Monday, 02 April 2018

Tax residents in Portugal and the application of non-habitual residents - Balance of 10 years of experience

VolverThe non-habitual residents’ regime, in force since 2009, has surely taken led to many people deciding to take up residence in Portugal. From a tax perspective, this scheme offers a very high efficiency whether for professionals working in the certain areas of expertise, or for pensioners who decide to stay here for a few years. For everyone, it is advisable to obtain prior legal advice on applicable tax and compliance with tax obligations in Portugal.

Portugal has been affirmed, in recent years, as a country capable of attracting numerous tourists, but also people who to set up their residence. The temperate climate, landscape diversity and tourist contribute undoubtedly contribute to this, but also security, the fact that it offers interesting opportunities and a highly qualified population.

One of the objectives of Decree-Law no. 249/2009 of 23 September, which introduced the tax regime for Non-Habitual Residents (NHR), on income tax, was to create “a new competitive spirit of the Portuguese economy, which aims at stimulating the national economy and the Portuguese business fabric”.

In this sense, with the objectives of boosting the Portuguese economy and attracting investment, special tax regime applicable to NHR, it has sought to attract non-resident professionals to the Country who were qualified employees in “high added value activities” (according to the list attached to Decree no. 12/2010 of 7 January), investors with high income and beneficiaries of pensions obtained abroad.

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Non habitual Residence Regime in Portugal

We highlight below the major features of tax scheme:

• Net income of categories A (income from employment) and B (Business and professional income) from "high added value activities" are taxed at 20%.

• The possibility of tax exemption on income from a foreign source, such as income from employed and self-employed work, property, capital gains, interest, dividends as well as other capital income, provided that certain conditions have been met.

• Taxpayers that acquire NHR status will be taxed as such for a period of 10 years, after which they will be taxed in accordance with general rules of the IRS Code.

• This 10-year period is designed as a maximum period for the benefit and not as a condition for its allocation. This means that the NHR can benefit from this special arrangement for three or for years and, if due to personal or professional issues, they decide to return to their country of origin or transfer their residence to another country, they shall not loose the benefit for prior years in Portugal.

In accordance with our expertise on this regime, arising from extensive tax advice that we have provided to numerous clients, of various nationalities, granting of NHR status has fulfilled the objectives that the legislator intended when it introduced the scheme – increased investment in Portugal and attracting qualified people, because there have been many and the increasing number in foreigners that, attracted by this scheme, seek our services aimed at setting themselves up in Portugal and setting up their businesses in Portugal.

In this success, much has been contributed by the fact that the awarding of the NHR status procedure is defined in quite objective terms, not allowing the Tax Authority to exercise a discretionary power in granting the status. Once the requirements have been complied with, it is necessary to analyse what will be the tax framework of diverse expected income, to be earned in the following years (considering their respective sources) and, with legal security, apply for the classification as an NHR.

At this time, it can be safely stated that the scheme is already consolidated in the Portuguese legal system, without envisaging the political intention to introduce changes to it (the possibility of any changes being made was postulated, but there have been no drafts in this regard).

The existence of this scheme, coupled to the absence of Tax on Portugal on Inheritances and Donations (at least between spouses and between ascendants and descendants), in fact makes Portugal an interesting country to reside in.

Regarding the implications in Spain arising from the transfer of residence to Portugal, we highlight the legal obligations to inform the Spanish tax authorities of the change.

In the specific case of Spain, it shall also be considered income from the Spanish source, which will continue to be earned following to the transfer of residence, whether these be income from work or others, such as interest from bank accounts situated in the Spanish territory, income from property situated in Spanish territory, among others.

While tax residents in Spain are taxed on income obtained worldwide, non-tax residents in Spain who have earned income in that country will only be taxed for that income from a Spanish source. In this case, the provisions of the Convention to prevent Double Taxation between Portugal and the country concerned must be analysed, in order to conclude on the concept of tax residence as well as the tax competence assigned to the state of source of the income earned.

In the specific case of workers posted from Spain to Portugal by the employer, a detailed case-by-case and in-depth analysis is required specialist tax law attorney, to comply with all tax obligations and contributions inherent in the transfer.

In this case, as in others, it is important to also analyse the existence of real estate assets or maintenance of economic interests centre in Spain, which may lead to that country considering maintaining the competence to tax the income of the people who have come to live in Portugal. Another aspect to be taken into consideration, in relation to persons who previously resided in Spain or France, is Exit Tax, a situation that should be analysed in detail.

The Tax Law Department of BELZUZ ADVOGADOS has experienced attorneys who are available to provide assistance on this theme.

rafaela-beire-cardoso Rafaela Beire Cardoso 

Fiscal and Tax Law department | (Portugal)


Belzuz Abogados SLP

This publication contains general information not constitute a professional opinion or legal advice. © Belzuz SLP, all rights are reserved. Exploitation, reproduction, distribution, public communication and transformation all or part of this work, without written permission is prohibited Belzuz, SLP.


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