Portugal Tax Residency: The NHR Scheme for Expats

In recent years, Portugal has emerged as a favorite destination for expatriates, retirees, and entrepreneurs looking for a favorable tax environment and high-quality lifestyle. A crucial step in becoming a resident in Portugal is acquiring a Número de Identificação Fiscal (NIF), which is an essential requirement for living in this beautiful country.

This blog post aims to delve deeper into Portugal's Tax Residency and the significance of getting a NIF.

Non-Habitual Residency Program

Since its introduction in 2009, Portugal's Non-Habitual Resident (NHR) program has become a magnet for skilled professionals, high-net-worth individuals, and pensioners who want to establish tax residency in Portugal. The program provides qualifying individuals the opportunity to get tax status and become Portugal tax residents, legally minimizing or eliminating the tax on their worldwide income and most categories of foreign-source income for a minimum period of ten years.

Qualification requirements

To become a Portugal tax resident under the NHR program, one must satisfy certain conditions:

Be a tax resident according to Portuguese domestic legislation.
Not have been taxed as a Portuguese resident during the previous five years.

The individual is considered a tax resident if they meet any of these criteria: They remain in Portugal for more than 183 days during the relevant fiscal year, or they have a residence in Portugal as of 31 December of that year with the intention to hold it as their habitual residence.

Qualifying applicants are issued a Residency Certificate and a Tax Identification Number (NIF). A NIF is an integral part of the Portugal tax regime and residency requirements and is used in all transactions that involve tax authorities, whether it's opening a bank account, buying property, or setting up a business.

Tax benefits

Portugal's tax residency rules provide several benefits, making it an attractive option for potential residents. The tax benefits depend on the tax situation and whether the resident's income is locally sourced or foreign.

Tax residents

For tax residents, Portugal has over 60 double tax treaties. This means that most foreign source income-sourced income can be exempt from income tax, provided it's taxed in the source state as per the applicable tax treaty, or, if no treaty applies, the income is effectively taxed in the source state and not deemed as derived in Portugal.

When derived from high-value-added activities, Portuguese-sourced income is taxed at a reduced rate to a flat rate of 20 percent. There is no tax applicable to dividends, rental income, interest, and capital gains when structured correctly. Furthermore, no inheritance tax on assets passed to a spouse, descendants, or ascendants, and no wealth taxes apply.

Income tax

The Portuguese tax residency rules are designed to encourage investment and residency. Under the NHR program, certain types of income can be significantly reduced or exempted for tax purposes for a period of 10 ten years.

To maximize these tax benefits and ensure compliance, it's advisable to consult with a tax advisor or lawyer. They can guide you through the process of becoming a Portugal tax resident, explain the 183-day rule, help you acquire the necessary documentation such as the RFI (request for information) and IRS Form 6166 (residency certification), and even guide you through Portugal's Golden Visa program if you're considering investment immigration.

Do foreigners incur income tax in Portugal?

Whether or not a foreigner is liable for income tax in Portugal hinges on their residency status and their employment conditions. Typically, non-residents in Portugal face a flat tax rate of 25 percent on income sourced within the country.

Conversely, residents encounter progressive tax rates linked to their global earnings. Yet, residents might be eligible for the Non-Habitual Residency (NHR) program, presenting them with advantageous tax provisions for a decade.

The personal income tax, referred to as Imposto sobre o Rendimento das Pessoas Singulares (IRS), is relevant for both residents and non-residents earning income within Portugal. Income taxes are usually extracted directly from monthly salaries. Nonetheless, submitting an annual tax return remains obligatory. The exact income tax liability is ascertained by evaluating the taxable earnings, administering the appropriate tax rate, and subtracting eligible deductions, including those tied to educational or medical expenditures.

IRS estimates are primarily individualized; however, married individuals or civil partnership couples can opt for a combined filing. In such scenarios, the tax rate encompasses the total taxable income of all family members. As per 2023's data, individual tax rates in Portugal span from 14.5 percent to 48 percent.

Portuguese income tax encompasses revenues spanning six primary segments:

Employment-based income
Revenues from entrepreneurial ventures
Investment yields
Earnings from property rentals in Portugal
Capital gains from selling assets, real estate, or shares
Pensions disbursed in Portugal, including personal pension plans

For a grasp of your tax commitments, securing a Número de Identificação Fiscal (NIF) is pivotal, and is foundational for residing in Portugal. This unique identifier facilitates interactions with tax departments, facilitates bank account creation, and eases the tax process in Portugal for overseas nationals.

In conclusion, obtaining your NIF is a crucial first step in establishing your Portugal tax residency. With its attractive NHR program, favorable tax rules, and the beautiful lifestyle it offers, Portugal is a compelling choice for those looking to move abroad. It's worth noting, however, that you should always seek professional tax advice, to understand fully and navigate Portugal's tax residency rules and requirements. This ensures a smooth transition to your new life in Portugal, whether you plan to retire, start a business, or simply enjoy the Portuguese lifestyle.

Pension income

If you acquire non-habitual resident status, you can qualify for tax advantages such as a flat rate of 10 percent on all foreign-sourced pension income received in Portugal.

Other tax resident benefits

Individuals with NHR status can enjoy a lowered tax rate of 20 percent on specific Portuguese-source revenues, or taxable income such as those from high-value-added tasks or royalties. This tax rate is notably less than what's typically levied on Portuguese tax residents.

The following tax rates apply for non-habitual residents:

A 20 percent taxation applies to freelance self-employment income.
No taxes (a tax exemption) on wealth or inheritance.

For those holding NHR status, Portugal doesn't levy any inheritance or wealth tax, presenting added financial incentives for Portuguese residents.

Furthermore, Portugal has entered into Double Taxation Agreements (DTAs) with 79 countries, encompassing nations like the USA, Canada, Australia, and the UK. This double tax treaty facilitates foreign residents of Portugal, earning income in their native countries, to evade dual taxation on that same income, ensuring they aren't taxed in both nations.

NHR Update: March 2024

At the beginning of October 2023, the Portuguese Prime Minister announced his intention to eliminate the NHR regime beginning in 2024.

The NHR came to an end in January 2024, introducing the transitional regime before the end of the NHR tax regime in 2025.

Anyone who registered as a tax resident in the country in 2023 and had not been taxed in Portugal in the previous five years can still apply by March 31, 2024.

It's also possible for some individuals to apply up until March 31, 2025, but the eligibility requirements for this deadline are more stringent. To qualify, it's necessary to meet at least one of the following criteria:

Having an employment contract signed/to be signed by December 31, 2023
Having a lease agreement or other contract for the use/possession of property signed by October 10, 2023
Having a contract to buy property in Portugal signed by October 10, 2023
Having children enrolled or registered in a school in Portugal by October 10, 2023
Having a residence visa or a residence permit valid from December 31, 2023
Having an application for a residence visa or residence permit initiated by December 31, 2023
Being a member of the household of anyone who meets the above criteria

Anyone who qualifies under these conditions will have NHR status from the date that they become a tax resident — whether that’s in 2024 or in the first quarter of 2025 — until December 31, 2033.

What will replace NHR?

The State Budget proposal has introduced a new program known as the Incentivised Tax Status Program (ITS) or the Tax Incentive for Scientific Research and Innovation, which is replacing the existing NHR tax regime.

Those who qualify will benefit from a flat tax rate of 20 percent on eligible professional income arising from Portugal and possibly an exemption on professional foreign-sourced income. They will also have an exemption on the majority of foreign-sourced income, such as dividends, interest, capital gains, and rents. However, unlike under the existing NHR program, this excludes pensions. These benefits will last for a 10-year period.

To qualify, individuals must fulfill the following conditions:

They become tax residents in Portugal
They have not been tax residents in the previous five years
They earn income in certain professional categories

Individuals in the following categories will be eligible for the Tax Incentive for Scientific Research and Innovation program:

Teachers and scientists
People with qualified jobs according to the tax code and members of corporate bodies within the scope of contractual benefits for productive investment, such as:

Activities carried out within the scope of the extractive industry and manufacturing industries
Tourism, including activities of interest to tourism
IT and related activities and services
Agricultural, aquaculture, fish farming, farming and forestry activities
Research and development and high technological intensity activities
Information technologies and audiovisual and multimedia production
Defense, environment, energy and telecommunication
Activities of shared service centers

Highly qualified professionals, which will be anyone performing one or more of the above activities and carrying them out in a qualifying entity
People working for companies recognized by relevant government agencies — AICEP, EPE, IAPMEI, IP — or relevant to the national economy, working with investment etc.
Research and development personnel who meet the definitions of the tax code
People working for startups, certified by law as such
People working in Madeira and Azores who meet the terms set by these regions

Beneficiaries of the NHR program or the Regressar Program will not be able to apply.

The NIF (Número de Identificação Fiscal) in Portugal

The Número de Identificação Fiscal, commonly known as NIF, is a vital component for anyone looking to reside, work, or carry out financial and administrative activities in Portugal. Understanding its significance and how it interlinks with tax residency can streamline your integration into the Portuguese system.

What is the NIF?

The NIF is a unique tax identification number assigned to individuals and businesses operating in Portugal. It is essential for a myriad of transactions, ranging from opening a bank account, signing contracts, buying or selling property, and, of course, paying taxes.

How to obtain the NIF

Gather necessary documents: For European Union/European Economic Area/Swiss citizens, a passport or national ID card is usually sufficient. Non-EU citizens will also require a valid residence permit or visa.

Visit a local tax office (Finanças): To apply for the NIF, head to a local tax office. Ensure you have your identification documents with you.

Appoint a tax representative (if applicable): Non-EU residents are required to appoint a tax representative who resides in Portugal. This representative will be the main point of contact for the Portuguese tax authorities concerning the NIF holder's tax obligations. The representative's details will need to be provided when applying for the NIF.

Tax representative requirement

For non-EU/EEA/Swiss citizens who do not reside in Portugal but wish to carry out certain activities like buying property, a tax representative is mandatory. This representative acts as an intermediary between the NIF holder and Portuguese tax authorities, ensuring that the NIF holder meets all tax-related obligations while they're away from Portugal. The representative should be a Portuguese tax resident (either an individual or a company).

GetNif services

We offer tax representative and NIF acquisition services. Simply apply online, and we'll apply for a NIF on your behalf and offer you tax representation services, resulting in you getting your NIF straight to your inbox - taking out all of the hassles of applying for a NIF and appointing a representative independently.

We can also help you open up a bank account in Portugal, making it easier for you to pay taxes on any income obtained in Portugal.

NIF and Tax Residency in Portugal

Acquiring a NIF doesn't automatically grant tax residency in Portugal. As discussed earlier, tax residency is triggered by spending significant time in the country or by establishing a habitual residence or tax address. However, having a NIF is a foundational requirement for becoming a tax resident. Without it, you cannot fulfill tax obligations or claim benefits under programs like the Non-Habitual Residency (NHR) program.

Useful Resources

If you're looking for further information or for more information on living, working, and setting up a tax residence in Portugal, we'd recommend reading the following blog posts:

Frequently Asked Questions about Portugal Tax Residency

What triggers tax residency in Portugal?

Tax residency in Portugal is triggered by either spending more than 183 days, consecutive or not, in Portugal in any 12-month period starting or ending in the fiscal year concerned, or having a residence, i.e., a habitual residence, in Portugal during any day of the period referred above. This can be regardless of whether you spend less than 183 days in Portugal. Another way is if the individual has a residence in Portugal as of December 31 of the relevant fiscal year with the intention to hold it as their habitual residence. Furthermore, a NIF (Tax Identification Number) is required, making it an essential part of the Portugal tax residency requirements.

Does Portugal tax its residents on international income?

Yes, Portugal does tax its residents on international income. However, if you are a part of Portugal's Non-Habitual Residency (NHR) program, your foreign-sourced income can be exempt from tax, given that it's taxed in the source state according to the applicable tax treaty. Or, if no treaty applies, the income is effectively taxed in the source state and not deemed as derived in Portugal.

Portugal also has more than 60 double-tax treaties, which can further prevent international double taxation. Furthermore, certain types of income, such as pensions, dividends, rental income, interest, and capital gains, can be structured to be exempt from tax under the NHR program. It's advisable to consult with a tax advisor to understand these rules fully.