Non Habitual Residency Scheme
The Non Habitual Residency Scheme
In 2009 the Non Habitual Residency Scheme was introduced in Portugal and is a tax regime that offers foreign residents and also investors reduced tax rates. The scheme also offers exemptions on some taxes. The aim of the program is to attract foreigners to reside in Portugal and has already proved to be very successful.
Non Habitual Residency Scheme Advantages
The advantages of the Non Habitual Resident Program are as follows:
- This program offers a special individual tax treatment on incomes for a period of 10 years. This means that if the income is from an external source which has a Double Taxation Agreement with Portugal, then the income will not be subject to taxation within Portugal.
- Tax Exemption on almost all foreign sources of income
- This program also offers a 20% flat rate on certain Portuguese incomes such as determined professions and also self-employment
- Opportunity to have tax residency within the EU which is also in a white listed country
- Exemption of tax for gifts or inheritance to your family members
- There is also no wealth tax
- Also Free remittance payment to Portugal
Who Can Apply to be a Non Habitual Resident
To obtain the right to be a resident in Portugal you must be an EU/EEA/Swiss citizen or be a part of the Golden Visa Program within Portugal. Also you must prove that you have not been a Portuguese tax resident within the last five years For you to establish a tax resident status in Portugal, you must hold a living space from the 31st of December of that year. This is to show your intention that Portugal will be your habitual home. A good proof of residency is that of a 12 month rental contract or if you have purchased a property in Portugal you can also show deeds as proof. With your proof of abode you should try to apply for the Non Habitual Resident program until the 31st of March of the next year.
High Added Value Professions:
Some professions are considered as a high added value within Portugal. This includes professions such as economic and cultural. For those individuals who practice one of the professions below they will be given generous tax exemptions:
- Architects Engineers and Geologists
- Theater, ballet, cinema, radio, television artists Singers and Sculptors
- Musicians, Painters, and Auditors
- Tax consultants, Dentists, and Medical Analysts
- Clinical surgeons. Ship’s doctors, and General Practitioners
- Medical psychiatrists, and Doctors
- University lecturers, Psychologists and Archaeologists
- Biologists and life science experts, Computer programmers Software consultant
- Computer consultants and related services, News agencies
- Scientific research and development Research and experimental development on natural sciences and engineering
- Research and development in biotechnology
- Designers and Investor Managers
- Directors or Higher management of a company
- Tax on Foreign Income
Double Taxation Treatment:
Double Taxation Treatment is a treaty between two or more countries which avoids double taxation of income. This also divides the taxation between the two countries in the right way. The Double Taxation Treatment also helps to avoid tax evasion and secure the taxpayers rights.
Double Taxation Countries with Portugal
- Algeria, Austria, Andorra
- Bahrain, Barbados, Brazil
- Bulgaria, Canada, Cape Verde
- Croatia, Cuba, Cyprus
- Czech Republic, Denmark, East-Timor
- Estonia, Ethiopia, Finland
- France, Germany, Georgia
- Greece, Guinea-Bissau, Hong Kong
- Hungary, Iceland, India
- Indonesia, Ireland, Israel
- Italy, Ivory Coast, Japan
- Kuwait, Latvia, Lithuania
- Luxembourg, Macau, Malta
- Mexico, Moldova, Montenegro
- Morocco, Mozambique, Netherlands
- Norway, Oman, Pakistan
- Panama, Peru, Poland
- Romania, Russia, San Marino
- São Tomé and Principe, Saudi Arabia Senegal
- Singapore, Slovakia, Slovenia
- South Africa, South Korea, Spain
- Qatar, Sweden, Switzerland
- Tunisia, Turkey, United Arab Emirates
- United States of America, United Kingdom Ukraine
- Uruguay, Venezuela, Vietnam
If your business is from a country which has the Double Taxation Agreement with Portugal then it will also be tax exempt. If your business is not one of the eligible profession for the Double Taxation Agreement then you will be taxed at a standard rate and also subject to pay Social Security. The self employment income can also be taxed at a flat rate of 20% but the individual can also pay the usual progressive tax if it is less than that of the flat rate.
Royalties and income from financial assets: Royalties and income from financial assets from a country with the Double Taxation Agreement with Portugal will be tax exempt. If from a country without a Double Taxation Agreement and isn’t a blacklisted tax haven the tax will be at the rate of 28% or 35%.
Real estate income and capital gains: Real estate income and capital gains are exempt if they come from a country with the Double Taxation Agreement. Gains from a country without a Double Taxation Agreement which isn’t a blacklisted tax haven could also be exempt. Capital gains received from shares, bonds, etc for those from a blacklisted tax haven will be taxed at an optional rate of 28%, 35%.
Pension Income: If coming from a country with a Double Taxation Agreement then the pension income is tax exempt.
Employment Income: If the profession of employment is not on the list of qualified professions it will then be taxed at the standard progressive rate. If your employment is from the list of eligible professions then the 20% rate can be applied, but if the usual progressive rate is less, then the progressive rate can be used.
Self-employment income: If your self employment profession is not on the list of qualified professions it will then be taxed at the standard progressive rate. If employment is from the list of eligible professions then the 20% rate can be applied, but if the usual progressive rate is less, then the progressive rate can be used.
Real estate income and capital gains: Rental incomes are taxed at the optional rate of 28% or otherwise at normal progressive rates. Net capital gains are taxed at the normal progressive rate which is 50%.
How to Apply for the Non Habitual Residency in Portugal
- As the first step in applying for the Non Habitual Residency you will need to prove residency and that you also have the legal right to reside in Portugal. Citizens of EU/EEA/Switzerland can register without a visa in their region’s city hall with their passport and EHIC Card.
- Non-EU citizens who wish to reside in Portugal must first receive a residence permit such as the Golden Visa Program or Passive income. This can also be done online on the SEF website or in the Portuguese Consulate in your country.
- Obtaining a Portuguese Tax Identity Number is needed if you intend to do business or other official or legal activities in Portugal. For non residents this can be obtained through their representative/lawyer in Portugal. If you are already a resident in Portugal you can go directly to the local Portuguese tax office where you will need to show your ID card/passport and also proof of residency
- After you obtain your NIF number you must then register as a tax resident in the finanças which is the local Portuguese tax office.
- Application for the Non Habitual Residency Status must be done on the corresponding government website. For this registration you must have a NIF number, email address, phone number and also a fiscal address. Once you have completed registration online you will then receive in the mail within 2 weeks a password to complete your registration. Once you have your password you can then complete the application on the website.
To fully complete your submission you must submit the following documents:
- A document proving that you were not a tax resident in Portugal within the past five years.
- Proof of your past five years of tax returns
- Also a rental agreement or a deed of a property within Portugal
The Portuguese DTA and The UK
With Brexit now in effect the rights of UK citizens with residency in Portugal are still protected.
Source: IRS – FISCAL REGIME FOR NON-HABITAL RESIDENTS
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