Tax incentives: Non-habitual tax residence in Portugal

This article should be of interest to those who are thinking of acquiring Portuguese residence by investment, or by any other means such as D7 retiree visas, or EU citizens exercising the right of free movement.  

Below we describe the often misunderstood Portuguese “10 Year Tax Holiday”  that is called Residente Não Habitual (RNH) in Portuguese or Non-Habitual Residence (NHR) in English. We will talk about the advantages of this tax-free residence programme, how to qualify for and use it, the steps required to apply for the non-habitual residence status, and the procedures that you will have to go through during the application process.  

The RNH program launched by the Portuguese authorities in 2009 has become extremely popular with foreign residents in the country. Both EU and non-EU citizens are eligible to apply to this program. It is even applicable to Portuguese expats who were residing abroad for a long time before but are coming back home now.

Effectively, it offers a 10 year tax holiday on all foreign income. Residents can make use of Portugal’s wide network of double tax treaties.

Why does the scheme exist?

Let us begin by explaining that this is a fiscal stimulus programme, simply and unashamedly designed to encourage foreigners to bring capital into the Portuguese economy. The Portuguese Government introduced the RNH scheme to stimulate the inflow of high-income individuals (including both professionals and retirees) to Portugal. 

Why should you apply for non-habitual residence in Portugal for tax purposes?

The Residente Não Habitual scheme offers the following main advantage: most types of income that a Portuguese fiscal resident obtains globally (that is, in other countries) can become untaxable in Portugal over the period of ten years.

This is the practical sense that this scheme makes: you can legally reside in Portugal, and obtain incomes from other countries while paying no Portuguese taxes on those incomes. The RNH program also boasts the following important advantages:

• There are no requirements as to a minimum investment amount.
• The pension received by a non-habitual resident of Portugal is not taxable in the country regardless of where the pension comes from.
• Dividends, interests, and royalties derived from abroad are not taxed by the Portuguese authorities if these are subject to the withholding tax (if applicable). There is an additional requirement, however: the country where the dividends, interests or royalties come from should not be on the OECD black list;
• There is an opportunity to pay the personal income tax on the income derived from certain types economic activities in Portugal at a flat rate of 20% *.
• If you apply for the RNH status, the application processing timeframe is going to be very short – only five to seven business days.
• The RNH status remains valid for ten years.

* There is an official list of professions that fall into the correspondent category. The following professionals can become eligible for this sort of tax cut in Portugal (the list is abridged):

• archaeologists,
• architects,
• auditors,
• biologists,
• programmers,
• data processing / hosting service specialists,
• dentists,
• constructors,
• engineers,
• geologists,
• investors,
• directors / managers of companies promoting eligible projects,
• IT consultants,
• IT specialists,
• doctors,
• musicians,
• information specialists,
• painters,
• psychologists,
• research and development specialists,
• sculptors,
• top managers,
• singers,
• fiscal consultants,
• theater / ballet / film / radio / television artists,
• university lecturers,
• web developers / web designers.

You should bear in mind that the Portuguese fiscal legislation offers other attractive tax incentives in addition to the Residente Não Habitual program. For instance, the local inheritance tax is comparatively low (10%) and it applies only to the transfer of local assets. The inheritance tax is not payable if the property is passed on to the spouse or children of the deceased person.  

The real property tax rate that is payable to the municipal budget in Portugal is between 0.3% and 0.45% depending on the municipality. The gift tax is 10% but it is applicable only to the real property located on the territory of the country. If you give your real property away to a close relative of yours, the gift tax is not payable..

Who can apply for non-habitual residence in Portugal and under what conditions?

There is a combination of two conditions that have to be satisfied in order to qualify for the RNH status: if you have been a tax resident of Portugal during the last 12 months but you were not a tax resident of the country during the previous 5 years, you are eligible to apply.

A person is considered a fiscal resident of Portugal if he or she meets at least one of the following conditions:

• S/he has spent more than 183 days (consecutive or nonconsecutive) on the territory of Portugal over the last 12 months.
• S/he has residential accommodations in Portugal (owned or rented) that s/he lives in.
• As of December 31 of the corresponding year, s/he was a crew member on a ship or airplane that belongs to a resident Portuguese company.  
• S/he has been employed by the Portuguese Government over the last 12 months while working in another country.

This shows that unlike with the ‘golden visa’ program, the RNH program does not require that you own a piece of real property in Portugal in order to qualify. When applying for a Porguguese ‘golden visa’ you have to invest 500,000 euros into real estate in the country (the investment amount can be reduced under certain conditions).

Therefore, if you meet one of the four conditions specified above, you can apply for the RNH status and enjoy it for ten years. The RNH program covers both the continental Portugal and the island of Madeira in the Atlantic off the coast of Portugal.

Non-habitual residence in Portugal + the ‘golden visa’

Before you can acquire tax residence in Portugal, you have to become a legal resident of the country. Assuming you are nota citizen of another European Union country, practice shows that the ‘golden visa’ program is the fastest and the most transparent instrument of achieving this goal. There are other ways to acquire Portuguese legal residence, of course, such as being a retiree, enrolling into a university in the country, signing an employment agreement with a local employer or marrying a Portuguese citizen. If you do not fall into any of these groups of people, however, the ‘golden visa’ program is there to make things easy for you.

This is an attractive opportunity indeed. If you acquire legal residence in Portugal by investment, you will be eligible to apply for full citizenship of the country after holding the ‘golden visa’ for five years only. Well, you will have to pass a test in the Portuguese language to obtain the passport but on the other hand, you can sell your property if you wish! When you are a full citizen of Portugal, no-one can demand that you should have real estate in the country any longer.  

Documents required for obtaining tax residence in Portugal on the Residente Não Habitual scheme

You have to realize that the RNH status is not granted automatically to any foreigner who has been a fiscal resident of Portugal over the last 12 months. You have to take certain actions and fulfil several formal requirements to start enjoying the benefits that the status brings. These include the following ones:

• Applying for a taxpayer’s number;
• Registering as a fiscal resident of Portugal;
• Applying for non-habitual tax residence in the country.

If the tax authorities are unsure if you qualify for the RNH program or not, they may request some additional information. For example, in order to ascertain that you were not a tax resident of Portugal during the five-year period referred to above, they may ask you to supply documents that confirm your tax residency in another country over this period. This extra step is unlikely to be necessary, however, as they generally have you tracked!

Why you should not postpone applying for a ‘golden visa’ and then for non-habitual tax residence in Portugal

The  government of Portugal is planning to introduce changes to the ‘golden visa’ program that are not going to be beneficial for foreign investors. They want to deprive the latter of the opportunity to invest into real estate located in the cities of Lisbon and Porto trying to redirect the investments to less developed rural areas of the country.

In addition to that, the Government officials are considering the introduction of a tax on pensions received by fiscal residents of Portugal from abroad – even those who are beneficiaries of the RNH status. It is important to note here that even if taxation is introduced, it is not going to affect those who obtained the RNH status before the changes to the Residente Não Habitual program were made.  

In other words, if you are quick enough to obtain this status, the pension that you receive from a foreign country while residing in Portugal is going to be taxed at the rate of 0% there.

The Portuguese fiscal authorities explain their plans to introduce certain changes to the RNH program by a desire to make it more compatible with the Double Taxation Avoidance Agreements that Portugal has signed. They also intend to render the Residente Não Habitual program more legitimate nationally and internationally.

We do not know how the events are going to develop but often such initiatives are introduced at short notice. There is certainly no guarantee that the aforementioned benefits will be around for very long. At times, national governments are slow, but other times they move amazingly fast!   

Professional assistance in applying for the Residente Não Habitual status in Portugal

Would you like to be successful in acquiring the RNH status in Portugal? It’s quite easy to apply yourself at the tax department, but you will likely need some Portuguese language skills for this.

Since you have to be resident in Portugal before you can apply for NHR status, the first step is of logically to arrange your residency. Whether you choose the Golden Visa, D7, Startup or Angel visas or any other route to residency in Portugal.

It’s worth pointing out that NRH status is not discretional in any way. It is fully automatic as long as you qualify. So there is no need to worry, as some readers might, about making the investments for a Golden Visa and then being rejected for NRH status.

Should you have any other questions pertaining to obtaining legal residence in Portugal, tax residence of the country, or making use of the available tax incentives, please contact us without any hesitation. We have highly reliable partners in Portugal who will be happy to provide top-level legal and consultation services to you. You are welcome to use the email address that can be found at the top of the page or contact us via WhatsApp or the live chat. We will reply fast whichever means of communication you choose!