Portugal offers a special Non-Habitual Resident regime for new residents, which provides beneficial tax treatment for your first ten years. There is a special tax rate of 20% applicable to employment and self-employment income derived from certain ‘high added value’ activities, and a potential tax exemption for most foreign-source income, provided certain conditions are met.
However 20% is not 0% so just keep reading to find out more.
There are one or two countries in the EU, where you can get a passport and enjoy certain tax benefits on your worldwide income as an entrepreneur. Portugal is one of those rare exceptions.
It is a program that allows qualifying individuals the opportunity to become tax residents of a “white-listed” jurisdiction and still legally eliminate their taxes on most foreign-source income. The tax residency is good for 10 years and does not come with the obligation to visit or live in Portugal part of the year to maintain your resident status there.
The biggest bonus that comes with this program is the opportunity to reduce your income tax to zero.
This is possible, in part, due to Portugal’s 71 double taxation treaties. According to the regime, as long as the source country of your income has the power to tax your income (regardless of whether or not they actually apply the tax), Portugal will not tax your foreign-sourced income.
The list of income sources that will not be taxed under this set-up includes foreign-source self-employment, royalties, eligible occupations, occupational pensions, capital gains and investment or rental income.
It is important to note that capital gains from the sale of securities will be taxed, as will income sourced from a blacklisted tax haven that does not have a double tax treaty with Portugal. And if you happen to have Portugal-sourced income, it will be taxed at a flat rate of 20%, as mentioned before.
To qualify for the non-habitual resident program, you must either be a citizen or a resident of Portugal. Residency can be achieved through the Golden Visa program. In both cases, you cannot have been tax resident in Portugal at least five years prior to your application to become a non-habitual resident. (You become a tax resident either by spending 183 days or more per year in Portugal, or by establishing a “place of abode” there (purchased or rented) that you intend to keep and occupy habitually.)
Once you obtain Portuguese residence, you have until March 31st of the following year to apply for your NHR status. To apply, all you have to do is fill out a request and supply an official document stating that you were not a tax resident of Portugal in the five years previous to your arrival.
If tax authorities have doubts about your claim, they will demand further documentation to prove your prior residence. If not, the process really is that simple.
As mentioned before, though you must be a resident in order to apply, you do not have to live in Portugal for any period of time after obtaining your NHR status. You can even break your tax resident status for more than a year and still maintain your condition as a non-habitual resident.
Sounds interesting enough?
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