⚠️ Important October 2023 update: The NHR scheme will end in 2024, meaning you may only have until the end of 2023 to apply. This article has not yet been updated to reflect this, but you’ll find all the details here.
If you have been part of the Nomad Gate community for a while now, you’ve probably heard us talk plenty about the attractive Golden Visa program on offer in Portugal. However, did you know that Portugal can also offer you some significant tax breaks, and in some cases, it even means you are exempt from paying income tax on foreign income?
- How do the taxbreaks work?
- Eligibility Requirements
- Getting started
- Can non-residents get a NIF, and can you get it online?
- What professions do the NHR program consider to be high-value?
- Is this easier to do alone or should I get specialist help?
- How often do I have to be in Portugal whilst benefiting from NHR status?
- Can Portuguese citizens take advantage of this?
- What determines where income is sourced according to Portuguese law?
- How is crypto taxed in Portugal?
- Which countries have a double taxation treaty with Portugal?
- Which countries are on the tax-haven official blacklist?
- Can NHR status be extended or re-applied for?
Considering it is a whitelisted EU country, it may sound too good to be true. However, in 2009, Portugal created a special non-habitual resident status with the purpose of attracting foreigners with high value-added potential, such as skilled workers, investors, freelancers, and retirees.
The non-habitual residence program (NHR) is a special tax status that offers special tax treatment to non-residents who would like to establish permanent or temporary residence in Portugal. The special status can be enjoyed for a maximum of 10 years.
Of course, there are rules on how all these taxes are applied depending on where your income is coming from, and what your profession is. We will explore these things in more detail, but generally, the NHR status will give you the following benefits:
- The typical benefits that apply to all Portuguese residents such as no wealth tax, inheritance tax, or tax on gifts.
- No tax on certain foreign income.
- A 20% flat tax rate on Portuguese-sourced income in most cases
- A 10% flat tax rate on foreign pensions
How do the taxbreaks work?
A major component of NHR is distinguishing between your foreign-sourced income and domestic Portuguese income. The special tax breaks on foreign-sourced income that you can take advantage of with NHR status are the result of a unique scenario where you basically end up with ‘double non-taxation’. This means that you could go without paying any income tax (or much less tax) on certain foreign-sourced income. They also offer some tax breaks on domestic income as well, as Portugal’s way of attracting foreign professionals into the country.
In order for any of the foreign-sourced income tax exemptions to apply, the source country of the income must have either a double taxation agreement (DTA) with Portugal or else must not be on Portugal’s official list of blacklisted tax-havens ((see FAQ). Otherwise, you can still benefit from NHR tax breaks, but according to the OECD model tax convention instead.
So you understand, here are some scenarios of where the tax breaks apply or don’t apply:
✅ You are receiving income from Norway. It is a white-listed country and has a DTA with Portugal.
✅ You are receiving income from Hong Kong. Hong Kong is on Portugal’s list of black-listed tax havens, however, it also has a DTA with Portugal.
✅ You are receiving income from Thailand. Thailand doesn’t have a DTA with Portugal, but it is also a white-listed country. NHR is based on the OECD tax model instead.
🚫 You are receiving income from the Cayman Islands. It is on the list of blacklisted tax havens, and also doesn’t have a DTA with Portugal. So, the tax breaks don’t apply here.
Ok, so now what? If you fit any of the first three categories, I bet you are wondering what the tax breaks actually look like. Let’s take a look at a breakdown of various categories and scenarios.
Regardless of whether you are self-employed or regularly employed, you can be taxed at a special 20% flat rate if your work is in one of the high-value-added professions (see the FAQ for a full list). Otherwise, you will be subject to ordinary Portuguese income tax. These are comparatively quite high at a progressive rate varying from 14.5% to 48%. Don’t forget though that you also will have to pay social tax on top of this, which in Portugal is 11% for the employee and 23.75% for the employer.
The self-employed are responsible for their own social security contributions. This used to be at a progressive rate but it is no longer the case, as a more favourable rate has been introduced. Having said that, it is not the easiest thing to wrap your head around.
With the newly introduced rates, you instead pay 0% social security on your income during the first 12 months. Then, after 12 months, 70% of your income is subject to social security taxes at a rate of 21.4%, which can be reduced by a further 25% for solo entrepreneurs. However, if you opt for the reduction, your coverage will be limited to the compulsory protection scheme (as opposed to the broader protection scheme).
As an example, say you make €10,000. You have to do the following calculation: €10,000 * 70% * 21.4% * 75% = €1,123.5 in social security.
This will be your magic formula for self-employment taxes. One extra thing to bare in mind is that if your company has no income, you will still have to pay a minimum of €20 euros per month.
The list of high-value professions is quite extensive, covering most skilled workers as well as various specialists in various industries, as well as those in the arts and sciences. It’s good to check the list regularly as it has been known to change in the past.
In all cases, if you are paying social security in another EU country, or a country that has a bilateral social security agreement with Portugal, and you can also prove this, you can get an exemption. As an EU citizen, proving it is easy, as you can request a so-called ‘A1 form’ from the issuing social security authority in your home country. For non-EU citizens, any local certificate proving your coverage should be enough for the Portuguese authorities.
If your employment or self-employment is foreign-sourced, your income is taxed according to the treaty between that country and Portugal. If no such treaty exists, you will be taxed in the source state.
Contrary to popular belief, the tax breaks on employment are not the main benefit of NHR, as income is sourced where the work is performed. As an example, if you have foreign clients, but do the work from Portugal, it is not considered foreign source. In this case, you would still have to pay the 20% rate on domestic income (presuming the work qualifies as one of the high-value professions).
If you have a foreign-registered company, you could theoretically just pay yourself in dividends, which are tax-exempt (see other income), in combination with paying yourself as a freelancer with an income that is equivalent to the Portuguese minimum wage. Some people try to do this in order to pay even fewer taxes, but I would exercise caution. Personally, I think it could be rather risky to rely on this, as Portuguese tax authorities are aware of the loophole, and it may only be a matter of time before they crack down on it.
Many people seem to think that you can get a 0% income tax rate through NHR, but in reality, this is only going to be possible if you will be taxed somewhere else. The main benefit here is for those who have other passive income.
If you are looking for good tax breaks as a freelancing digital nomad, perhaps Malta is actually a better option—although a much less interesting place to spend a lot of time in.
Aside from the benefits from employment income, any foreign source real estate capital gains, royalties, or dividends are also tax-exempt in Portugal. The same rules apply in that the income must originate from a country matching our Norway, Hong Kong, and Thailand scenarios above.
All other capital gains, such as selling shares and bonds will be taxed where you are currently a tax resident (meaning Portugal). Any capital gains earned from a Portuguese source however are taxed at the usual rates, which are 28% for individuals.
Finally, if you have a foreign pension, you will only pay 10% tax on this. This actually used to be 0% but many countries (especially the Nordics) were not very happy with this and wanted to renegotiate their tax treaties. So, in order to keep them content, it was raised to 10%. It is still an attractive option for many, as the rate is much lower than both the usual Portuguese tax on pensions and pension tax in many other countries.
First things first, the NHR status is suitable for people who have recently acquired tax residency in Portugal without having had one for the past 5 years.
To be considered a tax resident, you must either:
- Stay in Portugal for more than 183 days in a 12-month period
- Have your habitual abode in Portugal, which can be proved by either
- Having proof of a long-term rental agreement covering at least a 12 month period
- Own a Portuguese home under the presumption that you intend to occupy it as your habitual abode
- On December 31st of any year, be a crew member of a ship or aircraft operated by a Portuguese resident
- Performing public functions abroad on behalf of the Portuguese state
NHR is not a path to legal residency, it is a tax status for those who already have permission to live in Portugal. Therefore you will need to be either an EU/EEA/Swiss citizen or have already acquired Portuguese residency through the normal visa process. Some popular ways are of course through the D7 visa or Golden Visa programs which we often talk about already.
In order to be considered a new tax resident, this means that you have to apply for NHR by March 31 of the year after you became a tax resident. Your NHR status will be backdated to begin starting the fiscal year when you first became a tax resident. This is quite a confusing thing to wrap your head around, so here are some examples:
Say you become a tax resident in April 2023, you have until March 31 2024 to apply for NHR. Presuming you are successful, you will enjoy your special tax status from January 1st, 2023 to December 31st, 2032.
A more complicated example: Say you are also coming to Portugal on the basis of the Golden Visa program. If you get Golden Visa approval by April 2022, but decide not to move to Portugal straight away, but instead wait until February 2024 (thus becoming a tax resident). You have until March 31st, 2025 to apply for the NHR. If successful, you will have NHR status from January 1st, 2024 until December 31st, 2033.
Now you know what the time frame looks like, let’s have a look at what the overall steps are, and all the required documentation along the way.
Getting proof of legal residency
First, you will need to prove your legal residency in Portugal. For EU/EEA/Swiss citizens, this means registering at the local town hall (Sítio da Câmara), bringing your passport, EHIC (European Health Insurance Card), or proof of other health insurance that covers you. You will have to provide your current address, but you won’t be required to show any proof of address at this stage.
Register as a tax resident
To be a full tax resident, you must obtain a NIF (Número de Identificação Fiscal), as well as register as a tax resident. You can do both of these things at your local government finance office.
Register on the government’s financial portal
You will need to apply for NHR status through the government’s online finance portal. However, in order to access these online services, you will need to register as well. You register at www.portaldasfinancas.gov.pt by clicking Registrar-se at the top of the page, and approximately two weeks later, you will receive an access code in the mail.
Apply for NHR status
Once you have access to the online financial portal, your NIF, and proof of residency, you can finally go ahead and apply for NHR status. You can do this through the same website, by going through the following steps: Cidadãos > Serviços > Dados Cadastrais > Residente Não Habitual > Entregar Pedido de Inscrição. In addition, you will need to sign an online declaration stating that you haven’t been a tax resident in Portugal for the last 5 years. On request, they may ask you to provide proof of this by submitting either:
- Tax returns from the past 5 years
- Proof of purchase of a property or a rental contract.
If you would like to consult a specialist or prefer a lawyer or accountant to apply for NHR status for you, see our curated lists of recommended lawyers and financial advisors who can assist you with this and other tasks.
Can non-residents get a NIF, and can you get it online?
There are service providers allowing you get the NIF entirely online—even before you become resident in Portugal. However, before applying for NHR, you would need to change your NIF from non-resident status to resident status (by submitting your Portuguese address to the tax office).
We have already written a guide on how to get a Portuguese NIF as a non-resident.
They both also offer to consult or help with the NHR process, as well as other things such as bank account opening.
What professions do the NHR program consider to be high-value?
- Computer programmers
- Data processing and hosting specialists
- Medicine doctors
- News agency and other information professionals
- Painters (artistic)
- Scientific research and development professionals
- Senior management positions, except company directors
- Tax consultants
- Theatre, ballet, cinema, radio and TV artistic professionals
- University teachers
- Web developers and designers
- Investors, directors and managers of companies promoting eligible projects under tax incentive contracts
- IT consultants
- IT professionals
- IT specialists (other)
- Life sciences specialists
Is this easier to do alone or should I get specialist help?
It is quite easy to go through the whole process alone, although it may be wise to get a specialist accountant to check if you can get 0% tax on your foreign employment income just to be on the safe side, especially when it comes to making sure your work fits one of the eligible professions. If you prefer to do this with the help of financial or legal specialists, there are many to choose from. Prices vary, but they all offer setting up NHR status as one of their services.
How often do I have to be in Portugal whilst benefiting from NHR status?
In order to keep the benefits from NHR, you must remain a tax-resident in Portugal. (see Eligibility Requirements)
If you spend significant time abroad to the point that you are no longer considered a Portuguese tax resident, it won’t mean you will lose your NHR status, just the tax benefits. The tax benefits will resume when you go back to Portugal and become a tax resident again.
Please note that any time that you are not a tax resident while having NHR status will still count towards the 10 years maximum period. What this means is that you will not be getting the tax benefits for the full 10 year period.
If you do spend significant time in another single country, don’t forget that it can also complicate matters a bit, as you may also be considered a tax resident in that country as well. In this case, you would need to check which country has the right to tax you based on the taxation treaty between that country and Portugal.
Can Portuguese citizens take advantage of this?
Yes, Portuguese who have been living abroad and want to return to Portugal can also benefit from this status. Provided that they haven’t been a tax resident in Portugal for the past 5 years, Portuguese citizens can also take advantage of it.
What determines where income is sourced according to Portuguese law?
For employment income tax, this is where the work is primarily performed. Regardless of if the employer is paying you from abroad, it will be taxed.
If you sell any movable capital gains, the source country is where you are a tax resident at the time that you sell up. So if you sell your stock while in Portugal, you will pay the Portuguese tax rates.
How is crypto taxed in Portugal?
Portugal is often referred to as the most crypto-friendly country in Europe, with no tax on crypto gains that have been held for more than 365 days. There are however some tax regulations (as of 2023), where if you sell crypto assets held for less than 365 days, you will be subject to a flat 28% tax rate on all gains – (NB! This doesn’t apply to NFTs).
Note that this excludes any crypto assets earned from commercial/professional activity, including crypto mining, which are considered self-employment and will be subject to income tax and social security tax. If you have annual earnings below €200,000, you can use a simplified regime where only 15% of your gross crypto-related gross professional income is taxable (at normal progressive rates). The one exception to this is for crypto mining where the taxable base is 95% of gross income.
Which countries have a double taxation treaty with Portugal?
The full updated list of countries that have a double taxation treaty with Portugal can be found at the Portuguese finance portal (although in Portuguese).
Which countries are on the tax-haven official blacklist?
The full updated list of countries on Portugal’s tax-haven blacklist can be found here.
Can NHR status be extended or re-applied for?
NHR is referred to as a nonrenewable opportunity and you can’t extend it past the 10 years. In theory, it could be possible for you to reapply 5 years after your NHR expires (presuming you are not a tax resident during this time). That said, 15 years is a long time and anything can change. The program itself has only been around since 2009, so it’s safe to say nobody has ever tried this yet.
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