintenance: Once granted, individuals must continue to meet eligibility criteria to retain NHR status. Failure to do so might result in reverting to standard tax rates.
Conclusion:
The NHR scheme in Portugal presents an attractive opportunity for skilled professionals with its reduced tax rate, tax credits, exemptions, and flexibility. However, it demands meticulous attention to eligibility criteria and compliance to maintain the benefits.
The article concludes by emphasizing the competitiveness of the NHR scheme and advises seeking professional guidance to enhance the chances of a successful application.
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This comprehensive breakdown showcases the multifaceted nature of the NHR regime in Portugal, underscoring its advantages and the meticulous requirements associated with obtaining and sustaining this favorable tax status.
