NHR Taxation of Non-habitual Tax Residents

This special tax regime was discontinued by the Portuguese government in 2023. However, under specific conditions, applications remain possible until the end of 2024. Details on these conditions can be found on Portugal’s Non-Habitual Resident (NHR) Tax Regime page.

Under this regime, the following taxation rules apply:

• Foreign-source self-employment or sole trader income derived from an eligible occupation (see below), royalties, capital gains and investment or rental income will be exempt from Portuguese tax as long as they may be taxed in the source country either under a double taxation agreement or under the OECD model tax convention.​ In addition, such income must not be deemed Portugal-sourced under applicable Portuguese law, and must not be sourced from a blacklisted tax haven.

• Foreign-source employment income will be exempt from Portuguese tax as long as it is liable to tax (at whatever rate) in the source country either under a double taxation treaty or under the OECD model tax convention, and is not deemed Portugal-sourced under applicable Portuguese law.

• Pension income will be liable to a 10% flat tax in Portugal, as long as deemed as not being Portuguese sourced income under the applicable Portuguese law.

• If your occupation is eligible, Portugal-source employment or self-employment / sole trader income will be taxed at a flat rate of 20%, while other Portugal-sourced types of income will be taxed at the normal rates applicable to resident taxpayers, the calculation of the applicable marginal tax rate taking into account all income, including exempt income. 

• In Portugal there is no wealth tax or capital duty, and an inheritance or a gift received by a spouse, descendant or ascendant is tax exempt. Inheritance or gifts received by other individuals will be either not taxable under territoriality rules, or else may be subject to a flat 10% stamp duty.
  

One interesting feature of this regime is that many double taxation treaties (of which Portugal signed 79) grant the source country the possibility of taxing income paid to residents of the other country, although in practice many countries abstain from using this possibility so as to attract foreign investment. This means that in practice many types of income will often be zero-taxed in the hands of the “non-habitual resident”, since Portugal will not tax them merely on account that they may be taxed in the other country.

Taking the UK/Portugal treaty and 2 types of income as an example, if you are a resident of Portugal but receive income from the UK, then, in respect of such income, the UK has the power to:

• Tax dividends under article 10, although it does not if the recipient is not a UK resident
• Tax royalties under article 12, although it does not if the recipient is not a UK resident

I.e. if you receive dividends or royalties from a UK company, such income may be subject to tax in the UK under the UK/Portugal agreement. As a consequence, although in practice it will not be taxed in the UK, it will not be taxed in Portugal either if you benefit from "non-habitual resident" status.

Capital gains deserve careful consideration. Under article 13, they are treated differently according to whether they originate from the disposal of immovable or movable property. While capital gains from the alienation of real estate may under the double taxation treaty be taxed in the country in which the property is located and will therefore be exempt in Portugal, capital gains from the alienation of other types of property (notably securities) are taxable only in the beneficiary's country of residence. As such, capital gains from the sale of securities will be subject to tax in Portugal, currently at a flat rate of 28%. Before becoming a non-habitual resident of Portugal, tax advice should therefore be taken by anyone who anticipates significant capital gains from the sale of securities.

This is, of course, only a superficial initial approach and it is recommend that you take proper tax advice in order to make sure all your circumstances are taken into account.