Tax in Portugal
: The basics
The Portuguese tax year follows the calendar year and ends on the December 31st.
If you are moving to Portugal you are required to register as a tax payer before you embark on any paid activity in Portugal. You need to register to become a tax payer which requires you to obtain an NIF (Numero de Identicacao Fiscal) which can be requested from a local tax office.
Portuguese tax residents, including expats, are required to submit an annual income
tax return early in the following year. The deadline for submitting your Portuguese income
tax annual return is between 1st April and 30th June of the calendar year following the end of the previous tax year.
For example, income received between 1st January 2018 and 31st December 2018 will need to have submitted their tax return by 30th June 2019.
Am I a Portuguese tax resident?
At a basic level, the rules for becoming a Portuguese tax resident are relatively straight forward.
The simplest approach is that if you are in Portugal for 183 or more days in a single
calendar year, you will typically be classed as a Portuguese tax resident. However a number of other factors may also see you deemed as a tax resident including:
You have a permanent residence in Portugal on December 31st in that tax year
If the head
of your household is a tax resident in Portugal
If you are part of the crew on a ship, yacht or aircraft which is owned by a Portuguese entity
If you work
for the Portuguese state, regardless of the country you work
Portuguese Income Tax
If you are classed as a tax resident, your worldwide income is subject to Portuguese income tax. This income could include salary, rental income and capital gains.
Portugal has various tax treaties with other countries, including a tax treaty with the UK, which ensures that you should not have to pay tax more than once on any income in multiple jurisdictions. The typical arrangement is a tax credit against what would be your tax owed Portugal for the amount of tax paid in the foreign country with the double taxation treaty for the foreign sourced income.
If you are a non-resident in Portugal, only income earned in Portugal will be liable for tax, typically at 20%. However, lower tax rates exist for income received from property.
Portuguese tax for non-habitual tax residents
In an effort to attract leading talent and also high net worth individuals, the Portuguese tax system has a favourable tax system for non-habitual tax residents.
The non-habitual residence (NHR) tax regime was introduced in 2009 and can provide tax benefits for an individual in their first ten years of residence in Portugal.
For non-habitual residents, the flat rate of 20% is applied to income received, regardless of the level of income. The current
highest income tax band in Portugal charges 48% tax on income, which is a massive difference.
Aside from the flat rate 20% income tax, there is a reduced or deferred tax rate on dividends or other income from investments and in some cases the income may be exempt from tax.
There is also no inheritance tax, gift tax or wealth tax in Portugal for non-habitual residents. There is inheritance tax on tax residents.
For people with pensions there is beneficial tax treatment for income received from pensions and other life insurance
To qualify for the non-habitual resident status you must not have been a tax resident in Portugal for any of the previous five tax years. You also need to meet the criteria for being a tax resident in the year of application the simplest way of achieving this is to be present in Portugal for more than 183 days. Finally, you need to apply via the Portuguese tax authorities (and, of course, you need to be approved).
Since 2009 and the introduction
of the Non-Habitual Residence (NHR) tax regime, Portuguese authorities have been enticing wealthy individuals and families to relocate to Portugal using significantly beneficial tax treatment for the first ten years that they live in Portugal.
While this may sound like the preserve of the uber-rich, this isnt necessarily the case and is a tax system which is open to those currently in certain types employment
as well as retirees who either live, or are planning to live, on an income from pension from outside Portugal.
What is Non-Habitual Residency status?
The Non-Habitual Residence status was introduced in Portugal to offer people a legitimate way for people to earn, save and invest in a jurisdiction without paying tax on things like inheritance, the disposal of assets and pension income. Being granted NHR status ensures that, for ten years, people who are tax resident in Portugal (and accepted for Non-Habitual Residence status) can essentially receive certain incomes free of tax both in Portugal and in the country of the income source.
The Non-Habitual Residence regime could be especially beneficial for retirees as income which is received from pensions overseas is not taxed in Portugal on the basis that it has normally be taxed at source (i.e. the location of the pension). By way of example, in the OP's case taxable in Germany since that is the source country of the pension income.
Non-habitual residence status also means that people living, working and receiving an income in Portugal are subject to only 20% of their entire Portuguese based income, and also means that they can potentially claim 25% of this tax as a cost for acquiring their income. This could effectively bring the effective rate of income tax down to a NET of just 15%.
Applying for Non-Habitual Residence status
If an individual wants to apply for Non-Habitual Residence status, there are a number of requirements which must be met as a minimum, including:
You must not have been resident in Portugal for the previous five tax years
You must be physically resident in Portugal
You must also be resident in Portugal
When applying, you must be a tax resident in Portugal
You must own (or rent) a property in Portugal
While the process, provided it is executed correctly, can be relatively straightforward it can often take a fair amount of time. To maximise your chances of becoming a Non-Habitual Resident, it is vital that you seek expert advice at the beginning of the process.
What foreign income is considered exempt from tax in Portugal through the Non-Habitual Residence Status?
There are a number of foreign income sources which would be exempt from tax, both at source through tax exemption double treaties, and in Portugal. These include income from:
Foreign pensions, including private and personal pensions in the UK. While the pension income may be taxed at source, it may also be possible to transfer the pension to a jurisdiction which means tax is also not deducted at source.
Investment income, such as dividends and capital gains and rental income. Royalties which are received in another country may also be exempt under a Non-Habitual Residence status.
Income from foreign employment
, provided it is taxed at source under double tax treaty agreements.
In all cases, it is vital that the income is not received, or deemed to be originating from any Portuguese source.
Tax on income from employment in Portugal
The Non-Habitual Residence status in Portugal also offers tax benefits to people who are planning to live and work in Portugal. If you are considered as working in a "high added value" profession, you may be able to take advantage of a tax rate of 20% of any income generated from Portugal.
There are a number of professions which are eligible, centred around activities which could be considered scientific, artistic or technical in nature.
This means that you may be able to benefit from becoming non-habitually resident in Portugal if you are any of the following:
Architects or engineers
Actor, fine artist or musician
Doctor or dentist
Teacher or lecturer
How do you apply for Non-Habitual Residence status?
While not every application for Non-Habitual Residence status will be successful, the process does not take long and, providing it is handled correctly, can even be achieved within weeks of the original application.
The key to remaining eligible and maximising your chances of success is to speak to someone who is an expert in understanding the eligibility criteria and has experience of assisting people through the process.
It is important to remember that your behaviour, including buying
a property in Portugal, will all have a bearing on whether you are able to become Non-Habitually Resident in Portugal.
3 - What types of income are eligible for exemption under NHR regime?
Foreign-sourced passive income (interest, dividends, certain royalties, other income from capital, capital gains and income from immovable property) derived by NHR is exempt (without progression except in the case of capital gains on real estate) in Portugal, provided that it is potentially liable to taxation in the source State (i) under the rules of an existing Double Tax Treaty (DTT) or (ii) in the absence thereof, under the rules of the OECD Model Tax Convention if such income is not deemed to arise from a State, region or territory included in the Portuguese tax havens blacklist nor from a Portuguese source under the IRS Code territoriality rules.
Foreign-sourced income from pensions is IRS exempt (with progression) if not deemed to arise from a Portuguese source under the IRS Code territoriality rules.
Foreign-sourced employment income is IRS exempt (with progression), provided that it is effectively taxed in the source State (i) under the rules of a DTT or in, the absence thereof, (ii) of the OECD Model Tax Convention, as long as such income is not deemed to arise from a Portuguese source under the IRS Code territoriality rules.
Foreign-sourced employment income is IRS exempt (without progression) in Portugal, provided that it is income derived from high value added activities of a scientific, artistic or technical nature and it is effectively taxed in the source State (i) under the rules of a DTT or in, the absence thereof, (ii) of the OECD Model Tax Convention, as long as such income is not deemed to arise from a Portuguese source under the IRS Code territoriality rules.
Foreign-sourced income from independent personal services is IRS exempt (without progression) in Portugal, provided that it derives from high value added activities of a scientific, artistic or technical nature, as defined by Ministerial Order, and is potentially liable to taxation in the source State (i) under the rules of an existing DTT or (ii) in the absence thereof, under the rules of the OECD Model Tax Convention, if such income is not deemed to arise from a State, region or territory included in the Portuguese tax havens blacklist nor from a Portuguese source under the IRS Code territoriality rules.
4 - What types of income are eligible for reduced rates under NHR regime?
Income deriving from employment or independent personal services of a domestic or foreign source but not qualifying for the mentioned exemptions will be liable to autonomous taxation at a special 20% flat rate and not to the general and progressive IRS rates (currently of up to 53% for yearly taxable income above 250.000), provided that it derives from high value added activities of a scientific, artistic or technical nature.
5 - What are considered high value added activities of a scientific, artistic or technical nature?
Ministerial Order no. 12/2010, of January 7, defined the high value added activities of a scientific, artistic or technical nature qualifying for the regime. It encompasses a wide range of professions and activities, as follows:
1 - Architects, engineers and similar technicians:
2 - Visual artists, actors and musicians:
201 Theater, ballet, film, radio
and television Artists
302 Tax Consultants
4 - Doctors and dentists:
402 Analyst Doctors
404 Board doctors in ships
405 General Practitioners
407 Dentist Doctors
405 Doctors in other specialties
5 - Teachers:
501 University professors
6 - Psychologists:
7 - Professional services, technicians and similar:
702 Biologists and experts in life sciences
703 Computer Programmers
consultancy and activities related to information technology and information technology
705 Computer programming activities
706 Computer consultancy activities
707 Management and operation of computer equipment
708 Activities of information services
709 Activities of data processing, hosting information and related activities/Web portals
710 Activities of data processing, hosting information and related activities
711 Other information service
712 Activities of news agencies
713 Other information service
714 Scientific research
and development of science physical and natural
716 Research and development in biotechnology
8 - Investors, administrators and managers:
801 Investors, administrators and managers of companies promoting productive investment, if allocated to eligible projects under tax benefits contracts awarded under the Tax Code for Investment, approved by Decree-Law No. 249/2009, of 23 September
802 Senior employees of companies
6 - Who may apply for the NHR regime?
Individuals who become resident for tax purposes in Portugal without having been so in the previous five years.
7 - How do I acquire tax residence in Portugal?
Staying for more than 183 days in the Portuguese territory, whether these days are consecutive or not, in any 12-month period beginning or ending in a given tax year;
If staying for a shorter period, having in the Portuguese territory, on any day of the period referred above, a dwelling under circumstances that lead to the presumption of an intention to hold and occupy it as a place of habitual abode;
Being, on December 31st, a crew member
of a ship or aircraft at the service of an entity with residence, head
office or effective management in Portugal.
8 - What is the procedure to register as tax resident in Portugal?
Registering as a tax resident in Portugal is a requirement to obtain the non-habitual resident status, which means that those wishing to apply for the regime generally must:
i. register as non-resident taxpayers;
ii. obtain residence permits (for non-EU nationals) and residence certificates (for EU nationals);
iii. register as tax residents; and
iv. only then apply for the non-habitual resident status.
9 - How do I apply for the NHR status?
An application must be submitted until March 31st of the tax year following that in which Portuguese tax residence is acquired. This application is addressed to the Director of the Taxable Persons Registration
Service (Serviηos de Registo de Contribuintes). Moreover, individuals must submit a statement whereby they solemnly declare that they have not fulfilled the criteria necessary for being considered a Portuguese tax resident during the preceding five year. From August 2nd, 2016 onwards, the application and submission of the statement is done through the tax authorities website.
15 - Am I required to provide proof of Portuguese tax residence?
As explained in FAQ #7 above there is more than one way to acquire Portuguese tax residence. The 184-day rule
is not mandatory as long as one has, in the Portuguese territory, a dwelling under circumstances that lead to the presumption of an intention to hold and occupy it as a place of habitual abode. The Portuguese tax residence, in principle, will not be challenged by the Portuguese Tax Authorities. However, it could be challenged by an income source State, especially if one spends time in that State. In this regard, a number of precautions are advisable: a) keeping a calendar that tracks ones days of stay in Portugal and in other countries; b) avoiding short-term rentals and frequent address changes within the Portuguese territory from the moment one becomes a tax resident herein; c) ask for invoices with the Portuguese tax number (NIF) on a recurring basis when one acquires products/services in Portugal. The latter will allow the individual (i) to better prove his/her effective presence in Portugal, if challenged, (ii) to benefit from certain deductions on the Portuguese tax assessment, if he/she has taxable income at standard tax rates, and (iii) also make him/her eligible for a State lottery!