Portugal is one of the European Union’s most attractive destinations for digital émigrés and remote workers. This is largely because of Portugal’s NHR (non-habitual residency) tax scheme.
In this guide, we’ll discuss the advantages of Portugal’s NHR scheme, explain who is eligible, and walk you through step-by-step on how to get it.
Please note, the advice in this guide does not replace the advice of an accountant or tax advisor. If in doubt, you should get in touch with a professional.
Thousands of foreign nationals from all over the world have already applied for Portugal’s NHR tax scheme. More are coming in every day, most notably from places experiencing unfavourable political conditions, such as the UK, the US, and Hong Kong. The NHR scheme offers appealing tax conditions for foreigners who live in Portugal.
Despite its misleading ‘non-habitual’ residency title, Portugal’s NHR scheme is suitable for those who wish to live in Portugal year round. The NHR scheme has many features that make it a perfect fit for digital émigrés wishing to start a new life in Portugal.
NHR is also a good fit for those who plan to work towards Portuguese citizenship to gain (or regain) EU rights – such as British nationals aiming to beat Brexit.
What is Portugal’s NHR tax scheme?
Portugal launched its NHR tax scheme in 2009 with the objective of attracting highly-qualified professionals and investors to the country, thus making it more competitive on the international stage. Portugal’s NHR offers attractive tax breaks for those who fulfil its criteria.
What are the main benefits of Portugal’s NHR tax scheme?
The NHR tax scheme has numerous benefits and very few disadvantages. If you fit the criteria and want to live in Portugal as a digital émigré, we highly recommend applying for it.
Key benefits of NHR:
- Tax breaks for 10 years
- Having tax residency in an EU country
- No tax on capital gains
- Tax exemption on most foreign income (last year the government introduced a small tax on foreign pensions)
- 20% flat rate on eligible Portugal-sourced income
- No minimum stay requirement in country
- Can be used with full-time residency of Portugal, if required
- Can be used in conjunction with the D7 ‘passive income’ visa and residency pathway
- Can be used while working your way towards Portuguese (and EU) citizenship
The NHR and double taxation
Portugal has double tax agreements (DTAs) with numerous countries, including the UK. Thanks to these, most of your income sourced from outside of Portugal can be taxed in its country of origin.
In practice, many countries (including the UK) will not tax your income if you declare yourself non-resident. Under NHR, it is likely that the majority of your non-Portugal sourced income will be tax-exempt.
We strongly recommend contacting a knowledgeable accountant, who can advise you based on your specific situation.
Who is eligible for Portugal’s NHR tax regime?
To be eligible for NHR, you first need the right to reside in Portugal. One of the most common ways to achieve this is through applying for residency under EU rights, as a citizen of an EU/EEA country.
Alternatively, you can access the NHR through the D7 visa and residency pathway, or through the Golden Visa scheme. Both of these will be available to British passport holders as of January 2021.
Also, you must not have been a Portugal tax resident in the five year period before taking up tax residency in Portugal. If you’ve never lived in Portugal before, then you probably fit this criteria.
Another requirement is to have a ‘place of abode’ in Portugal available for use. This can be either via rental or purchase. It can include renting a room in shared accommodation. The only necessity is that the landlord or primary renter provides you with an official lease, which should normally be for at least 12 months. You will need to show this lease to gain residency.
You must have this place of abode available to you before the 31st of December in the year which you become tax resident of Portugal.
What tax will I pay under the NHR tax regime?
The tax you will pay depends a lot on whether your income is sourced from outside Portugal or within Portugal. In both situations, the NHR tax scheme offers significant benefits. Here’s a quick breakdown of the rates.
Income sourced from outside Portugal
Income from employment
- Tax-exempt under NHR, or taxed at a flat rate of 20% if your employment falls under the list of eligible professions
Income from self-employment
- Taxed at usual rates unless it comes under the eligible professions list. If so, then
- Taxed at normal progressive rates unless the nature of the self-employment comes under the list of eligible professions
- Subject to Portuguese social security contributions, unless you already pay into another social security system (e.g. National Insurance in the UK)
- Optionally taxed at a flat rate of 20% —but you can choose to pay usual progressive rates if they are lower
- Tax-exempt if self-employment income comes from the list of eligible professions and comes from a country with a DTA.
Income from dividends
- Tax exempt if originating from a DTA country
- Tax exempt if originating from a non-DTA country, as long as the country is not a blacklisted tax haven
Income from a pension
- Flat 10% tax rate for pensions paid from a DTA country (pensions used to be tax-free under NHR, until this recent change was introduced in the 2020 budget)
Income from real estate and capital gains
- Both of these are tax-exempt under NHR, as long as they don’t originate from a blacklisted tax haven.
Income sourced from within Portugal
It’s unlikely that digital émigrés will earn income from within Portugal. The whole digital émigré concept revolves around the notion of supporting oneself from sources external to the new country of residence. However, if you do end up earning income from within Portugal, NHR has certain benefits worth exploring. In this situation, it’s best to talk to a qualified accountant within Portugal.
How to apply for NHR status in Portugal
The first step in applying for NHR status is to make sure you are registered as tax resident in Portugal. That means having a NIF (tax number), which is registered to your Portuguese address. Also, you need to have a 12 month rental lease, or proof that you’ve purchased a property.
You need to have proof of habitual abode by December 31 of the year in which you become tax resident. The deadline to make your NHR application is March 31 of the following year.
- Register residency as an EU citizen by visiting your local town hall with your passport. If you are a non-EU citizen, you’ll need to make an appointment with SEF to apply for your residency (usually via the D7 visa pathway or the golden visa programme).
- Apply for a NIF at your local Finanças office. You can do this with proof of address from outside Portugal, for example a bank statement from your home in the UK. But you’ll need to change it to a Portuguese address before applying for the NHR. If you want to apply for the NIF with your address in Portugal, bring your rental lease or property deeds to Finanças as proof of address. A utility bill should also be ok.
- Next, you will need to register with the online Finanças portal. They will send a password in the regular post to whichever address is registered on your NIF. If this is an overseas address, make sure somebody is there to receive the letter for you, and tell you the password.
- Once you can access the Finanças portal, you can use it to apply for NHR yourself.
Apply for NHR via the Finanças Portal
- Log in with your NIF and password
- Navigate to the following website location: Aceda aos Serviços Tributários > Entregar Pedido > Inscrição Residente Não Habitual. (You can search for these words in the search box if you get stuck)
- On that page, fill in the requested fields with your year of registration (e.g. 2020 if you arrived during that year) and your country of foreign residence (the country where you lived in the last year)
- Declare that you fulfil the conditions to be non-resident in Portugal in the five years prior to the year of beginning your status as a non-habitual resident.
To talk in more detail about NHR and moving to Portugal, please contact us.