As a lawyer based in Portugal specialising in all matters relating to expats relocating to Portugal, I've seen firsthand how the Non-Habitual Resident (NHR) tax regime has attracted many foreign nationals to our shores. Since its introduction in 2009, this special tax status has been a key factor for many international clients choosing Portugal as their new home.
While the NHR program has undergone significant changes recently, it still offers substantial tax advantages for eligible individuals. This article provides an up-to-date overview of Portugal's NHR regime, including the recent developments that anyone considering this option should know about.
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1. What is the Non-Habitual Resident Tax Regime?
The NHR program is a special tax status designed to attract foreign talent and investment to Portugal. It offers reduced tax rates and, in some cases, exemptions on certain types of income for a period of 10 years to those who qualify.
The system was created to boost Portuguese economic competitiveness by targeting non-resident individuals who wish to establish a permanent or temporary residence in Portugal. Despite some changes over the years, the NHR status remains highly beneficial for many taxpayers.
2. Important Changes to the NHR Program
If you're just starting your Portugal journey, you should be aware that the original NHR scheme is being phased out. As of December 31, 2023, the program is no longer available for new applicants except in specific situations during a transitional phase.
The Portuguese government has replaced the NHR with a new Tax Incentive for Scientific Research and Innovation (IFICI), sometimes referred to as "NHR 2.0." However, there is still a window of opportunity for those who meet certain conditions.
3. Can You Still Apply for NHR Status?
You can still apply for the original NHR program until March 31, 2025, but only if you meet specific requirements. You must have at least one of the following conditions in place:
- A lease agreement or property use contract signed by October 10, 2023
- A contract to purchase property in Portugal signed by October 10, 2023
- Children enrolled in a Portuguese school by October 10, 2023
- An employment contract signed by December 31, 2023
- A residence permit or visa valid from or before December 31, 2023
- An application for a residence permit or visa initiated by December 31, 2023
You might also qualify if you're a household member of someone who meets the above criteria. Those who qualify under these conditions will have NHR status from when they became tax residents (whether in 2024 or early 2025) until December 31, 2033.
4. Benefits of the NHR Status
For those who can still access it, the NHR regime offers several attractive benefits:
- Special tax treatment over a ten-year period
- Tax exemptions on foreign-sourced income in many cases
- A flat 20% tax rate on income from high-value-added activities performed in Portugal
- No wealth tax
- Free remittance of funds to Portugal
- Tax exemption on gifts for family members
For those who secured NHR status before the 2024 cut-off, strategic financial planning remains key to maximizing tax benefits. Some residents choose to invest in Portuguese property, whether for personal use or as a rental income stream, given the potential tax advantages under the scheme.Â
If you're considering purchasing a home in Portugal, it's essential to understand the legal process, associated costs, and tax implications. Our in-depth guide to buying property in Portugal outlines everything you need to know about making a sound investment.
5. Who is Eligible for NHR Status?
The main requirements for NHR eligibility are:
- Becoming a tax resident in Portugal
- Not having been a tax resident in Portugal during the previous five years
To qualify as a tax resident, you must either:
- Stay in Portugal for more than 183 days (consecutive or not) in any 12-month period, or
- Have housing in Portugal on December 31st of that year with the intention to maintain it as your habitual residence
6. Application Process for NHR Status
If you meet the eligibility criteria, here's a step-by-step guide to applying for NHR status:
Step 1: Establish Residence in Portugal
For EU/EEA/Swiss citizens, this involves registering at your local town hall (Câmara Municipal) with your passport and proof of address.
For non-EU citizens, you'll need to obtain a residence permit through programs like the Golden Visa or D7 Visa before applying for NHR status.
Step 2: Obtain a Portuguese Tax Number (NIF)
Everyone who intends to live or do business in Portugal needs a tax identification number. You can obtain a NIF at your local tax office (finanças) or through a representative if you're not yet in Portugal.
Step 3: Register as a Tax Resident
After getting your NIF, you must register as a tax resident in Portugal. This can be done at the tax office by showing proof that you're allowed to live in Portugal (EU registration or residence permit).
Step 4: Apply for NHR Status
The application for NHR status must be submitted before March 31st of the year following the one in which you became a tax resident in Portugal.
The easiest way to apply is online through Portal das Finanças (the government's financial portal). You'll need your NIF, fiscal address, email, and phone number to register on the portal.
To complete your application, you may need to submit:
- A declaration stating you haven't been a tax resident in Portugal for the previous 5 years
- Tax returns from the past 5 years
- Proof of purchase of property in Portugal or a rental contract
7. How NHR Affects Different Types of Income
Foreign-Sourced Income
Under the NHR regime, foreign-sourced income is often exempt from taxation in Portugal if it meets certain conditions:
- Employment income: Foreign source income is taxed at a flat rate of 20% if it falls under eligible professions
- Self-employment: Taxed at a flat rate of 20% if it falls under eligible professions
- Royalties, dividends, and interest: Typically exempt between countries that have double taxation agreements with Portugal
- Real estate income: Usually taxed in the country where the property is located
- Pension income: Taxed at a flat rate of 10% (since March 2020)
Portugal-Sourced Income
For income earned within Portugal:
- Employment and self-employment income: If your profession is considered high-value, you'll benefit from a flat 20% tax rate instead of the progressive rates that can reach up to 48%
- Real estate income: Taxed at an optional rate of 28% or at standard progressive rates
- Capital gains: Net gains are taxed at 50% at standard progressive rates
8. Understanding Double Taxation Agreements
A key benefit of Portugal's NHR tax regime lies in its network of Double Taxation Agreements (DTAs). Portugal has signed these agreements with over 80 countries around the world.
These agreements allow most categories of income to be taxed in the source country. Since many countries don't tax non-residents on certain types of income, this can create situations where NHR residents receive some foreign income completely tax-free.
9. The New IFICI Scheme (NHR 2.0)
For those who don't qualify for the original NHR program, the new Tax Incentive for Scientific Research and Innovation (IFICI) offers an alternative. Under this scheme, eligible professionals can benefit from:
- A flat tax rate of 20% on eligible professional income from Portugal
- Exemption on professional foreign-sourced income, including passive income like dividends, interest, capital gains, and rental income from real estate outside Portugal
To qualify, individuals must:
- Become tax residents in Portugal
- Not have been tax residents in Portugal in the previous five years
- Earn income in specific professional categories such as scientific research, highly qualified jobs, or working for recognised startups
10. Practical Considerations
Residency Requirements
There's no minimum stay requirement to maintain NHR status once it's granted. However, to be considered a tax resident in Portugal (which is necessary for NHR), you must meet at least one of the residency tests mentioned earlier.
Documentation for Proof of Residency
If you're renting property, you'll need a lease agreement. If you've purchased property, you'll need to provide the purchase deed. These documents serve as proof of your intention to maintain habitual residence in Portugal.
After the 10-Year Period
The NHR status is valid for ten years and cannot be renewed. After this period, you'll be subject to standard Portuguese tax rates if you remain a tax resident in Portugal.
11. Common Questions About NHR Status
What if my income is paid in another country?
If your income comes from a country that has a double taxation agreement with Portugal, you may be exempt from paying tax in Portugal on that income.
Can I track my NHR application?
Yes, once registered on the Portal das Finanças, you can track your application status online.
How long does it take to process an NHR application?
Generally, it takes about two weeks to hear back on your application. If your NIF was recently obtained, it may take as little as two days.
Do I need to buy property to qualify for NHR?
No, renting is sufficient. You just need to demonstrate your intention to maintain habitual residence in Portugal.
12. Tax Planning Strategies for NHR Residents
When advising clients on maximising their NHR benefits, I typically recommend:
- Careful timing of your move to Portugal to optimise the 10-year benefit period
- Structuring foreign income sources to align with exemption categories
- Considering the location of investment assets and how they're held
- Planning for what happens after the NHR period ends
- Consulting with tax professionals in both Portugal and your home country
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13. Conclusion: Is NHR Right for You?
The NHR program continues to offer significant tax advantages for those who qualify, despite the recent changes. However, with the transitional phase ending on March 31, 2025, time is running out for potential applicants.
If you meet the conditions for applying, I strongly recommend seeking professional advice to assess whether the NHR status would benefit your specific financial situation. The potential tax savings can be substantial, but the application process requires careful attention to detail and timing.
For those who don't qualify for the original NHR program, the new IFICI scheme may still offer attractive tax benefits if you fit into one of the eligible professional categories.
As always with tax matters, professional guidance is essential to navigate the complexities of international taxation and ensure you're making the most of the available opportunities while remaining fully compliant with all relevant regulations.
