Non Habitual Residency

 

Non Habitual Resident Tax Regime

Zero Tax on Retirement Pension for foreigners in Portugal – Non Habitual Resident Tax Regime

 

Foreign Pensioners can reside and collect their retirement pensions in Portugal entirely tax free. Non Habitual Reisdent Tax Regime is best of the crop across the world! Portugal has launched an impressive and golden measure to attract affluent worldwide pensioners to come and reside in Portugal. The lure is zero tax on such pensions. Most of the treaties on double taxation state that pensions can only be taxed in the country of residence of the beneficiary, with the exception of pensions paid to former public servants. Portugal guarantee the zero tax status to newcomers for ten years. The law also provides for reduced taxation on wages, intellectual property, interests, dividends and other capital gains.

Portugal becoming a tax haven for your retirement; the tax regime for Non Habitual Residents in Portugal; Pensions and other foreign sourced income.

I. Introduction to the Non Habitual Retired Resident Regime

In its assumed objective to attract affluent senior citizens from around the world, and specially from high tax countries, the Portuguese government has approved one of the most aggressive and competitive tax regime for pensions of any kind, from pensions paid by social security, employer’s retirement plans, to pension funds, trough other arrangements like private insurance.

Since the 1st of January 2013, foreign sourced pension income, even if has not been taxed in the country of origin (most cases), received in Portugal by individuals who qualify for the status of non habitual residents, are totally exempted from tax (0%).

Other foreign sourced income will also be exempt in Portugal and locally generated income, will be in most cases taxed at a flat rate of 20%.

II. Who can benefit from the status of non habitual resident?

Any foreigner was not been taxed as Portuguese residents in the previous five years.

III. What is needed to fulfill the legal criteria to become a Non Habitual Resident?

a) the individual must reside in Portugal 183 calendar days, either consecutive or not, in the year of application and the subsequent years.

b) The individual should have by the 31st of December of the year of application a permanent residence and be able to show that he is the intent of using it has his primary home and residence.

IV. For how long is this tax exception granted?

The retired foreign citizen that successfully applies to this status benefits from the foreign sourced personal income 0% tax and reduced tax from Portuguese generated income for 10 (ten) years.

V. Other advantages:

The Non Habitual Resident Regime can be cumulated or coupled with other existing tax incentives such as the GOLDEN VISAS. Portuguese earned income such as wages, provision of services will be taxed at a reduced rate of 20%. In general, dividends, interests, capital gains and other foreign earned income will be exempt from personal income tax in Portugal.

Tax Regime for Non Habitual Residents

Competitive advantages:

  • For a period of 10 years, taxation related to IRS (personal income tax) on labour income in Portugal is at a fixed rate of 20%
  • No double taxation for pensions or for employment and self-employment income obtained abroad
How can you acquire Non Habitual Resident Status?
  1. Having not been a resident in Portugal for the last 5 years;
  2. Register at the local tax office as a tax resident in Portugal (to do so you must have remained in Portugal for more than 183 consecutive or non-consecutive days, or having remained for less time, having, at 31st December of that year, a home in such conditions that would lead to the assumption that it is intended to be kept and occupied as your habitual residence);
  3. Request that the status of Non Habitual Resident be attributed at the time of registering as a tax resident in Portugal, or by 31st March of the year following that in which you become a resident in Portugal.
Once Non Habitual Resident Status has been obtained, what is the taxation rate and incidence applicable to domestic source income?

In the case of employment or self-employment, the applicable taxation rate is 20% (with an additional 3.5% surcharge in 2014).Taxation applies to income derived from high added value activities of a scientific, artistic or technical nature:

  • Architects, engineers and similar
  • Fine artists, actors and musicians
  • Auditors
  • Doctors and dentists, teachers and psychologists
  • Liberal professions, technicians and similar
  • Senior managers
  • Investors, directors and managers, when part of companies covered by the contractual regime provided for in the Investment Tax Code.

Registration as a Non Habitual Resident confers the right to be taxed as such for a period of 10 years as from the year of registering as a tax resident in Portuguese territory.

Once Non Habitual Resident Status has been obtained, in which cases is foreign income obtained by Non Habitual Residents in Portugal exempt from taxation?

In the case of pensioners and retired people when:

  • Income is taxed in the source State, in accordance with the convention to eliminate double taxation, signed by Portugal and that State; or
  • Income is not considered to have been obtained through a Portuguese source, according to the criteria provided for in the IRS Code (personal income tax).

In the case of income derived from employment, when:

  • Income is taxed in the State of origin, in accordance with the convention to eliminate double taxation, signed by Portugal and that State; or
  • That income is taxed in another State with which Portugal has not signed any convention to eliminate double taxation, as long as the income is not considered to have been obtained in Portuguese territory, in accordance with the criteria in article 18 of the IRS Code (personal income tax);

In the case of income from self-employment (through the provision of services of a high added value, of a scientific, artistic or technical nature, or through intellectual or industrial property, investment income, rental income, capital gains income or other increases in equity), when:

  • The income may be taxed in the source country, territory or region, in accordance with the convention to eliminate double taxation, or;
  • When no convention to eliminate double taxation has been signed, the OECD model convention may be applied (taking into consideration the observations and reservations made by Portugal) and as long as the source country, territory or region does not have a privileged tax regime, and as long as the income is not considered to have been obtained in Portuguese territory, in accordance with the criteria in article 18 of the IRS (personal income tax).

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