Portugal’s Non-Habitual Resident Tax Regime – What to Know

As of January 2024, Portugal’s NHR program officially came to an end. While some people are still able to utilise the program, you cannot apply for NHR status in Portugal any longer unless you qualify for NHR 2.0, which has different and more difficult criteria to meet.

Portugal’s Non-Habitual Resident (NRH) tax regime has gotten much attention over the past few years. For foreign residents, it’s been a way for people to enjoy life in the sun and pay relatively little, even zero, taxes in Portugal. 

However, there are a few assumptions that are important to tackle. For one, Portugal is not a tax haven; it is a place where if you’re used to paying taxes, you can pay less. 

That’s just one of the common misconceptions, though. Another? Not everybody qualifies for NHR status, and many people move to Portugal assuming they’ll snag that oh-so alluring 20% tax rate only to find out their professional activity disqualifies them from such benefits.

Confused? You’re not alone. Our specialists at Nomad Capitalist speak to clients every day interested in learning about Portugal’s Non-Habitual Tax Regime.

So, we’ve created this guide to help you understand some of the practical concerns and help you decide if the Portugal NRH is the right option for you. 

However, this is not intended to be professional tax advice that’s tailored to your situation. If you’re looking for bespoke tax planning and asset protection strategies, feel free to reach out here. 

So, here’s what you’ll need to consider before hopping on Portugal’s NRH bandwagon.

Is the NHR Ending?

The NHR program in Portugal officially ended for new applicants as of January 2024. 

However, while the scheme is closing, there is a transitional period throughout 2024 for those who can prove they had started the process or had plans to relocate to Portugal before the cutoff.

Expats who already hold NHR status will continue to enjoy its benefits until their 10-year period ends. 

After the NHR fully comes to a close, an alternative program may be introduced, but we expect its benefits to be less generous.

Read on to find out more about how the NHR program did work and what you might need to know if you are still able to benefit from Portugal’s NHR.

Dissecting Portugal’s NHR 

There are some good tax incentives in Portugal that you may get if you qualify. Although, like most tax programs out there, there are complications. 

For starters, the implications vary depending on your status – whether you’re a pensioner, sole trader, company owner, or get paid in royalties. 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 is important to check carefully when it comes to availing of this tax regime.

Portugal NHR Requirements: Who Qualifies?

This fiscal regime was 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. More than 20,000 people have qualified and benefitted from the NHR Portugal. It’s not just the retirees.

If you select Portugal as your second country, you can qualify by getting tax residency in the country. 

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 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 include 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 why you want to fall under this tax category. Then, you need to show your Portuguese Tax ID Number.

As appealing as the NHR Program sounds like, it still is a lot of work. 

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. Filing Your NHR Portugal Tax Return

Another misconception is that you don’t have to file your tax return once you qualify. 

By the 30th of June in every calendar year, you need to file your tax return. In some cases, 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. 

Nevertheless, it’s still a case-to-case basis, and the Portuguese Government wants to see that you took the initiative to file on time. 

The thing with some in the European Union is that they have better tax incentives than countries like the US. That’s a given. However, you still need to register and file the right paperwork for every single application you’re going for.

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 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. 

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.

Even receiving Portugal’s Golden Visa, making you a permanent resident, doesn’t necessarily make you a tax resident of the 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. Do you want to know your potential tax residency options? 

Consult Nomad Capitalist’s experts to help here.

US Citizens and the NHR Portugal

Some people claim that citizens of the United States have an easier way of being granted the NHR. This simply isn’t true. If you’re a citizen of the US, then you have tax obligations in the US. This is something that you can’t avoid. But there are ways to avoid paying income tax to the US 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. 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 usually 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 could even mean renouncing your citizenship. But that’s not something that’s recommended if all you care about is paying less in taxes. 

The NHR is Not Equivalent to a Residence Permit

One of the main issues that confuses people is that the NHR Tax Regime can be equivalent to a residence permit. 
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.

What About 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.

However, 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.

Naturally, you’ll need to spend some time in the country and learn the language and culture. That is what gets you citizenship and not your NHR status.

Can Portuguese Citizens Qualify for The NHR? 

This is a bit of a grey area. 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, then you may qualify for the NHR Program Portugal if you can prove that you’ve been outside of the country for the last five years.

Portugal NHR Program: FAQs

Taking Advantage of the Portugal NHR Program

As confusing as it may seem, NHR status had many benefits. While it’s technically ending, 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 its taxation can make it more preferable than its counterparts Spain or Italy.

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