Step 1
Advice on double residence and taxation of income and wealth.
The Non-habitual tax resident (NHR) regime has been revoked with effect from January 1, 2024, onwards, as per the Portuguese Budget Law for 2024.
A grandfathering regime will be applicable as previously described. No further adjustments were introduced to this.
Concerning the new proposed material incentive regime there were a few adjustments. The ex-residents regime was also clarified.
Due to the approved amendments to the grandfathering regime those who are interested to move to Portugal under the NHR regime with effect to 2023 must take immediate action NOW:
The existing regime continues to be applicable, until the end of the initial 10-year period set out in the Portuguese Personal Income Tax (IRS) Code, counting from the date on which the taxpayer became resident in Portuguese territory:
a) To the taxpayer who, on December 31, 2023, is already registered as a non-habitual resident in the taxpayer register;
c) To the taxpayer who becomes a resident for tax purposes by December 31, 2024 and who declares, for the purposes of registering as a non-habitual resident, to have one of the following elements:
d) To the taxpayer who is a member of the household of the taxpayers referred to in the previous paragraphs.
For the purposes of the provisions of paragraphs c) and d) of the previous paragraph, the taxpayer must request registration as a non-habitual resident, electronically, on the Portuguese Tax Web Portal, after the act of registration as a resident in Portuguese territory, until March 31of the following year, by reference to the year in which he became resident in that territory.
In what concerns the new proposed material regime we highlight, as of now, the following features:
a) Benefit or have benefited from the non-habitual resident regime;
b) Have opted for taxation under article 12-A (Program Return / Regressar) of the IRS Code.
a)I) developed in industrial and service companies, whose main activity corresponds to one of the CAE codes defined in a Ministerial Order and which export at least 50% of their turnover, in the year in which the corresponding duties started or in any of the two previous years.
The following activities (as an example) are encompassed as per a transitional Ministerial Order; i) IT consultancy and programming and related activities, ii) Information services activities (ex. data processing and web sites), iii) administrative and support service activities provided to companies.
a)II) developed in companies with relevant applications, in the year in which the corresponding duties started or in the five previous ones, which benefit or have benefitted from the ”Regime Fiscal de Apoio ao Investimento” (RFAI), in accordance with chapter III of the Investment Tax Code.
The RFAI is a tax benefit that allows companies to deduct from the tax collected a percentage of the investment made in fixed assets (tangible and intangible). However, the percentage allowed to be deducted differs according to the region in which the investment is made (Lisbon and Algarve are less attractive in this regard).
The mentioned legal regime defines the concept of startup as any company that; i) has been in operation for less than 10 years, ii) employs under 250 employees, iii) has an annual turnover of less than €50 million, iv) is not the result of a transformation or split from a large company, and no large company holds a direct or indirect majority stake in its capital, v) has its headquarters or permanent representation office in Portugal, or it employs at least 25 employees in Portugal, and vi) meets one of the following conditions: 1) It is an innovative company with high growth potential, innovative business models, products or services, and falls within the scope of Ordinance 195/2018 of July 5, or has been recognized as suitable for research and development (“R&D”) activities by the Portuguese National Innovation Agency or certified through the recognition process for technology sector companies, except for promotional, intermediation, investment, or real estate development companies; or 2) It has successfully completed at least one round of venture capital financing from a legally qualified venture capital investment entity supervised by the Portuguese Securities Market Commission (CMVM) or a similar international authority, or through equity or mezzanine instruments provided by investors who are not founding shareholders of the company; or 3) It has received investment from Banco Português de Fomento, S. A., or from funds managed by it, or from its subsidiaries, or from one of its equity or mezzanine instruments.
Ironically, the new regime set in the Proposal can potentially be more advantageous than the previous one for the qualified and employed groups of people that can benefit from it as foreign income is always exempt for all categories of income (i.e., employment income performed abroad, self-employment income performed abroad, foreign rental income, capital gains in foreign assets), with the exception of pension income, which is never exempt and will be taxed progressively up to a 53% tax rate.
As an exception, the law states that qualifying taxpayers that derive foreign income from a non-resident entity without a permanent establishment in Portugal, located in a country, territory, or region subject to a “favorable more advantageous tax regime” (i.e., a blacklisted tax haven) are subject to certain tax rules (for capital income and capital gains) that envisage an autonomous 35% rate.
This provision is not fully clear: i) does it disqualify all the non-blacklisted income from taxpayers that have blacklisted income from the benefit regime and taxes all the income of the taxpayers at 35%? ii) does it tax all the blacklisted income from taxpayers at 35%? iii) does it tax only the blacklisted capital income and gains from taxpayers at 35%? This point needs clarification.
In any case, the 35% autonomous tax rate conflicts with the Double Taxation Conventions entered into by Portugal with blacklisted tax havens, which force Portugal, at least, to grant a credit for the foreign tax paid. And, in our view, also conflicts with the European Union free movement of capital provisions, which should not enable a tax rate higher than 28%.
Since non-blacklisted foreign income is automatically exempt:
i. there should no longer be the need to interpret the Double Tax Treaties concluded between Portugal and the source country or the OECD Model Tax Convention and intertwine it with Portuguese source and NHR rules – which could potentially jeopardize the exemption. Portuguese domestic rules on income sourcing will determine what is foreign source income, which is a paradigm shift. This is currently a relevant issue when it comes to capital gains on securities as Portugal usually taxes such income – but with the approved amendments it will no longer do so;
ii. the scope of the exempted self-employment income is no longer limited as it does not need to derive from a High Value-Added activity. Of course, the scope of the beneficiaries was also narrowed, but this does not change the fact that any self-employment income earned performed abroad is exempt, while it currently has to derive from a High Value-Added activity to be so;
iii. employment income no longer needs to be subject to taxation in the source country in order for the exemption to apply.
This mandatory registration procedure will be regulated by a Ministerial Order that does not yet exist. Notwithstanding, regarding a) above, the new legal regime expressly states that, until the relevant Ministerial Order is approved, the mandatory registration should be made with the Tax Authorities via the Portuguese Tax Web Portal (“Portal das Finanças”); this will still imply small adjustments to it in order to be put it in practice, but the online registration procedure should be as streamlined as that of the current NHR regime. We are hopeful that this IT issue will be solved in January 2024.
Currently, there is a tax benefit in place for people who (i) became/become tax resident in Portugal from 2019-2023 (ii) have been previously tax resident in Portugal and left before a certain date; (iii) have not been tax resident in Portugal during the 3 years prior to the new residence; (iv) have their Portuguese tax obligations in good standing and (v) have not applied for the NHR regime.
Other current main features are:
The benefit changed with the Budget Law approval: (a) it lasts during a period of 5 years and (b) the 50% reduction of the taxable base is limited to the first € 250,000 of income from employment and self-employment income. It is still necessary to have the Portuguese tax obligations in good standing and not apply for the NHR. A Parliamentary amendment clarified that it is still necessary to have been resident in Portugal before; on the other hand, the applicant must not have been resident in Portugal during the 5 years prior to entry into this regime.
The Proposal foresees that the regime will only apply for those who move until the end of 2026.
With this being said, the “ex-residents” regime may be a viable option for newcomers obtaining employment or self-employment income either abroad or in Portugal.
I — Professional activities (PCP codes):
112 — General manager and executive manager
12 — Manager of administrative and commercial services (v.g., financial, human resources, and strategy)
13 — Production and specialized services’ managers (v.g., farming, livestock, forestry, fishery, mining industry, transports and others
14 — Managers of hotel business, restaurants/catering, trade and other services
21 — Experts in physics, mathematics, engineering and similar technics (v.g., chemistry, statistics, urban planning, and others)
221 — Doctors (v.g., generalists and experts)
2261 — Dentists and stomatologists
231 — University and higher education professors
25 — IT and communication experts (v.g., software apps, web, etc.)
264 — Authors, journalists and linguists
265 — Creative artists and performing artists (v.g., musicians, cinema producers, actors, dancers, etc.)
31 — Technicians as well as science and engineering professions of intermediate level (v.g., mining industry, life sciences and others)
35 — Technicians of information and communication technologies (v.g., telecommunications and radio)
61 — Farmers and market-oriented skilled agriculture and livestock production workers
62 — Market-oriented skilled forestry, fishery and hunting workers
7 — Skilled industry, construction and crafts workers, including skilled workers of metalwork, food processing, woodwork, clothing, handicraft, printing, manufacture of precision instruments, jewelers, artisans, electricians and electronics professionals
8 — Facility and machinery operators and assembly workers, namely operators of fixed installations and machinery
Professionals' workers included in the above-mentioned professional activities shall possess at least, a level 4 of the European Qualifications Framework or Level 35 of International Standard Classification of Education, or five years of duly proven professional experience.
II — Other professional activities:
Directors and managers of companies carrying out productive investment activities may also benefit to the extent that they are engaged in the projects for which contractual tax benefits have been granted under the Investment Taxation Code (Código Fiscal do Investimento) enacted by Decree-Law nr. 162/2014, of 31 October 2014.
Please read here our November 2019 update on this matter.
Old list of Value-Added Activities of a Scientific, Artistic or Technical Nature (Ministerial Order nr. 12/2010, of 7 January)
1 - Architects, engineers and similar technicians:
101 – Architects
102 – Engineers
103 – Geologists
2 - Visual artists, actors and musicians:
201 – Theater, ballet, film, radio and television Artists
202 – Singers
203 – Sculptors
204 – Musicians
205 – Painters
3 – Auditors:
301 – Auditors
302 –Tax Consultants
4 - Doctors and dentists:
401 – Dentists
402 – Analyst Doctors
403 – Surgeons
404 – Board doctors in ships
405 – General Practitioners
406 – Dentists
407 – Dentist Doctors
408 – Physiatrists
409 – Gastroenterologists
410 – Ophthalmologists
411 – Orthopedists
412 – Otorhinolaryngologists
413 – Paediatricians
404 – Radiologists
405 – Doctors in other specialties
5 - Teachers:
501 – University professors
6 - Psychologists:
601 – Psychologists
7 - Professional services, technicians and similar:
701 – Archaeologists
702 – Biologists and experts in life sciences
703 – Computer Programmers
704 – Software consultancy and activities related to information technology and information technology
705 – Computer programming activities
706 – Computer consultancy activities
707 – Management and operation of computer equipment
708 – Activities of information services
709 – Activities of data processing, hosting information and related activities/Web portals
710 – Activities of data processing, hosting information and related activities
711 – Other information service activities
712 – Activities of news agencies
713 – Other information service activities
714 – Scientific research and development
715 – Research and development of science physical and natural
716 – Research and development in biotechnology
717 – Designers
8 - Investors, administrators and managers:
801 – Investors, administrators and managers of companies promoting productive investment, if allocated to eligible projects under tax benefits contracts awarded under the Tax Code for Investment, approved by Decree-Law nr. 249/2009, of 23 September
802 – Senior employees of companies
i. register as non-resident taxpayers;
ii. obtain residence permits (for non-EU nationals) and residence certificates (for EU nationals);
iii. register as tax residents; and
iv. only then apply for the non-habitual resident status.
A new change to the NHR regime could happen, but it is not likely, as the regime was introduced in 2009 by a government of the same center-left wing party (“Partido Socialista”) as the present government, which has parliamentary majority until October 2026. Additionally, there is currently no significant public debate or controversy surrounding the NHR regime.
In any case, if such change happens:
i. Even if NHR status is abolished, it cannot be taken away from those that already have it at the time the change is approved;
ii. Although the NHR status cannot be taken away, the regime could be made less attractive (reducing the scope of the exemptions, for instance) even for those that have obtained it in the past. To what extent such change could be made is very debatable under Portuguese administrative and constitutional law. Some changes would always be admissible, but in principle a change that would make the NHR regime purely nominal (making NHR and normal residents taxed in the same way or with only very minor differences) should not be allowed. Assessing the degree of change that is allowed is very difficult.
In November 2015, the Socialist party, with the parliamentary support of three far-left parties (the Left Block, the Communist and the Green parties) formed a new government. The Socialist party proposed in its electoral program the reintroduction of inheritance taxation between spouses and direct line descendants for “high value” estates (in principle those with a taxable value above 1 million Euros, with a rate of 28% applying to the surplus), but “taking into account the need to avoid phenomena of multiple inheritance taxation”. It was therefore possible that a mild form of inheritance taxation might be re-introduced in Portugal, but it is not clear how it would target NHR with non-Portuguese assets, due to the caveat in commas.
Currently, inheritance between direct family is tax exempt, assets outside Portugal are not taxable and when tax is due on Portuguese assets it is so at a low rate - 10%. The Government Program of 2015 intended to tax those exempt cases (most notably those of inheritances between direct family). However, the relevant aspects remained fully uncertain (for instance, if foreign assets would be taxed or not, if donations would be taxed in the same way as inheritances or not, how should the € 1.000.000 be valued, etc.).
The 2015-2019 legislature went by and the Government apparently gave up on the idea of amending inheritance taxation. The Socialist party electoral program of 2019 and 2022 and the Socialist government programs for the legislatures of 2019-2023 and 2022-2026 have no mention whatsoever to changes in inheritance taxation. Nevertheless, developments on this issue should be monitored.
There are many sound non-tax reasons to consider taking personal residence in Portugal.
The cherries on top of the cake are that:
The Portuguese Non-Habitual Tax Resident regime grants an exemption on foreign source income as well as a limited taxation on income deriving from high value added activities [for more information on this please read our Newsletter (English) and Presentation (English, French and Portuguese versions available)];
In particular, the Portuguese Non-Habitual Tax Resident regime provides generous exemptions for foreign-sourced income and a reduced 20% rate for income from high value added activities. Since 1 January 2004 close family (spouses, children, grandchildren, parents and grandparents) is exempt from Stamp Tax on gifts and inheritances.
Moreover, the disposal of foreign assets (even towards Portuguese residents) as well as, in certain cases, the disposal of Portuguese assets towards non-Portuguese residents, are not liable to this type of taxation.Finally, Portugal has no wealth tax.
When family residence is considered, Portugal also tends to rank well, being a great place to raise children, due to safety and to both good private or public pediatric healthcare. The fact that in the destinations most favored by expats, like Lisbon, Cascais-Estoril and Algarve, English is widely spoken by the Portuguese tends to facilitate foreigners’ integration, some being able to live decades without learning the native language.
Some of the drivers of personal residence may also prove to be key factors for HNWI that are moving to Portugal to consider locating part of their dedicated Family Offices here.
Portugal has relatively cheap real estate (although tax structuring is vital as this is an overtaxed sector), namely office space, an excellent telecommunication infrastructure and educated, qualified and affordable professionals. Its location at the south of Europe, in the tip of the Mediterranean Sea and bordering the Atlantic Ocean, as well the 300 daily flights from Portugal to foreign countries make it an ideal place for globetrotters.
Its several seaports and marinas and its Exclusive Economic Zone, a sea zone of 1,727,408 km2 (the 3rd largest of the European Union and the 11th largest in the world), as well as its 31 airports and aerodromes, make it a natural choice for recreational yachting and private jet travel.
One of RPBA‘s expertise services is residence planning (in particular through the Portuguese non-habitual tax resident (NHR) and golden visa regimes or through similar foreign regimes). We frequently assist wealthy foreign individuals moving to Portugal and, likewise, Portuguese nationals moving abroad.
We also help them optimize their Portuguese real estate tax structuring and private wealth or income management by the use of holding and operational companies (namely in Portugal – in particular through the Madeira Free Zone –, Belgium, Luxembourg and Malta), trusts, private interest and family foundations, life insurance and wills.
If you are interested in becoming a Client please e-mail us to communication@rpba.pt
Advice on double residence and taxation of income and wealth.
Obtain a Portuguese non-resident taxpayer number (appointing a tax representative if necessary)
- Optional in some cases.
Legal assistance in the purchase or lease of real estate.
Obtain a residence permit (for non-EU nationals) from the Foreigns and Borders Service or a long-term residence certificate (for EU nationals) from the local city council.
Register as resident taxpayer.
Request the password to access the tax authorities' website.
Submit an application to the NHR regime.
Obtain Portuguese tax resident certificates and file a non-resident tax application in the country of origin.
Activate the Electronic Post Box.
File annual tax returns.
Left to the main entry of the "Loja do Cidadão das Laranjeiras" and right to the Ismaili Center / Aga Khan Foundation; close to the Laranjeiras' subway station; there are two public parking spaces in a range of 100 meters, one underground at Rua Virgílio Correia, perpendicular to Rua Abranches Ferrão, and another in front of the Loja do Cidadão's back entry, underneath the Avenida Lusíada's viaduct. We also have parking space available in our building. Please request it in advance of any meeting.
GPS Coordinates: Latitude: N38.773625 Longitude: W9.171181