Portugal has been for several years a preferred choice for tourists and foreigners wishing to live abroad, either working remotely or retiring in the sun.
Besides being known for its amazing food, friendly people, and breathtaking beaches, which in themselves are strong enough reasons to justify a move, Portugal also offers a favorable tax regime to foreigners moving to Portugal–the so-called non-habitual resident (NHR) regime.
At GuestReady, we have the chance to come across a lot of new Portuguese residents, as they make use of our mid-term rentals as temporary homes for a couple of months before they find their dream properties.
In this article, we’ve asked Lisbon-based tax lawyer Rita Botelho Moniz to shed some light on the frequent questions we (and she) receive about the Portuguese tax system and more specifically the NHR regime.
I am a foreigner. Am I automatically eligible for the non-habitual resident (NHR) regime?
Eligibility is granted based on fulfilling these three following conditions:
- You have not already been a tax resident in Portugal in the preceding five years;
- You must take up residence in Portugal, either by purchasing or renting a property as your permanent residence; and
- You register as a Portuguese tax resident and specifically as a non-habitual resident (NHR) before the Portuguese tax authorities.
Thus, whilst you are technically not “automatically” eligible for the NHR regime, most foreigners can easily fulfill these three conditions.
What are the benefits of the NHR regime?
Individuals under the NHR regime may receive tax benefits on two levels.
First, under the NHR regime, foreign employment income may be tax exempt in Portugal, provided some conditions are met. Furthermore, domestic employment income and services income earned by qualified professionals moving to Portugal may benefit from reduced taxation. Namely, NHRs may be taxed at a 20% rate, provided that their professional activity is one of those listed as high value added under Portuguese legislation (Ordinance no. 230/2019, of 23 July, available in Portuguese at https://dre.pt/home/-/dre/123407856/details/maximized).
Second, NHRs may benefit from tax exemptions on their foreign passive income (e.g., dividends, interest, rental income), under certain conditions, depending on the type of income received, which is especially relevant for individuals living out of this kind of income.
How long do the benefits of the NHR regime last?
Once granted, the non-habitual resident status, lasts for a 10-year period, counting from the year of start of Portuguese tax residence..
If I am not eligible for the 20% reduced rate, can I still benefit from the available tax exemptions?
Yes, you can, provided that some conditions are met.
For instance, foreign dividends and foreign rental income are tax exempt in Portugal if the source country may tax them, either according to the double tax treaty with Portugal or according to other international tax rules, in this case provided that they do not derive from a listed tax haven (Ordinance no. 150/2004, of 13 February, last updated by Ordinance no. 309-A/2020, of 31 December, available in Portuguese at https://dre.pt/web/guest/legislacao-consolidada/-/lc/105808897/diploma?p_p_state=maximized&rp=diploma&filter=Filtrar)
If I do not benefit from the 20% reduced rate, what would be the applicable rate?
If your professional activity isn’t considered as of high value added under Portuguese legislation, the general progressive rates, which may go up to 53% (including surtaxes), would apply to your employment or services income. Nonetheless, some deductions would be allowed to the taxable amount (such as those related to health, education, and housing rents).
What other taxes are there in Portugal?
There is no wealth tax in Portugal. Nonetheless, if you own a Portuguese property, you are subject to municipal property tax up to the maximum rate of 0.45% (if urban property) and 0.8% (if rural property). An additional surtax applies if the tax value of your Portuguese properties, altogether, exceeds € 600,000.
Tax exemptions are available for inheritance and donations made to spouses and/or children, while in other cases a 10% rate applies. Inheritance and donations of properties to spouses and/or children are subject to a 0.8% stamp duty.
Property transfer tax:
When purchasing a Portuguese property, you are subject to property transfer tax up to 8%, and to a 0.8% stamp duty, applicable to the purchase value or the tax value of the property (whichever is higher).
Social security tax:
You may be subject to Portuguese social security contributions, depending on your specific case. You may benefit from an exemption by being subject to those contributions in another EU country or under a double social security treaty.
How can GuestReady help me relocate?
Purchasing or renting a long term property in a rush can yield negative surprises. Being on the ground and taking time to explore the area and your surroundings is the way to go.
If you are looking for a mid-term rental for you and your family until you find the property that truly suits your needs, GuestReady is here for you.
Our fully furnished GuestReady properties across Lisbon, Porto, and the Algarve are available to welcome you, providing a comfortable temporary home until you find the place of your dreams!
Please note that Guestready does not provide any sort of legal or tax advice. If you have more questions on these matters, feel free to contact Rita Botelho Moniz directly via Linkedin or via email, who will be happy to assist you.