We have started to receive enquiries about the Non-Habitual Residency rule in Portugal. In most jurisdictions the issue of tax residency is simply a case of “resident or non-resident” and tax is paid by individuals accordingly. The Portuguese Non-Habitual Residency rule sits right in the middle of this!
Portugal- Non-Habitual Residency Rule
The Non-Habitual Residency rule allows anyone that has not been tax-resident in Portugal to have non-habitual residency for 10 years from becoming Portuguese tax resident.
Tax Payable under Non-Habitual Residency Rule
There are two sets of beneficiaries of this regime, which runs for 10 years and makes for substantial savings for new residents.
- High earners- There is a flat tax rate of 20% (and allowable deductions that may result in a net rate of about 15%). This compares well with rates that can go up to 48% for other tax residents.
- Pensions and Investments- This is of particular interest to those about to take a pension from the UK or elsewhere outside of Portugal. Pensions, dividends, royalties and interest from non-Portuguese sourced income are exempt from personal income tax.
KEY POINT: Most inheritance taxes are based on domicility and not residency, which means the Non-Habitual Residency rule in Portugal is unlikely to reduce this tax, and therefore international tax advice should be sought from a lawyer and an adviser resident in the originating country.
Does The Non-Habitual Residency Rule Allow Me To Be non-Resident In Portugal?
The answer is – No.
It is open to misunderstanding, but you must be tax resident in Portugal and be habitually resident in Portugal. After the limit of the tax exemption is 10 years, the term of non-habitual has been used.
There are other added benefits too, including; access to local healthcare and exemptions from gift and local inheritance taxes during the 10 year period. Please see the Key Point above regarding this.
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
This article was published on 21st March 2018
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