Last Updated on January 5, 2022 by Lea Melo
The Non-Habitual Resident Regime was created in Portugal in 2009. This tax regime is intended to attract highly qualified professionals and passive incomers to Portugal by offering excellent tax benefits. In this article, we will cover this regime’s framework and regulation.
If you meet the requirements of Decree-Law No. 249/2009, you will be able to save money that, under normal conditions, would have to be spent on taxes.
So, if you want to apply for this regime while living in Portugal, this article was made for you.
What is the non-habitual resident tax regime?
To begin with, it is worth mentioning that the Non-Habitual Resident (NHR) tax regime does not concede a complete tax exemption, but tax incentives.
Even if you’re granted this tax regime, you will have to pay taxes. However, with these tax benefits, the amount to be paid will be much lower than that supported by most taxpayer residents in Portugal.
All information in this article is based on Decree-Law No. 249/2009, Law No. 02/2020, and also our lawyers’ experience.
However, it is important to emphasize that the content of this guide is eminently informative and should not be used for decision-making. We strongly recommend hiring professionals who can help you in this process.
Also, we’ve made a very friendly FAQ about taxation in Portugal that may answer your questions.
The NHR Tax Regime is regulated by the Decree-Law no. 249/2009, that is, the Investment Tax Code.
The term “Non-Habitual” is related to the fact that only citizens who have not had a tax residence in Portugal for the last 5 years can benefit from this regime.
The granted person can benefit from this regime for a period of 10 years, which is a competitive regime when compared to tax regimes in other countries.
It mainly targets individuals who fall into the category of:
- Passive incomers;
- Highly qualified workers.
As we will address in this article, the NHR regime is a distinguished tax regime for these reasons:
- 10 years of tax benefits;
- 20% IRS tax rate for internal income;
- 10% rate on foreign income;
- No country restriction;
What are the main benefits of this tax regime?
The benefits resulting from this regime, which attract foreign citizens so much, are as follows:
- Passive income outside Portugal taxed at a rate of 10%;
- Work income in Portugal (related to some areas of activity) taxed at a fixed rate of 20%.
Income sourced outside Portugal
For example, let’s consider that you receive income from renting a property in your country of origin. As a rule, this income is normally taxed in your country and also in Portugal at the rate of 10%.
Below you can check some of the passive income that can be taxed at the 10% rate:
- Capital gains;
- Property gain.
The taxation procedure can vary depending on the country of origin.
Some countries discount the passive income tax at the base (that is, taxed upon receipt of income). Others collect the tax only when the taxpayer declares their annual Income Tax.
In the first case, this income will be taxed in the country of origin and in Portugal.
In the second case, there’s the possibility of taxation only in Portugal, and the NHR regime can be even very advantageous.
Income generated in Portugal
Also, if you perform a professional activity in Portugal, at the end of the base period of one year, you must submit the Income Tax Declaration (IRS).
If you applied to the NHR regime and the activity is qualified as highly qualified, the tax rate will be 20%.
So, simply put, if you have a taxable income of 35,000€, you will pay IRS in the amount of 7,000€.
However, not every worker will be able to benefit from the 20% rate, but only those who fall under the category of Highly Qualified Worker (HQW) and, also, provided that they are exercising the profession regulated in the NHR regime.
As for the income related to other activities not covered by this law, the standard tax rate in Portugal must be applied, and it can vary from 14,5% to almost 50%.
Who can apply for the non-habital resident tax regime?
In order to profit from the benefits resulting from the NHR regime, citizens must meet the following requirements:
- Not have had a tax residence in Portugal for the last five years (not to be confused with owning a property in Portugal).
- Must have stayed in Portugal for more than 183 days. If you stayed less than 183 days in Portugal, you must have an address here (such as a lease or deed of a property). This is the condition for becoming a tax resident in Portugal.
- Registration as a Non-Habitual Resident at the Tax Authority (Finance) until the following March 31th.
The professionals that can benefit from the Non-Habitual Resident regime are those listed in Ordinance No. 230/2019, updated in 2020. Check out the list below with all the included professionals and positions:
- Director and executive manager of companies;
- Directors of administrative and commercial services;
- Production and specialized service directors;
- Directors of hotels, restaurants, commerce and other services;
- Specialists in physical sciences, mathematics, engineering and related techniques;
- Dentists and stomatologists;
- University and higher education teacher;
- Specialists in information and communication technologies (IT);
- Authors, journalists and linguists;
- Creative and performing arts artists;
- Intermediate science and engineering technicians and professions;
- Information and communication technology technicians;
- Market-oriented farmers and skilled agricultural and livestock workers;
- Skilled market-oriented forestry, fishing and hunting workers;
- Skilled workers in industry, construction and craftsmen, including skilled workers in metallurgy, metalworking, food processing, wood, clothing, crafts, printing, manufacturing precision instruments, jewelers, artisans, electricity workers and in electronics;
- Plant and machine operators and assembly workers, namely fixed plant and machine operators;
- Workers in the professional activities mentioned above must have at least level 4 of qualification in the European Qualifications Framework or level 35 of the International Standard Classification of Education or have five years of duly proven professional experience;
- Other professional activities: Administrators and managers of companies that promote productive investment, provided they are assigned to eligible projects and with contracts for granting tax benefits entered into under the Investment Tax Code, approved by Decree-Law No. 162/2014, of October 31st.
Important things to consider
It is important to note that the tax authority may request, during the first 5 years after granting the benefit, the documents that evidence that the professional really worked in the aforementioned profession during this period of the regime.
That’s why it is recommended to keep all documents that prove the exercise of the professional activity.
Failure to prove professional practice will result in the payment of the Income Tax at the normal rate throughout the period in which the person has benefited from the incentive (20% rate), and also the possibility of paying fine and interest.
Among the conditions for applying for this regime, it is important to mention that:
- The profession developed by the applicant must correspond to the Portuguese Classification of Professions, since there may be structural professions differences between countries.
- The Tax Authority may require proof of the education level of, at least, 5 years of practice.
Passive Income Holders
One of the most frequent questions concerns the situation of the pensioner who intends to enroll in the NHR regime as a way to exempt himself from paying taxes on retirement income.
In this case, it is necessary to check some information related to your country of origin (where the retirement income comes from).
One of the objectives of the Non-Habitual Resident regime is to avoid double taxation. From your country of origin and Portugal.
Therefore, in relation to the countries where retirement is taxed at source, such as Brazil, there is a benefit in tax conditions (related to the same income in Portugal). In other words, as Brazil has already collected its tax, Portugal’s taxes (for this same source) are reduced.
However, there are countries in which income tax charge isn’t a source, such as Finland and Sweden.
For this reason, many citizens of these countries were interested in applying for this regime as a way of being almost 100% exempt from taxation on their retirement income, either in the country of origin or in Portugal.
It is also important to note that taxation in Portugal also depends on the existence of bilateral or multilateral agreements between the respective countries.
As a rule, European countries have agreements between them to avoid double taxation. For this reason, in most cases, taxation takes place in Portugal.
Not Tax Eldorado
It’s also important to mention that, due to pressure from European countries like Finland and Sweden, that classified Portugal as a “Tax Eldorado” since its citizens were migrating to Portugal in order to take advantage of this tax incentive, the Portuguese government changed NHR rules in 2020.
Thus, with the changes affected, retirees who apply for NHR will be taxed at 10% (instead of a total tax exemption) on pensions paid by their country of origin.
This is, however, a rate that is still extremely low, compared to the taxation of other countries, which can even exceed 50%.
It is also important to note that the mentioned 10% rate is fixed. So it and does not vary according to the amount of retirement income.
In a standard situation in Portugal, retirement income would have to be taxed by the general regime for Portuguese citizens, which may reach up to the rate of 48%.
It’s important to emphasize that this is a regime that has received praise but also a lot of criticism, both internally (in Portugal) and abroad.
For this reason, regarding the possibility of further changes, we recommend you carry out the application as soon as possible. So that you profit from the current benefits.
What’s the procedure to apply for the Non-Habitual Resident regime?
The application for the Non-Habitual Resident regime must be made at the Tax Authority of Portugal.
Any misinformation can lead to denial of the application. So you must place the order very carefully, preferably by qualified professionals.
The decision regarding the application is made at the discretion of the person responsible at an administrative level and can be appealed if the applicant is not satisfied with it.
The application can only be made after the citizen is registered in Portuguese territory.
In this article, we have verified the regulation of the Non-Habitual Resident Regime.
This regime attracts many citizens who want to benefit from its tax conditions.
It is important to note that this article has purely informative content and should not be based on decision making, since:
- This subject has many legal and accounting details and implications. Each case has its particularities;
- The decision to be made by the administrative agents is discretionary;
- The regulation of this regime has enough scope for interpretation.
If you are planning to apply for the NHR regime as a retired person, we recommend the article All about the Passive Income Visa.
And remember, you are not alone in your relocation to Portugal. Thousands of expats are changing their lives for the better in Portugal. If you would like to meet some of them, join our Facebook group All About Portugal For Expats.