Dateline: Bogota, Colombia

Portugal is one of the countries in the European Union that can be cheaper than others. It’s a great country to get your tax residence in because its taxes are still not that low compared to other countries outside of the region. However, there’s a new taxation system called the NHR Portugal Tax Program.

You might just come to terms with the fact that this country could be a tax haven for you and your business.

Portugal Non Habitual Resident Tax Regime is the program’s known name, commonly referred to as NHR Portugal. It has been a great option for entrepreneurs and investors alike. Plus, this taxation policy allows them to set up their businesses in Portugal while receiving lower tax rates.

However, there are some things that you’ll have to consider before hopping onto the NHR Portugal’s bandwagon.

Dissecting the NHR Portugal’s Tax Regime

To some business owners, this new tax regime sounds like it has been sent from above. It can also be great for those who aim to obtain a second passport from Portugal.

There are so many great tax incentives that you may get if you qualify. Although, like most tax programs out there, there are cons too.

For starters, the NHR Portugal is indeed a broad tax incentive. Still, it does have a lot of varying implications. These implications apply to those who consider themselves pensioners, sole traders, company owners, or even those who get paid in royalties.

Even those who get different incomes may be subject to these taxes. This income can be in the form of a pension or the money you earn as a globally mobile freelancer. These are examples of what gets subjected to taxes under the NHR Portugal’s Tax Regime.

The thing is, you can get taxed at different levels. It can depend on what you do for a living or how much income you usually generate annually.

Not only that, but one entrepreneur may be eligible for this tax scheme, while the other may not. It’s quite temperamental in that sense, and it’s better to check various guides when it comes to this tax regime.

Who Qualifies for the NHR Portugal’s Tax Regime?

There are many misconceptions about who can qualify under the new NHR Portugal’s Tax Regime. But who can actually qualify under this new tax regime?

To give you a better background regarding the Portugal Non Habitual Resident Tax Regime, it’s a fiscal regime created by the Portuguese Government back in 2009.

They aimed to grant a 20% tax rate or a total exemption on the taxation of an expatriate’s income. Technically, these are people who choose to live in Portugal.

Meaning that if you select Portugal as your second country, you can qualify for this tax regime, right?

Since this NHR Portugal’s Tax Regime sounds like such a great taxation system, it can be great for those who aim to get tax residency in the country.

Although, as we’ve previously said, this is a bit of a temperamental tax regime. The expatriates who can qualify for this need not be tax residents in Portugal for the last five years.

Through the years, more than 20,000 people have qualified and benefitted from the NHR Portugal. It’s not just the retirees.

Naturally, there are certain criteria that each candidate must meet to be eligible for the Portugal Non Habitual Resident Tax Regime. Looking at the name itself, being a resident is one of those qualifications.

Misconceptions Surrounding the NHR Portugal’s Tax Regime

Let’s dive into the misconceptions surrounding the NHR Portugal’s Tax Regime. There are quite a few of them, actually. But we’ve chosen seven of the misconceptions that we think are the most popular and seven of the ones we think should be cleared up.

Some of the most common questions asked by hopeful candidates include the following:

  1. What’s the NHR status?
  2. How do you get an NHR status?
  3. What are the conditions attached to getting an NHR status?

These are simply some of the more popular questions. In this article, we aim to answer these questions by shedding light on the following misconceptions.

The Automated Registration for the NHR Portugal

One of the main misconceptions about this tax regime is that it’s automatically granted to those who want to come into the country and pay relatively lower taxes. This simply isn’t true.

Even if you’re already a resident in Portugal, you still need to register and file your NHR application. 

It isn’t automatically given to you, and you need to meet a few requirements to qualify that includes having the right to live in Portugal by being an EU/EEA/Swiss citizen through various immigration schemes like the Golden Visa Fund.

Also five years before taking up residence in Portugal, you don’t need to be a tax resident.

When registering for the NHR Portugal Tax Regime, you need to clearly state your intentions of why you want to fall under this tax category. Then you need to show your Portuguese Tax ID Number.

As great and appealing as the NHR Program sounds like, it still is a lot of work. It’s not something that you can just ask for because you think that you qualify for it.

The NHR Portugal Tax Regime is one of the most sought-after taxation policies in the European Union. It’s only natural that the Portuguese Government would do their best to ensure that only the most qualified candidates are approved.

Is Filing Your Tax Return Under the NHR Portugal Necessary?

Another misconception regarding the NHR Portugal Tax Regime is that you wouldn’t have to file your tax return once you qualify for this taxation policy. We’re here to debunk this myth because this is a completely false claim.

By the 30th of June in every calendar year, you need to file your tax return. There are some cases where you might owe nothing since you didn’t earn any income in Portugal, or you might owe a small amount because of your tax residency. It’s still a case-to-case basis, and what the Portuguese Government wants to see is that you took the initiative to file your annual tax return.

The thing with most countries in the European Union is that they have far greater tax incentives than countries like the United States. That’s a given.

However, the EU is not a paperwork-free country. You need to register and file the right paperwork for every single application you’re going for.

Although the thing that makes these applications worthy is that the EU offers better rates for their taxes. They just want to see action from those aiming to qualify for their tax or immigration schemes, which is completely normal if you’re in a country like Portugal.

Paying Zero Tax is Guaranteed

If your goal is to end up paying zero taxes, then we’re sorry to burst your bubble. The NHR Portugal Tax Regime isn’t going to help you with that.

This tax regime isn’t set up for residents to pay zero taxes, and it’s just not built like that. However, you might pay a relatively lower tax rate than those you’re paying in other legacy brand countries like the United States, Australia, or even the United Kingdom.

Most aspiring applicants need to bear in mind that the NHR Program in Portugal is a difficult process. You need to show a lot of paperwork to the country’s tax authorities, and you need to set up your company in a city approved by the government. There’s a lot of paperwork to be filled out.

If you’re used to living in tax haven countries like the Cayman Islands, Dubai, Vanuatu, Monaco, or others, then the due diligence process in Portugal might be a bit confusing.

The thing is that you’re not going to pay zero taxes in Portugal. You might pay quite a bit, at most. However, receiving Portugal’s Golden Visa, making you a permanent resident, doesn’t necessarily make you a tax resident of the country.

You could be a citizen of a country, yet fall under the jurisdiction of another country when it comes to paying taxes, making you a tax resident in said other country. So even if you’re not paying any taxes in Portugal, you still have to settle your taxes in the other country where you’re a tax resident. 

Handling your tax residences and tax responsibilities in various countries with different jurisdictions can be quite challenging. This is why you need to seek professional help, and this is where we can come in. Do you want to know your potential tax residency options? Consult our experts to help you where you need to be here.

Citizens of the United States Will Find An Easier Path to the NHR Portugal

Some people claim that citizens of the United States have an easier way of being granted into the NHR Portugal’s Tax Regime. Let’s be clear and debunk this myth as early as now.

This simply isn’t true, and on the contrary, there are so many things that you’ll have to consider.

If you’re a citizen of the US, then you have tax obligations in that country. This is something that you can’t run away from, no matter how hefty these taxes are. But is there a way to avoid paying income tax to the United States Government?

There’s also a possibility that you’ll have to go back and forth between the United States and Portugal. Although, there’s a tax treaty that can make your life a bit easier.

It doesn’t matter what nationality you hold because Europe will always need more action from those who want to immigrate or expatriate to their shores. You’ll have to create a more robust foreign policy structure when handling and incorporating your business inside the European Union. It’s not always easy, but the tax incentives are always quite worth it.

You have to bear in mind that it’s always a bit easier to cut your ties with any other countries that you’re a tax resident of. It might also be a good idea to renounce or give up your citizenship. But that’s not something that you do if all you care about is paying less in taxes. That’s not something that we would recommend.

There are ways to work around this, but you’ll have to weigh all your options.

The NHR Portugal is Equivalent to a Residence Permit

One of the main things that confuse people is that the NHR Portugal’s Tax Regime can be equivalent to a residence permit. This isn’t true.

Let’s take a look at what happened in Estonia. The country offers an e-Residency, with which most people can open bank accounts. But this is just a card, and it doesn’t give the cardholder any kind of immigration status in Estonia. It’s simply a card, and it’s as simple as that.

When it comes to Portugal’s NHR Tax Regime, you get the NHR status and the immigration status if you apply for your residency using immigration schemes like the Golden Visa Fund. Although, it’s not equivalent to a residence permit.

Most people forget that there are varying levels of differences when it comes to tax residency, immigration, and citizenship. Being granted an NHR status simply means that you have tax residency in Portugal, and you can pay your taxes while getting other types of tax incentives in Portugal alone.

It’s the Same Thing as Portuguese Citizenship

As we’ve mentioned above, being granted an NHR status doesn’t automatically mean that you’ll be given citizenship in Portugal.

Your permanent residence, citizenship, and tax residence are all very different things. All three things might be under other countries, and it can be quite confusing if all three are under various jurisdictions.

Although, if you’re pairing your NHR status with your immigration status as a Golden Visa recipient, then that can eventually lead you to obtain Portuguese citizenship in the future. Naturally, you’ll need to spend some time in the country and learn the language. This is what gets you citizenship and not your NHR status.

Can Portuguese Citizens Qualify for The NHR Portugal Tax Regime

This is a bit of a gray area when it comes to the whole Portugal NHR Tax Regime.

Mainly, the government states that you need to be out of Portugal for the last five years to qualify. This means that all your taxes and such are paid in a completely different country. So if you’re a Portuguese citizen who has been out of the country for the last five years, then you can probably qualify for the NHR Program Portugal.

So no matter what your citizenship is, you can apply for NHR Portugal if you can prove that you’ve been outside of Portugal for the last five years.

Pros and Cons of the NHR Portugal Tax Regime

As confusing as it may seem, many benefits are brought alongside an NHR status. There are countless tax incentives that you can receive, especially if you’re trying to incorporate or set up your business in a city approved by the tax authorities.

Portugal is still one of the most sought-after countries in the European Union, and taxation policies like this make it more preferable than most of its counterparts like Spain or Italy.

Here at Nomad Capitalist, we always encourage our clients and readers to go where you’re treated best. Maybe it’s time that you check out the NHR Portugal. After all, what’s there to lose?

Nomad Tax Team
Last updated: Oct 26, 2021 at 12:50PM