Portugal's new center-right government plans to reintroduce tax incentives aimed at attracting skilled foreigners to the country offered under a program known as the non-habitual residents (NHR) tax scheme, but with some changes.
- What is NHR?
- Benefits
- Eligibility requirements
- Visa-friendly lease agreement
- How to apply
- U.S. and UK citizens
- Other info
Finance Minister Joaquim Miranda Sarmento told the Financial Times that the move would “attract some people” to the country as part of a comprehensive set of 60 measures designed to stimulate economic growth.
These incentives were initially introduced in 2009 to aid Portugal's recovery from the financial crisis, but were eliminated last year by the previous Socialist government, which criticized them for contributing to rising house prices in one of Europe's economically weakest regions.
Miranda Sarmento clarified that the revived tax regime would feature a flat income tax rate of 20%, applying specifically to salaries and professional income. Notably excluded from this scheme would be dividends, capital gains, and pensions, a change intended to address concerns raised by countries like Finland and Sweden.
These nations had objected to Portugal's previous policy, arguing that it encouraged retirees to relocate and cease paying taxes in their home countries.
The current government hopes to garner support for these measures from opposition parties, including the Socialist party and the far-right Chega party, both of which have expressed reservations about the tax breaks.
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Miranda Sarmento emphasized the importance of these incentives in attracting highly skilled foreign workers who could help bolster Portugal's economy.
He acknowledged that while the 20% rate might not be sufficient on its own, it could make the country more attractive to professionals such as engineers, researchers, and managers, who currently face a top marginal tax rate of 48% on incomes above €81,199.
The finance minister also confirmed that the government would maintain the previous administration's decision to discontinue "golden visas" linked to property purchases exceeding €500,000. Moreover, the tax incentives would extend to Portuguese citizens returning from abroad, provided they meet residency criteria but maintain legal domicile elsewhere.
Miranda Sarmento stressed that the government's strategy aimed at economic growth did not conflict with efforts to address Portugal's housing crisis. He underscored the need for a balanced approach that would simultaneously attract skilled workers and foster more affordable housing solutions.
In addition to the tax incentives, the government's broader economic package includes adjustments to other taxes in Portugal, support for startups and research, and initiatives aimed at boosting tourism and defense sectors.
However, the country's central bank has expressed concerns that these measures could push Portugal from a fiscal surplus back into a deficit, potentially violating new EU debt rules. Banco de Portugal warned that additional spending or tax cuts not offset by other measures could threaten the country's fiscal stability.
Despite these concerns, the IMF remains cautiously optimistic about Portugal's economic outlook. IMF assessments underscored Lisbon's achievement of a significant fiscal surplus last year and a substantial reduction in public debt since 2020.
What is NHR?
NHR, or non-habitual resident status, was introduced in 2009 to make Portugal more competitive globally.
It aims to attract professionals, entrepreneurs, investors, retirees, and wealthy individuals who can positively impact the economy and culture. This status lasts for 10 years, after which the special tax benefits end and regular Portuguese tax rates apply.
What are the NHR tax benefits?
The benefits of the non-habitual resident tax regime in Portugal includes:
- Special personal income tax treatment over ten years
- Tax exemption for almost all income from foreign sources
- 20% flat tax rate for certain Portuguese income (from specific professions and self-employment), as opposed to national income tax rates of up to 48 percent
- A tax exemption for gifts or inheritances to immediate family members
- No wealth tax
- Free remittance of funds to Portugal
- Exemption from double taxation, if applicable
What are the eligibility requirements?
Here’s what you need to know about the key requirements for applying for NHR status in Portugal. The main requirement is to become a tax resident in Portugal, meaning you must be eligible to live in the country.
In the year the income is earned, you must meet at least one of these criteria:
- Stay in Portugal for more than 183 consecutive or non-consecutive days in any 12-month period starting or ending in that year.
- Stay for a shorter period but have housing that indicates an intention to use it as a habitual residence.
- Be a crew member on a ship or aircraft serving entities with residence, headquarters, or effective management in Portugal as of December 31.
- Perform public functions or assignments abroad in service of the Portuguese State.
Additionally, you must prove your residency. You must not be a tax resident of another country, meaning you shouldn’t stay in another country for more than 183 days, as it could establish tax residency there.
Another condition is that you must not have been a tax resident in Portugal for the last five years.
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Note:
While purchasing property in Portugal is beneficial, a 12-month rental agreement is also acceptable as proof of residency.
If renting, provide a lease or loan agreement. If purchasing, present the purchase deed.
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How do you apply for NHR status?
Proof of residency
To start the process for the non-habitual resident regime in Portugal, first, you need to become a resident.
- EU/EEA/Swiss citizens: You can register for residency without a visa. Visit your local town hall with your passport and proof of your current address. At the "Cidadão Europeu" (European Citizen) counter, staff will help you fill out the form. The registration usually costs around €15.
- Non-EU citizens: You must apply for a residence permit to live legally in Portugal. One common method is through the Portugal D7 visa program.
Find an expert accountant or lawyer
It is recommended to seek professional financial and legal advice for NHR applications. However, if you wish to apply on your own, follow the steps below.
Get a Portuguese tax number (NIF)
To obtain a Portugal NIF number, visit your local finance office (finanças) in Portugal. Bring proof of residency (such as an electricity bill or rental agreement), your certificate of residency or visa, and your passport.
Register as a tax resident in Portugal
After receiving your NIF, register as a tax resident at the finanças. Provide proof of your permission to reside in Portugal, such as your previous registration as a European citizen or residency permit holder.
Apply for NHR status
Here’s how to apply for NHR status:
- Applying online:
- Register on the government’s financial portal.
- Provide the following information: NIF, fiscal address, email address, phone number (matching the NIF registration details), and answer a security question.
- A password will be sent to you by post, expected within two weeks.
- Application process:
- Log into the finanças portal once you receive the password.
- Navigate to "Aceda aos Serviços Tributários," click "Entregar Pedido," and then "Inscrição Residente Não Habitual" to register your NHR application.
- Required documents:
- Declaration confirming you have not been a tax resident in Portugal for the last five years.
- Tax returns for the last five years.
Proof of property purchase or a rental contract in Portugal. - Be prepared to provide additional proof if needed.
- Common reasons for rejection:
- Inadequate supporting evidence. Additional proof may be required to confirm you have not been a tax resident in Portugal for the last five years, including proof of tax residency in another country.
- Inadequate supporting evidence. Additional proof may be required to confirm you have not been a tax resident in Portugal for the last five years, including proof of tax residency in another country.
NHR regime overview for U.S. and UK citizens
Below is additional information for U.S. and UK citizens.
U.S. citizens
Eligibility:
- Any Americans moving to Portugal who meet the requirements can apply.
Requirements:
- Living abroad.
- No residence in Portugal for the past five years.
- Intention to move to Portugal.
Tax residency:
- Applicants must have a residence in Portugal on December 31 of the application year and intend to establish a habitual residence.
Benefits:
- Significant tax benefits, especially for retirees, including tax exemptions on pension income.
UK citizens
Post-brexit complexity:
- Due to Brexit, obtaining NHR status has become more complicated for UK citizens.
Recommended visa:
- UK citizens are advised to apply for a D7 visa.
Procedure:
- Once the appropriate visa is obtained, the steps to apply for NHR status are the same as the general process described earlier.
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What else should I know about the NHR tax regime?
Tracking application progress:
- If you registered online at the Portal das Finanças, you can monitor the status of your non-habitual residency application.
Checking acceptance status:
- Check your application status through the finanças portal. Go to Aceda aos Serviços Tributários, then Consultar Pedido, and finally Inscrição Residente Não Habitual.
Application processing time:
- You will usually receive a response within a few weeks. If your NIF was issued recently, the process may take as little as 2 days.
Residency requirement:
- You can be a resident in Portugal, but the key is not having been a tax resident in the five years preceding your application.
- You must be a tax resident to qualify for non-habitual residency.
Disclaimer: The legal information published on Flatio is for informational purposes only and does not constitute legal advice.
