ABOUT THE REGIME
The Portuguese Non-Habitual Residency status enables those who become tax resident in Portugal, and are accepted as NHR, the opportunity to receive qualifying income tax free both in Portugal and in the country of source of the income.
The NHR regime represents a major step forward in making Portugal a tax free jurisdiction for individuals in receipt of qualifying non-resident income. Qualifying income includes pension, dividend, royalty and interest income.
This attractive regime also covers professional income from high value-added activities, which benefit from a special flat tax rate of 20%.
The sole requirement to benefit from this preferential treatment is to become a Portuguese tax resident, not having been a tax resident in Portugal in the previous five years. This status is granted for 10 years.
LATEST DEVELOPMENTS
The Non-Habitual Residency programme, and its application to UK nationals, should be unaffected by Brexit due to the fact that the domestic NHR legislation is complemented by the bilateral tax agreement that Portugal has signed with a series of countries, including the UK (Double Taxation Agreement between Portugal and the UK, 1968). However what will be affected in a no deal scenario is the residency rights of British citizens as third country nationals.
Clearly the position of UK nationals who will be resident in Portugal prior to Brexit and those who wish to become resident in Portugal after Brexit will be determined by the deal which the UK is able to negotiate with the EU. In circumstances where there is no deal, then those UK nationals who has already established residency rights in Portugal would have their residency rights effectively guaranteed under the Brexit legislation which entered into force in Portugal on 28th March 2019. Such guarantees are subject to reciprocity by the British authorities, which has already been demonstrated in the British Government White Paper of 6th December 2018, which stated that EU citizens resident in the UK by the initial Article 50 deadline will be able to stay.
As a result, for those UK nationals interested in applying for the NHR programme in 2019, consideration should be given to establishing residency rights in Portugal prior to the Brexit date.
There are a number of other issues surrounding citizens’s rights including healthcare, education and driving licences so please do get in touch using the contact form below should you require further advice.
WHY WAS THE REGIME INTRODUCED?
The Non Habitual Resident regime was introduced in Portugal in 2009. One of the principal objectives of this regime was to attract individuals and their families to Portugal by making it beneficial from a tax perspective to become tax resident in Portugal. As a result Portuguese NHRs have the ability to: grow their wealth in a white listed jurisdiction; earn income in a tax friendly environment; dispose of their assets and benefit from tax exemptions; pass on their wealth without inheritance or gift taxes, namely for children or spouse; and to enjoy their retirement without tax on their pensions.
WHAT ARE THE BENEFITS?
A Non-Habitual Resident (“NHR”) will be exempt from personal income tax on certain types of qualifying income if this income is subject to tax in the country of source under an existing Double Tax Treaty that allows for this or, if no Tax Treaty exists, were subject to tax in another jurisdiction and are not considered as Portuguese source income under domestic rules. Certain types of qualifying income under the regime will also benefit from a double tax exemption i.e. an exemption in Portugal and in the source jurisdiction. A special flat rate of 20% is also applicable for certain types of income arising from a number of highly qualified activities.
WHAT TYPES OF INCOME ARE ELIGIBLE FOR EXEMPTION UNDER NHR STATUS?
Pensions, dividends, royalties and interest from non-Portuguese sourced income are exempt from personal income tax in Portugal. Certain types of salaries, provided they are paid from a non-Portuguese source, can also be exempt from tax.
WHO IS ELIGIBLE?
Any individual who becomes Portuguese tax resident in accordance with Portuguese Law i.e. who has his habitual residence in Portugal or who spends more than 183 days in Portugal in the tax year, which runs from 1st January to 31st December or has a dwelling in Portugal at 31 December of that year with the intention to hold it as his habitual residence, and has not been taxed in Portugal, as tax resident, in the previous five years.
HOW DO YOU APPLY?
You may apply when you have become a Portuguese tax resident or before 31st March of the following tax year. If you wish to apply for the NHR regime EDGE can guarantee a prompt consideration of you application. EDGE has a direct channel to the central authorities dealing with the NHR regime and we are confident that we will obtain a decision on your NHR application within 7 days.
HOW LONG DOES IT TAKE?
If you wish to obtain a prompt decision on your NHR application, EDGE can guide you through the process enabling you to obtain a decision within a timeframe of less than a week after the application has been made. The status will be backdated to the date of becoming Portuguese tax resident.
ARE THERE ANY GUARANTEES?
Whilst there are no guarantees that applications will be successful, it is most often granted.
As long as the NHR applicant fulfils all the legal requirements of Portuguese tax residency and the specific requirements to become a NHR, there is no reason for the registration to be rejected.
HOW MUCH DOES IT COST?
Fees for processing the application for NHR status are fixed on a case-by-case basis but we can assure that the fees are very competitive, particularly in light of the high level of service given. Prior to making the application we will conduct a due diligence on your income and, where appropriate, suggest any restructuring in order to maximize the benefit under the programme. You will be updated regularly in relation to the process and the NHR team will ensure that your application is processed promptly and efficiently and followed through with the Tax Department regularly.
ARE THERE ANY OTHER BENEFITS?
Successful NHRs will have access to all the benefits of an ordinary Portuguese tax resident including healthcare.
DOES THE TERM NON HABITUAL MEAN THAT I HAVE TO BE TAX RESIDENT OUTSIDE PORTUGAL?
No. The term “non-habitual” often leads to misinterpretations. It means that under the NHR regime you are required to have your tax residency, and are habitually resident, in Portugal. As this regime is valid for each applicant for a period of 10 years tax authorities used the term “non-habitual”.
CAN I RENT INSTEAD OF PURCHASE?
Yes. Rental is an option under the NHR regime. As occurs when you purchase a property, if you are renting a property you may be required from tax authorities to provide evidence of your address in Portugal, which can be done through providing a copy of your rental contract.
DO I HAVE TO MAKE A STATEMENT OF ASSETS
When applying for the NHR regime, you will not need to provide any statement of assets. This will also not be required when filing your first tax return. In each tax return you will only be required to provide information on the value of each category of your annual income.
IS THE NHR REGIME STABLE?
his regime was implemented in 2009 but only became fully operational in 2010. However, the programme is maturing and shows every sign of continuing to form an important part of Portuguese foreign investment programme.
DO I HAVE TO PAY TAX IN THE SOURCE OF INCOME AFTER MY REGISTRATION AS NHR?
After your registration as a NHR in Portugal you are able to request an international certificate of residence to the Portuguese tax authorities. This document then has to be sent to the tax authorities of source of income and that should enable you to be exempt of tax in that jurisdiction, unless a withholding tax applies.
IS IT POSSIBLE TO BACKDATE MY REGISTRATION AS NON HABITUAL RESIDENT?
You can backdate your registration as a NHR in Portugal to the date on which you became tax resident in Portugal, always remembering that the deadline for making the NHR application is 31st March of the tax year after you became tax resident in Portugal.
IS THERE ANYTHING ELSE I SHOULD CONSIDER?
An application for NHR status is, in a large number of cases, preceded by a property investment in Portugal. Prior to making any property investment, you should consider the following issues.
WHEN BUYING PROPERTY IN PORTUGAL
1. PRELIMINARY AGREEMENTS
When buying a property in Portugal, the most common preliminary agreements are (i) a Reservation Agreement in which the seller agrees to take the property off the market for a certain period of time under some specific conditions and (ii) the Promissory Contract of Purchase and Sale in which both parties enter into an agreement to sell. Make sure that a binding offer is in place, and should you require an immediate binding document, the signing of a Promissory Contract of Purchase and Sale is the more secure legal instrument.
2. DUE DILIGENCE ON THE CONTRACT
Through a Due Diligence on the contracts you can avoid future problems. The advice of a qualified lawyer regarding the terms of the contract you are about to sign and the compliance of these terms with the Portuguese law will make the purchase much more secure, not only at the time of signature, but also for the future.
3. TITLE / OWNERSHIP
A due diligence on the title is of fundamental importance when acquiring a property. This is aimed at ascertaining whether the seller has full ownership of the property and/or if there are any charges registered over the property or restrictions on title. This assessment is based mainly on the property details filed with the Land Registry Office and the Tax Department. Any charges or encumbrances registered over the property must be cancelled prior to completion.
4. ADVANCE PAYMENTS
When signing a Promissory Contract of Purchase and Sale, the buyer is normally expected to advance a payment on account of the purchase price. It is a proportion of the total selling price, which is negotiable (10% to 30% is common practice).
In case of breach of contract, this payment can be used as penalty. If the seller breaches the contract, they have to return this deposit in double. If the buyer breaches the contract the seller keeps the amounts deposited.
5. ARRANGING FINANCE
Foreign citizens can apply for mortgages in the same conditions as Portuguese citizens as long as the bank requirements are fulfilled.
6. MANDATORY LICENCES
When acquiring a property, it is also important not to forget the need for the necessary licences. Different uses of land require different licences and it is essential that you have the full background on this subject before completion to avoid unpleasant surprises in the future. The Licence for Use, for instance, is a mandatory document required for the acquisition of urban property – except in case of construction prior to 7th August 1951.
7. TAXES
When purchasing a property, there are certain taxes that need to be paid. The Property Transfer Tax (IMT) is paid by the buyer upon completion and it varies between 0% and 8% of the value of the purchase. Stamp Duty is another tax to be paid and is charged at a rate of 0.8% of the declared value of the purchase. Should the buyer apply for a mortgage, there will be an additional Stamp Duty of 0.6% which will be charged over the value of the loan.
8. DEED AND REGISTRATION
In Portugal, the transfer of property can be processed in two ways: (i) through the signing of a Deed of Purchase before a Notary or (ii) through a certified private document signed before a Lawyer, a Legal Executive, Chamber of Commerce and Industry or a Registrar. This is the document that gives the purchaser proper title to the property. After the signing of the Deed, it is mandatory to register the purchase with the Land Registry Office and the Tax Department. Without registration you will be unable to enforce the purchase against third parties.
9. GUARANTEES
The seller may be liable for construction defects within 5 years after the sale/construction of the property. However, this guarantee will be waived by the parties if they specifically agree to sell/purchase the property in its current
10. PORTUGUESE WILL
After buying a Portuguese property, it is essential to take advice on succession and the requirement for a Portuguese Will. We also can assist.
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Non-Habitual Residency, tax resident, portugal