Portugal?s Non Habitual Residents Scheme – Tax Advantages For New Residents

05.07.13

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

New arrivals in Portugal may be able to benefit from its Non Habitual Residents – “residentes não habituais” – scheme, which offers substantial tax exemptions for your first 10 years of residence…

New arrivals in Portugal may be able to benefit from its Non Habitual Residents – “residentes não habituais” – scheme, which offers substantial tax exemptions for your first 10 years of residence. This scheme is open to workers as well as retirees who could potentially find their foreign pension income is tax free.

To qualify, you must not have been a tax resident of Portugal in any of the previous five tax years. You register for the scheme with the tax authorities and, once accepted, remain within the scheme for the next 10 years provided you continue to meet Portugal’s tax residency criteria.

Income arising in Portugal

Whilst the current top rate of income tax is 48%, under the Non Habitual Residents scheme you can opt for a special tax rate of 20% if your employment/self-employment income is derived from a “high value-added activity”.

These activities include, among others, architects, fiscal consultants, medical professionals, computer programmers, artists, musicians, and investors, administrators, managers and directors of companies involved in the listed sector.

Income arising outside Portugal

The scheme provides for tax exemptions (with progression) for foreign source income, provided certain conditions are met. These relate to whether the foreign income is, or could be, taxed in the state of source.

Under the scheme, foreign pension income is exempt from Portuguese tax, provided it is taxed in another country under the terms of the double tax treaty, or is not regarded as Portuguese source income under domestic legislation. In practice, it may be excluded from taxation in both Portugal and the source country.

Investment income (dividends, interest) is exempt from tax in Portugal, provided it may be taxed in the state of source under a double tax treaty, or it may be taxed under the terms of the OECD Model Tax Convention and is not regarded as arising from a Portugal source. This excludes income generated in a blacklisted tax haven (including the Isle of Man, Channel Islands and Gibraltar).

While the scheme can offer significant tax benefits, it is complex and has pros and cons. It is important to take professional personalised advice to establish if it would be advantageous for you.

There are other ways to legitimately reduce your tax liabilities on your investment and pension income in Portugal, if you take expert advice from Blevins Franks.

14 June 2013

Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should take personalised advice.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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