The non-habitual tax resident (NHR) is a tax regime created to improve Portuguese international competitiveness. This regime targets non-resident individuals who are likely to establish a permanent residence in Portugal.

The NHR regime establishes, under certain conditions, IRS exemptions on foreign source income, as well as a limited 20% taxation of income from employment and independent personal services, in both cases if deriving from listed high value-added activities. Entrants in the regime that became Portuguese tax residents as from 1 April 2020 are liable to a 10% tax rate on pension income, instead of the previous exemption.

• Foreign-sourced passive income (interest, dividends, certain royalties, other income from capital, capital gains and income from immovable property) derived by NHR is exempt (without progression except in the case of capital gains on real estate) in Portugal, provided that it is potentially liable to taxation in the source State (i) under the rules of an existing Double Tax Treaty (DTT) or (ii) in the absence thereof, under the rules of the OECD Model Tax Convention if such income is not deemed to arise from a State, region or territory included in the Portuguese tax havens’ blacklist nor from a Portuguese source under the IRS Code territoriality rules.
• Foreign-sourced employment income is IRS exempt (with progression), provided that it is effectively taxed in the source State (i) under the rules of a DTT or in, the absence thereof, (ii) of the OECD Model Tax Convention, as long as such income is not deemed to arise from a Portuguese source under the IRS Code territoriality rules.
• Foreign-sourced employment income is IRS exempt (without progression) in Portugal, provided that it is income derived from high value-added activities of a scientific, artistic or technical nature and it is effectively taxed in the source State (i) under the rules of a DTT or in, the absence thereof, (ii) of the OECD Model Tax Convention, as long as such income is not deemed to arise from a Portuguese source under the IRS Code territoriality rules.
• Foreign-sourced income from independent personal services is IRS exempt (without progression) in Portugal, provided that it derives from high value-added activities of a scientific, artistic or technical nature, as defined by Ministerial Order, and is potentially liable to taxation in the source State (i) under the rules of an existing DTT or (ii) in the absence thereof, under the rules of the OECD Model Tax Convention, if such income is not deemed to arise from a State, region or territory included in the Portuguese tax havens’ blacklist nor from a Portuguese source under the IRS Code territoriality rules.

Income deriving from employment or independent personal services of a domestic or foreign source but not qualifying for the mentioned exemptions will be liable to autonomous taxation at a special 20% flat rate and not to the general and progressive IRS rates (currently of up to 53% for yearly taxable income above € 250.000), provided that it derives from high value-added activities of a scientific, artistic or technical nature. 

Regarding pensions, since April 2020, is established a 10% tax rate on pension income, instead of the previous exemption.

The activities considered as right added value is constantly in change regarding the needs of the labor market and as well the intentions of the government for the economy. 

Since 2020 the activities relevant to the tax regime are those listed below:

I – Professional activities (codes of the Portuguese Classification of Occupations (CPP):

112 – Director-General and Chief Executive of companies;

12 – Directors of administrative and commercial services;  

13 – Directors of production and specialized services;

14 – Directors of hotels, restaurants, stores, and other services;  

21 – Specialists in the physical sciences, mathematics, engineering, and related techniques;  

221 – Physicians;

2261 – Dentists and Stomatologists;

231 – University and higher education professors;

25 – Specialists in information and communication technologies (IT);

264 – Authors, journalists, and linguists;

265 – Creative artists and of performative arts;

31 – Technicians and professionals of science and engineering, of intermediate level;

35 – Technicians of information and communication technology, market-oriented;

61 – Market-oriented farmers and skilled workers in agriculture and animal production; 

62 – Market-oriented skilled workers in the forest, fishing, and hunting;

7 – Skilled workers in industry and construction and handicraftsmen, including particularly skilled workers in metallurgy, metal mechanics, food processing, wood, and clothing, craftsmanship, printing, manufacturing precision instruments, jewelers, craftsmen, electricity, and electronics workers.

8 – Operators of installations and machinery and assembly workers, in particular fixed plant operators and machinery.  

Workers in the professional activities referred to above must have at least level 4 in the European Qualifications Framework or Level 35 of the International Standard Classification of Education or have five years of duly proven professional experience.  

II – Other professional activities:

Administrators and managers of companies promoting productive investment provided that they are allocated to eligible projects and have contacts of tax benefits concluded under the Investment Tax Code, approved by Decreto-Lei n.o 162/2014 of October 31.

Individuals who become resident for tax purposes in Portugal without having been so in the previous five years.

• Staying for more than 183 days in the Portuguese territory, whether these days are consecutive or not, in any 12-month period beginning or ending in a given tax year;
• If staying for a shorter period, having in the Portuguese territory, on any day of the period referred above, a dwelling under circumstances that lead to the presumption of an intention to hold and occupy it as a place of habitual abode;
• Being, on December 31st, a crew member of a ship or aircraft at the service of an entity with residence, head office or effective management in Portugal.

Registering as a tax resident in Portugal is a requirement to obtain the non-habitual resident status, which means that those wishing to apply for the regime generally must:

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.

An application must be submitted until March 31st of the tax year following that in which Portuguese tax residence is acquired.

Non-habitual resident individuals may enjoy such status for a ten-year period, after which they will be taxed under the standard IRS regime.

Firstly, the likelihood of a unilateral termination of an existing DTT is very reduced. A renegotiation of DTTs between Portugal and other States is currently an issue with two Nordic countries and is driven by the double non-taxation of private pensions allowed by the combination of the NHR regime with DTTs following the OECD Model Tax Convention.

However, recently, Finland terminated the DTT with Portugal. Its application ceased from the start of 2019. Sweden also expressed the desire to revise the same provision in its tax treaty with Portugal and negotiations resulted in a Protocol to the tax treaty, signed in May 2019, which is not yet in force.

New DTTs with Finland and Sweden with an amendment to the private pension article were already accepted by the Portuguese Government but were not yet adopted by the Portuguese Parliament. These amendments will allow Finland and Sweden, as source States of private pension income, to impose a tax on it (unless, in the case of Sweden, if the income is effectively taxed in Portugal). These amendments also motivated Portugal to unilaterally change its domestic NHR regime in 2020, starting to impose a tax on foreign-sourced pension income for entrants into it that became Portuguese tax residents as from 1 April 2020. Currently, no other States have publicly signaled a will to revise their DTTs with Portugal due to the NHR regime but we are aware that some negotiations in this regard are taking place with France and Germany.

As explained in FAQ #7 above there is more than one way to acquire Portuguese tax residence. The 184-day rule is not mandatory as long as one has, in the Portuguese territory, a dwelling under circumstances that lead to the presumption of an intention to hold and occupy it as a place of habitual abode. The Portuguese tax residence, in principle, will not be challenged by the Portuguese Tax Authorities. However, it could be challenged by an income source State, especially if one spends time in that State. In this regard, a number of precautions are advisable: a) keeping a calendar that tracks one’s days of stay in Portugal and in other countries; b) avoiding short-term rentals and frequent address changes within the Portuguese territory from the moment one becomes a tax resident herein; c) ask for invoices with the Portuguese tax number (NIF) on a recurring basis when one acquires products/services in Portugal. The latter will allow the individual (i) to better prove his/her effective presence in Portugal if challenged, (ii) to benefit from certain deductions on the Portuguese tax assessment if he/she has taxable income at standard tax rates, and (iii) also make him/her eligible for a State lottery!

In Portugal, in general, inheritances and donations, between ascendants and descendants (eg father to son, grandfather to grandson, or son to mother) and husband and wife, are exempt from the tax;

• Other inheritances and gifts (such as an uncle to a nephew or unrelated persons) are taxed at a flat rate of 10% on assets located in Portugal (other assets will be non-taxable).