Portugal's Non-Habitual Resident Tax Regime

Nuno Albuquerque e Mariana Boçon | N-Advogados

In 2009, the tax regime for non-habitual residents was established in Portugal, with the objective of attracting qualified non-resident professionals to the country with high added value activities. or intellectual, industrial property or know-how, as well as beneficiaries of pensions obtained abroad.

  • The attraction of this regime to foreign citizens, as is the case of Brazilian citizens, comes from the possibility of:

  • application of an exemption method to eliminate international double taxation of income obtained from a foreign source;

  • mitigated and proportional taxation of income obtained abroad as a pension, as well as certain income from dependent and independent work (including those obtained in Portugal).

Tax benefits

  • On income earned in Portuguese territory


Income from categories A (dependent work) and B (independent work) from Portuguese sources, which are earned in activities of high added value, with a scientific, artistic or technical character, by non-habitual residents in Portuguese territory, are taxed at a special rate 20%.


This mitigated and proportional taxation is levied on income arising from activities established under the terms of Ordinance No. 230/2019, of 23 July, which amended Ordinance No. 12/2010, of 7 January, having replaced the underlying previous table of high added value activities based on the codes of economic activities (CAE), adopting a model based on codes of the Portuguese Classification of Professions (CPP).


Under the terms of said ordinance, for the purposes of applying the special rate for the non-habitual resident regime, are considered activities of high added value with a scientific, artistic or technical character some of the following (see full list here):

  • Managing director and executive manager of companies;

  • Directors of hotels, restaurants, commerce and other services;

  • Specialists in physical sciences, mathematics, engineering and related techniques;

  • Doctors, dentists and stomatologists;

  • Professor of university and higher education;

  • Specialists in information and communication technologies;

  • Authors, journalists and linguists;

  • Creative and performing arts artists;

  • Farmers and skilled workers in agriculture and animal production, oriented to the market


Skilled workers in industry, construction and craftsmen are also considered, including in particular skilled workers in metallurgy, metalworking, food processing, wood, clothing, handicrafts, printing, manufacturing precision instruments, jewellers, artisans, electricity and electronics workers, as well as plant and machine operators and assembly workers, including fixed plant and machine operators.


In addition to the change in the table of activities with high added value, a requirement was introduced for workers in these professional activities to hold at least level 4 qualifications in the European Qualifications Framework, level 35 of the International Standard Classification of Education or hold five years of duly proven professional experience.


  • On income earned in foreign territory

In the initial forecast of the non-habitual resident regime, category H income (pensions - when they are originated in contributions) obtained abroad by non-habitual residents in Portuguese territory were totally exempt from taxation in Portugal.


However, under the State Budget Law of 2020, this total exemption was eliminated, and taxation was established at the rate of 10% of pension income obtained abroad by non-habitual residents in Portuguese territory.


On the other hand, the habitual resident regime also provides exemption from taxation on income earned abroad as a result of dependent and independent work (from services with high added value, with a scientific, artistic or technical character, or from intellectual property), when:

  • the income is taxed in the State of origin of the income, in accordance with the convention to eliminate double taxation signed by Portugal with that State[1], or;

  • such income is taxed in another State with which Portugal has not entered into any convention to eliminate double taxation, provided that the income is not considered to be obtained in Portuguese territory by the criteria of article 18 of the IRS Code.

  • Non-habitual residents will also be entitled to a tax credit for international legal double taxation, deductible up to the limit of the applicable special rates and, in the cases of aggregation, up to competition from the share of the collection proportional to such net income.


Regime Duration


In this way, foreign citizens who obtain the status of non-habitual resident acquire the right to be taxed as such in the period of 10 (ten) consecutive years starting from the year, inclusive, of their registration as a resident in Portuguese territory, provided that in each of these 10 years is considered a resident in Portugal.


This10-year period is non-extendable and in cases where the citizen has not enjoyed the right to be taxed under the tax regime established for non-habitual residents in one or more years of that 10-year period, it can retake the right in any of the remaining years of that period, as long as the citizen is considered a resident there again.



How to acquire the Non-Habitual Resident Status in Portugal?


Citizens who fulfil the following conditions may apply for registration as non-habitual residents:

  1. have not been considered a resident in Portuguese territory in any of the five years prior to the year for which the citizen intends to apply for non-habitual resident status;

  2. be considered, for tax purposes, resident in Portuguese territory, according to any of the criteria established in paragraph 1 of article 16 of the IRS Code (CIRS) in the year for which intends to start taxation as a non-habitual resident, i.e.:

  • have stayed in Portugal more than 183 days, consecutive or interpolated, in any 12-month period beginning or ending in the year in question;

  • or having stayed for a shorter time, have there, on any day of the period referred to in the previous paragraph, housing in conditions that make it presuppose the current intention to maintain and occupy it as habitual residence;


Therefore, foreign citizens must submit an application for registration, electronically, on the Finance Portal, after the act of registration as a resident in Portuguese territory and until March 31, inclusive, of the year following the year in which they become resident in that territory.


In this respect, it is important to bear in mind that the changes introduced by the State Budget Law for 2020 will not apply to taxable persons who are considered residents in Portugal for tax purposes and who request registration as a non-habitual resident until March 31, 2021, for meeting the respective conditions in 2020.

[1] This is what happens between Portugal and Brazil, which signed on 16 May 2000 the “Convention between the Portuguese Republic and the Federative Republic of Brazil aimed at avoiding double taxation and preventing tax evasion in terms of income taxes”, available at:https://www.ministeriopublico.pt/instrumento/convencao-entre-republica-portuguesa-e-republica-federativa-do-brasil-destinada-evita-21.

N-Advogados

Nuno Albuquerque e Mariana Boçon

nunoalbuquerque@nadv.pt


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