Non-Habitual Resident Tax Regime

The Portuguese Parliament approved legislation in September 2009 that establishes a specific tax regime for non-habitual residents. The tax regime for non-habitual residents is characterized by creating tax saving opportunities for individuals who change their tax residence to Portugal.

The criteria to benefit from this more favorable tax regime are:

• Individuals qualify, under the applicable tax residence legal rules, as tax residents in Portugal, (namely if they remained in Portugal for more than 183 days during the year in question or if they had, on December 31 of the year in question, a place that they intend to use as their habitual residence, and;
• Have not been taxed as tax residents in Portugal in the 5 (five) years prior to the change of tax residence to Portugal.

The tax regime for non-habitual residents is regulated in the Portuguese Personal Income Tax Code and is aimed at attracting certain qualified individuals and investments to our country.

Taxation

The Portuguese Government has published the list of professional activities that should be considered as “high value added activities of a scientific, artistic or technical nature" (relevant for income on a self-employed or employed basis). This list has been updated and restructured since the entry into force of the non-habitual resident regime.

According to this tax regime, a flat tax rate of 20% is applied to income derived from "high value added activities", earned by non-habitual residents in Portugal.

The regime also establishes a tax exemption for income of foreign origin under certain specific conditions.

The employment income obtained in the course of high value-added activities, the property income, interest, dividends, as well as other investment income are normally tax exempt in Portugal.

Pensions earned by individuals covered by the non-habitual resident regime are taxed at an autonomous tax rate of 10%.

The main advantages of this tax regime are:

• For income from "high value added" activities in Portugal is applied a flat rate of 20%;
• For income that the individuals receive from foreign countries an exemption can be applied in most cases: the exemption applies if the income can be taxed in the country of origin based on (i) the double taxation treaty rules, (ii) if there is no double taxation tax treaty between Portugal and the country of origin of the income, it will be granted to the taxpayer a credit for the tax paid in the foreign country and then it will be applied the tax rate regulated in the specific legal rules for the specific income in Portugal;
• For pensions is applied an autonomous tax rate of 10%.

The Regime is applicable for a period of 10 (ten) consecutive years, provided that, in each year, the individual meets the criteria to qualify as a tax resident.

Conditions

The regime benefits individuals who become Portuguese tax residents under the terms of Portuguese tax legislation, as long as they have not been taxed as tax residents in Portugal in any of the previous five years. In these circumstances, individuals will be considered non-habitual residents at the time of their registration with the Portuguese tax authorities.

The application for registration as a non-habitual resident should only be made after the registration as a tax resident in Portugal.

The registration as non-habitual resident must be requested until March 31st of the year following the one in which the individual registers as tax resident in Portugal.

StatisticI

n statistical terms, according to data revealed by the Portuguese tax authorities, it is estimated that there are currently approximately 50 thousand beneficiaries of the non-habitual resident regime in Portugal.

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