Portugal is not exactly the first country which springs to mind when considering your options for relocation to a favourable tax regime. However besides an excellent climate and great food Portugal also offers a very attractive regime to newly resident individuals commonly referred to as Non-Habitual Residents (NHR’s). In addition it also offers residence to Non-EU nationals through the golden visa programme.
Non Habitual Residence
The Non-Habitual Residence regime is available to private individuals who become tax residents in Portugal provided they were not Portuguese tax residents in the previous five years. This special status which is granted for a period of ten consecutive years is designed to attract highly skilled and wealthy individuals who might then be encouraged to invest and undertake high value economic activity in the country.
To qualify as a tax resident the individual must remain in Portugal for more than 183 days during the relevant tax year or to have a property by 31 December which is to be used for habitual residence purposes.
One of the many attractions of Non- Habitual Residence is the exemption from income tax on earned income derived from a non-Portuguese source if such earned income was subject to tax in the country of source under an existing double tax treaty or if no such DTT exists provided they paid tax on that earned income in that country.
Interestingly pension income from a foreign source is exempt from Portuguese income tax if such pensions were subject to tax under an existing double tax treaty or if the pension income is not considered as obtained in Portugal and the contributions to the scheme did not give rise to a tax deduction. Since most double tax treaties give exclusive taxation rights to the country of residence in effect this pension income could theoretically end up being tax exempt.
The Non-Habitual Residence regime also allows for the accrual of wealth in a tax friendly environment save for blacklisted tax havens and to dispose of assets with tax exemptions as well as to transfer wealth to the next generation without being subject to either inheritance or gift tax.
Flat rate of 20% on Portuguese earned income from qualifying activities and exemption from almost all foreign sourced income.
Tax exemptions on gifts and inheritance tax to spouse, children or family with non- related benefactors being either tax exempt or subject to a flat stamp duty tax rate of 10%.
No wealth tax and free remittance of funds either to or from Portugal.
Beneficial treatment for pensions and life contracts including unit linked investments which further reduces the effective tax burden.
The aim of the golden visa programme is to attract foreign investors who are non EU nationals to live and invest in Portugal through a special residence card. To obtain a golden visa which is effectively a passport into the European Union the applicant must meet at least one of the following criteria:
The transfer of capital to Portugal of at least €1,000,000
The creation of at least 10 jobs in Portugal.
The acquisition of real estate in Portugal with a value of €500,000 or more.
The first residency card is valid for a period of one year with each subsequent renewal valid for two years provided qualifying conditions are fulfilled. To renew residency the holder should stay at least 7 days in Portugal in the first year and no less than 14 days during each subsequent two year renewal period. Once in possession of the card residents would then be allowed to travel within Schengen countries visa free provided that they do not exceed 90 days in the Schengen area in any 180 day period.
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