Non-habitual resident in Portugal
Under the Portuguese Personal Income Tax law, an individual is considered to be Portuguese tax resident if he meets at least one of the following requirements:
- The individual remains in Portugal more than 183 days in any period of 12 months
- The individual’s stay for a shorter period but in any day of that shorter period the individual has in Portugal a main abode and uses that main abode as if it is his principal house.
Partial tax residency
Under the Portuguese tax law, an individual can be partial tax resident since the 1st of January of 2015. The fact that the spouse is not in Portugal will not hinder the Portuguese tax residency provided that the other residency links are fulfilled. The taxpayer tax resident in Portugal is considered as “separated” (not divorced).
Once you become Portuguese tax resident, you can be taxed under two different systems:
Ordinary tax regime:
- Applicable when you do not qualify for the special tax regime.
- Taxation on a world-wide basis.
- Progressive tax rates (from 14,5% to 48%) plus surcharge tax (from 2,5% to 5%) if taxable basis exceeds € 80 000 and up to € 250 000 or over € 250 000.
- Most overseas sourced income is taxed & disclosed herein although an internal tax credit relief is available.
Non-habitual tax regime
- Applicable when you meet the specific local residency requirements plus proof of tax residency overseas in the last 5 (five) years prior to application.
- Taxation on a world-wide basis.
- Flat 20% tax rate on employment or self-employment income deriving from high added value activities plus surcharge tax (if applicable).
- Exemption on wide extension of passive income sourced overseas if income is potentially taxed on source due to specific DTA provision
Two different ways to be taxed in Portugal
- Interests, dividends, pensions (*) and royalties if sourced overseas may be exempt in Portugal if certain DTA (**) provisions apply (may be tax clause on the DTA with the source Country is enough).
- Local benefits are available to income NOT deriving from countries listed as TAX HEAVENS (Black List).
Revenues from some jurisdictions which are black listed will still get the exemption when they also have a DTA with Portugal (example: UAE or Hong Kong – cfr. recent developments).
- In Portugal there is no wealth tax and Gifts & Inheritances are not taxed if made between next of kin (spouses & children).
- Employment or self employment income of high added value activities is taxable on a worldwide basis at a flat tax rate of:
- 20% flat tax with no cap
- Employment income taxed overseas is exempt in Portugal
High added value activities:
- Engineers; Biologists; ITs experts and programmers; artists and performers, qualified professionals who work in industry, agriculture experts. The list is somewhat wide for technical professions not obliging superior levels
- No need to get a clearance from the local tax authorities however we advise that a defensive file is prepared in case of challenge by Tax Authorities
Update approach on taxation of pensions
On March 31st 2020, the State General Budget for 2020 amended the RNH regime by revoking the local exemption for foreign pensions income and imposed a flat 10% tax rate.
The previous NHR regime made pensions of foreign sources exempt from IRS.
Nonetheless Grandfather rules were also approved. The old regime could still be applied to individuals:
- on the date of entry into force of this law, were already registered as NHR
- on the date of entry into force of this law, had already made their applications for the status of the NHR
- on 31st March 2020 were already tax residents in Portugal and apply for registration as NHR until 31st March 2021
Taxpayers who become tax residents in Portugal after 1st April 2020 will be obligatorily subject to the new rules, being compulsorily covered by the new NHR regime - that is, 10% effective local personal income tax rate on foreign pensions.
Miguel Nuno Cadiga