Portugal consistently draws the interest of foreign investors due to the abundance of opportunities it boasts. The Portuguese economic landscape is enticing and has been made more so through the introduction of the Portuguese Golden Visa, a pathway for investors to not only make savvy investments but get an EU residency in the process.
However, the golden visa isn’t the only incentive the Portuguese government introduced to foreign investors as it also approved a special status in 2009, providing a distinctive tax regime for inbounds with attractive tax-saving opportunities. Dubbed non-habitual residency (NHR), this incentive aims to attract foreigners with high value-added potentials, such as retirees, skilled employees, investors, or entrepreneurs.
What Is Non-Habitual Residency?
NHR is a special status tax regime. Foreign nationals who are non-habitual (non-regular) residents of the country, meaning they are legal residents but do not qualify as tax residents, can apply for the NHR tax incentive.
What Are The Advantages Of Being A Non-Habitual Resident In Portugal?
Individuals with NHR status can benefit from a special personal income tax regime for a ten-year period. This tax exemption can be applied to foreign income, employment, or self-employment income derived from high value-added activities exercised on Portuguese territory such as directors and executives of production, industry, services and business companies, doctors, university teachers, engineering, IT, and otherwise. The main incentives of the NHR are:
- Employment and self-employment income can be liable to a special 20% flat rate instead of the usual scale that reaches 48% if derived from high value-added activities. Lower taxes on foreign income and labour income sourced outside of Portugal are possible if the applicant is self-employed. In certain conditions only 75% of the gross income is taxable, reducing the effective tax rate to 15%. This is applicable if Portugal and the source country have a Double Tax Agreement (DTA), which are agreements between countries to avoid taxing a person twice on the same amount of income or gains, hence a person only pays tax in one of those nations. Portugal currently has 79 DTAs in place, and in case you are not from one of those countries the OECD Model Tax Convention may offer an alternative with a similar outcome.
- Progressive tax exemption for foreign-source income such as professional income, pension, rental income, capital gains, interest, dividends, as well as other investment income provided certain conditions are met. In most cases, capital gains on the sale of securities are taxable at a flat rate of 28%;
- Taxation on pensions from foreign sources is at a fixed rate of 10%. Before the 1st of April 2020, foreign pension was free of tax.
- A tax exemption for gifts or inheritance to direct family members.
- No wealth tax;
- Free remittance of funds to Portugal.
Individuals with NHR status can benefit from a special personal income tax regime for a ten-year period.
Who Can Apply For The Non-Habitual Resident Tax Regime In Portugal?
In order to qualify for the NHR regime, applicants must fulfil the following requirements:
- Not have been a Portuguese tax resident in the 5 years prior to taking up residence in Portugal by spending less than 183 days per year in Portugal while maintaining an address;
- Become tax resident under Portuguese domestic legislation;
- The extremely specific requirements of the NHR make it a difficult venture for most to pursue, but foreign investors are in luck, as the official residency by investment program of Portugal, the golden visa, aligns perfectly with the NHR scheme.
NHR And The Golden Visa
Investors who acquire residency through the Golden Visa program can then become eligible for the NHR regime in Portugal. The golden visa is a five-year residency-by-investment scheme for non-EU nationals that allows them and their families to live, work and study in Portugal while having residency in another country. After the 5 year period, applicants may opt for permanent residency and then citizenship in Portugal.
What makes the Golden Visa so attractive is that it doesn’t require the applicant to move to Portugal, thus avoiding the 183 days stay.
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To paint a clearer picture, the golden visa awards foreign investors residency in Portugal that only requires them to reside 7 days a year in the EU nation, and after 5 years they may apply for permanent residency. This perfectly aligns with the 5-year, non-tax resident requirement.
The golden visa also ensures that an investor maintains an address in Portugal if they choose the real estate investment option, which allows them to maintain an address without living more than 183 days a year.
Once the initial five-year period is over, a golden visa holder may apply for NHR, and thanks to the structure of the golden visa, they have a great chance for approval.
Benefits Of the Golden Visa include:
The golden visa is much more than a route to NHR, as it comes with a multitude of benefits on its own, here are the core benefits of the program:
- The applicant does not require to move to Portugal. The program has low stay requirements, of seven days per year;
- Access to visa-free travel within the Schengen Area;
- No tax on worldwide income,
- 5-years after the initial investment until applicants qualify to apply for a European passport;
- Affordable investment options, categories include real estate, venture capital fund, transfer of capital, company formation, and donation. The most popular option is real estate, as it allows the investor to receive residence permits for the entire family;
- Option to become a non-habitual resident and pay little to no tax for 10 years through the NHR program.
The Portuguese passport is ranked in the top 5 passports in the world for ease of travel.
Golden Visa Requirements For Portugal
While the NHR may have a complex set of requirements for the average person, the golden visa requires very little of foreign investors and is considered one of the simplest residency by investment programs in the world. Here are the main criteria to meet to be eligible for a golden visa:
- Be either non-EU, non-Swiss, or non-EEA;
- Make a qualified investment (most popular investment is in real estate starting at €280,000)
- Have a clean criminal record
- Submit a full application
- Hold investment until you obtain a permanent residency or citizenship
- Spend a minimum of 7 days in Portugal for the first year, then no less than 14 days each subsequent two-year period to maintain your visa
The non-habitual resident program in Portugal confers tax advantages to those who establish their residence for tax purposes in the country. No wonder that more and more foreigners are taking advantage of these benefits. NHR aligns perfectly with the Portuguese golden visa, making it an excellent route for global investors who wish to broaden their horizons through immigration while also safeguarding their wealth through one of Europe’s most favourable tax regimes.
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Being able to live in a marvellous country such as Portugal, and take advantage of all the governmental benefits such as top-tier education for children, world-class healthcare, and more while paying low taxes is an opportunity too good to miss out on. To know more about how you can qualify for the golden visa and NHR scheme, contact us today.
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