How To Pay Zero Income Tax With Non-Habitual Residence in Portugal

Written by Andrew Henderson
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Updated: July 27, 2020

Dateline: Valencia, Spain

I don’t spend much of my time in Western Europe for a reason; but I’m currently in Spain and I just might visit Portugal in the coming days, as well.

It’s been almost seven years since I was last in Portugal and quite a bit has changed since then. Seven years ago, the US was only barely coming to grips with the Great Recession, Barack Obama had just been elected as a result of the financial collapse and Europe was not far behind in the global financial crisis.

Things weren’t looking too good.

In the time since I was last here, Portugal created its Golden Visa program in an effort to resurrect its economy. As a result, real estate in some areas almost doubled. Prices soared as investors from China came in droves to buy properties and, overall, the real estate market has largely been revived.

The Golden Visa Program still exists as an option for people who want an EU passport without having to do much work or needing to move anywhere. It just goes to show that when a country is pro-business and pro-investor, good things happen — even if they do it out of desperation.

Next door here in Spain, they have their own Golden Visa program, but it is nowhere nearly as attractive and no one does it unless they’re already buying property here.

In fact, we’ve spoken before about why residency in Spain is unattractive. It’s the same issue that the majority of EU residency programs have: when you get a residency in most EU countries, they’ll often want you to live there … and, when you live there, you’re taxed, and not just on your local income, but on your worldwide income.

So, for Americans and Australians and others like them who are trying to get their second passport while improving their tax situation, it’s a tough location for planting flags.

However, there are one or two countries in the EU where you can get a passport and enjoy certain tax benefits on your worldwide income as an entrepreneur. 

Portugal is one of those rare exceptions.

Portugal’s Non-Habitual Resident Tax Regime

Portugal has what is called a non-habitual residence (NHR) tax regime. In effect, it is a program that allows qualifying individuals the opportunity to become tax residents of a “white-listed” jurisdiction and still legally eliminate their taxes on most foreign-source income.

The tax residency is good for 10 years and does not come with the typical obligation that you visit or live in Portugal part of the year to maintain your tax resident status there.

The biggest draw of the program is the opportunity to reduce your income tax to zero.

This is possible, in part, due to Portugal’s 71 double taxation treaties. According to the regime, as long as the source country of your income has the power to tax your income (regardless of whether or not they actually apply the tax), Portugal will not tax your foreign-sourced income.

The list of income sources that will not be taxed under this set-up includes foreign-source self-employment, royalties, eligible occupations,  dividends, capital gains, and investment or rental income. 

However, under the recently amended law, pensions remitted to Portugal are now taxed at 10%, even if you are a non-habitual tax resident. While less beneficial than zero tax, a 10% tax on foreign pension income is still lower than that charged in many other countries and is a significant reduction on the usual Portuguese income tax rates ranging from 14.5% to 48%. 

It is important to note that capital gains from the sale of securities will be taxed (provided that it comes from Portuguese sources), as will income sourced from any blacklisted tax haven that does not have a double tax treaty with Portugal.

Finally, if you happen to have Portugal-sourced income, it will be taxed at a flat rate of 20%.

How Can I Get Non-Habitual Residence in Portugal?

To qualify for the non-habitual residence program, you must either be a citizen or a resident of Portugal. Residency can be achieved through the Golden Visa program. 

In both cases, you cannot have been a tax resident in Portugal at least five years prior to your application to become a non-habitual resident.

You become a tax resident either by spending 183 days or more per year in Portugal or by establishing a “place of abode” there (purchased or rented) that you intend to keep and occupy habitually.

In order to own or rent a property in Portugal, you will need a Portuguese taxpayer’s number. The Portuguese tax number is provided by a local tax office upon presentation of the required documentation.

Once you obtain Portuguese residence, you have until March 31st of the following year to apply for your NHR status. To apply, all you have to do is fill out a request and supply an official document stating that you were not a tax resident of Portugal in the five years previous to your arrival.

If tax authorities have doubts about your claim, they will demand further documentation to prove your prior residence. If not, the process really is that simple.

As mentioned before, though, you must be a resident in order to apply, but you do not have to live in Portugal for any period of time after obtaining your NHR status. You can even break your tax resident status for more than a year and still maintain your non-habitual residence.

To learn more about the utility of having a tax residence, you can read our article on, What is Tax Residence and Why Does it Matter?

Is Portugal’s NHR Tax Scheme A Good Option?

This program is a good opportunity for those who want to live in Europe but don’t want the residency obligations that force you into becoming a tax resident in a country where you are taxed on your worldwide income.

This is especially beneficial for someone looking to get European citizenship and the tax strategies available to citizens of countries with residential-based taxation without having to pay taxes during the time they must spend in the country to qualify for naturalization

And it doesn’t hurt that Portugal has a powerful passport.

While Portugal began both its Golden Visa and non-habitual residence programs in the crux of the global financial crisis, the effects of being pro-business have been a boon to the Portuguese economy and have a good chance of being available in the coming years.

Even so, you shouldn’t design your offshore plan with the hope that such a program will be available at some vague future date when necessity hits or you finally get around to doing it.

As we have already seen with the new 10% tax on pensions, nothing stays tax-free forever, at least not in Europe. 

All the more reason to take action now.

If this sounds like your opportunity, don’t wait forever before you decide to act.

Andrew Henderson
Last updated: Aug 4, 2020 at 1:53AM

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28 Comments

  1. jerry kearns

    For a US retiree, NHR isn’t as great a deal as has sometimes been presented: Pension income will be taxed in the US, even if it is not taxed in Portugal. And, not sure about this, but capital gains from sale of securities are taxable in the country of residence, which is a flat rate of 28% in Portugal.

    Reply
    • Ted Tax

      If you are a US citizen, you’ll have to pay Uncle Sam on your world wide income. No matter where you live.

      Reply
      • Mandy

        Just self employment taxes, as long as you qualify, which is pretty easy.

        Reply
    • Alexander Santos

      Correct. Only if you had another nationality and would give up your american citizenship you could take real advantage out of the NHR program.
      regards,

      Reply
  2. Ed R

    Thank you for a very informative article! It seems like, as I had hoped that if I get Portuguese citizenship secured first, through marriage (without even living there) then I can apply for NHR, as long as I do it in the right timeframe.

    Reply
  3. Shawn

    Thanks for sharing that important detail Lasse. I’ve also been looking into the NHR program, and I’m surprised none of the other sites mention that.. If that is indeed the case, that makes the NHR program far less attractive…

    Do you know how it’s calculated with regards to the NHR’s 20% income tax rate? Are the two rates cumulative, or offset against each other?

    Reply
  4. Antony Antony

    What about “high added value activities of a scientific, artistic or technical nature”? Apparently not exactly everyone is entitled to NHR status; you need to have a very specific set of skills or college degrees in order to qualify and I didn’t see many options available for the typical run-of-the-mill internet entrepreneur or e-commerce store owner such as myself.. What’s your thought on that Andrew?

    Reply
  5. Ur

    Hi Andrew – I read today that t qualify for a NHR you do need to physically be at least 183 in Portugal, and thus will become a tax resident. I extracted the below from a legal firm website:

    “To qualify for the NHTR status, an individual must meet the following criteria:

     The individual must become a Portuguese tax resident;

    Reply
  6. david lodge

    You say the NHR scheme is open to Portuguese returning home after 5 years away and Golden Visa investors, it is also available to other EU Citizens who simply register with their local governement office….

    Far more French than Chinese have moved here. Talking to Chinese buyers here I’d estimate half of them dont live here and of the other half only a small % apply for NHR.

    Golden Visa and NHR had 2 different objectives. GV to stimulate property market, NHR to grow the population and stimulate spending. Both have acheived their purpose so far.

    Reply
  7. Michele McGaughey

    Could you please advise.My husband and I bought a property in Tavira in October 2016, we have Fiscal numbers and have 5 year tax residency until November 2022. We do not earn any money in Portugal from either investments or employment and our pensions are paid into our U.K. bank accounts. Do we need to submit a tax form this year if so how do we go about it.

    Reply
  8. Cale Oldman

    I’m an Aussie working internationally in Kazakhstan for the next 5-10 years. My wife has an Italian father so she should be able to get a European visa quiet easily, and i can get mine through our marriage. I am definitely looking at moving closer to the job and Portugal sounds exactly like where i should be going to capitalize on the tax exemptions. The ATO are greedy bastards. I’m looking at purchasing a property there but not wanting to spend the 500k euros, only 250 – 300. I should still be able to get residency there easily enough though? What your thoughts?

    Reply
  9. ottavio

    The point with the “183 days”.. is not that Portugal makes it a pre-condition for NHR status, but that if you are seldom in Portugal.. and plenty time in another country.. that country might decide to consider you a tax resident irrespective of what Portugal might state. Formally, one can be tax resident in Portugal even by spending 1 or 0 days there, just by having available lodging. The risk.. is to be “double resident”.
    For non EU citizens, there is no legal requirement of “golden visa”.. but in practice it is faster.

    Reply
  10. sylvie d.

    Hi Andrew,

    Can you let me know for canadians, wil we pay income tax in canada if we move to portugal and apply to nhr?

    Reply
      • Dom

        Is there a form for women as well, this one seems to be for “guys” only.

        Reply
  11. P Dearie

    After reading the comments about US residents retiring here I’m a little confused. We’re looking to move to Portugal from the USA next year. I will have social security retirement income and income from my IRA investments. Will both these be taxed in the NHR program?

    Reply
  12. Jeff Stewart

    Hi I’m an expat resident in South Africa and would like to spend most of the time in Portugal from 2019 is there any thing I should do before Brexit happens at the end of March? Should I get a residency permit in place now in case my EU passport is nullified through Brexit?

    Reply
  13. Andy

    Can you apply for the Portugal NHR programme after living some time in Germany under the Blue Card after 18months or after 3 years and receiving a permit for continual residence in EU?

    Reply
  14. Ozioma Egwuonwu

    Does this apply to Resident as a Student?

    Reply
  15. Maxime

    I have difficulties understanding how one can get income from a “foreign-source self-employment” that is not taxed in that other country (assuming having acquired the NHR status). Can you give a realistic example? I presume invoicing from a self-employed freelance status to countries other than Portugal does not qualify as “foreign-source self-employment”?

    Reply
  16. Mark

    Thanks for the great info. Quick question: if I get the golden visa does it make me a tax resident if I only stay there let’s say a week?

    The words “resident” and “tax resident” seem in many articles to get interchanged.

    In other words, is it possible to have a golden visa and not be a tax resident by not being in Portugal too many days and not having a permanent abode ?

    Reply
  17. tunders

    Did you find out about this, is invoicing to other countries all that’s needed or is it more complicated?

    Reply
  18. tunders

    Why wouldn’t ”typical run of the mill internet entrepreneur” count if ”web portals” and internet stuff are mentioned as among the list of professions exempted form foreign tax and at 20% domestic?

    Reply
  19. tunders

    I can tell you one thing, it certainly is more complicated with CFC and if it’s a corporation, but I haven’t found details and clarity about this if it’s just self-employment.

    Reply
  20. maria

    Hello,

    thank you for this. I was wondering if is possible to apply for citizenship after holding a Non-habitual residency permit?

    Cheers.

    Reply
  21. Steve

    Hi

    I am a UK citizen employed by UK company but looking to work remotely in Portugal as my wife is Portuguese.

    I am looking at the NHR status and wondering if my profession (Telecommunications Analyst) is one of the categories which would allow my UK salary to be exempt from Taxation in Portugal as it is not specifically stated but assume it may fall under one of the IT categories?

    Aware there is double taxation treaty and if my income were to be tax exempt in PT I could claim tax back from the UK annually.

    Many Thanks

    Reply
    • Qian

      Hi Steve, in terms of high value added activities under NHR scheme, indeed regarding foreign sourced employment/self employment income, all the advices I got are very muddy, I even looked at the legal document myself. I still haven’t see an example actually working using “high valued added activity’, most of the NHR scheme holders are pensioners or have dividend income, for which the rules are simpler and clear cut. Have you had any progress on this issue ? I had some advices saying the foreign salary will be exempted tax in Portugal if it is taxed at source. I guess it would be your case?

      Reply
  22. Lou Defrain

    Under NHR, will my US Social Security income be taxed in Portugal? Is there a change coming to NHR in March 2020?

    Thanks,
    Lou

    Reply

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