The Portuguese non habitual residents regime

Many foreigners have discovered that Portugal is a fantastic place to retire, not just about sun, sea and golf, but also because this country has actively encouraged new arrivals by offering extremely favourable tax breaks through the “non-habitual residence” (NHR) regime.

Such regime presents a number of tax saving opportunities for individuals considering a move to Portugal and it is available to both EU and non-EU citizens. Originally introduced in 2009, it continues to attract foreign High Net Worth Individual investors and retired people, keen to take advantage of this favourable opportunity.

In order to meet the conditions to obtain a Non Habitual Residents status, the applicant must not have been tax resident in Portugal in any of the five precedent years and become tax resident in Portugal. The application must be submitted to the Portuguese Tax Authorities on or before 31stMarch in the year following the one in which the NHR status is intended to take effect. Granting of the NHR status is dependent on a review by the Tax Authorities, which takes between four and six months to complete.

Once the NHR status is granted, any Portuguese source employment income and self-employment income is liable to a special flat income tax rate of just 20%, but who have chosen to retire there can also be provided with other significant advantages.

In fact, in the case of pensioners and retired people, most types of income arisen from foreign source is fully exempt from Portuguese taxation for ten years when such income is taxed in the source State, in accordance with the convention to eliminate double taxation, signed by Portugal and that State, or is not considered to have been obtained through a Portuguese source.

In addition, the Portuguese tax system does not apply any wealth tax for individuals and in relation to the taxation of gifts and inheritance tax, a stamp duty exemption applies to all transfers to spouses, unmarried partners and relatives in the descending and ascending lines.

After the 10-year period, the individual is then taxed in accordance with the general personal income tax rules as set out in the Portuguese Personal Income Tax Code.

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