Taxes, taxes, and more taxes. I am not a fan of over taxation. Fair taxation I am totally cool with (taxes pay for public services, roads, lights…not all taxes are bad). One of the benefits of moving to Portugal is that they offer the Portuguese Non-Habitual Tax Residency program aimed at retirees, startups and the self-employed. This program will give you 10-years of a flat 20% tax rate (except capital gains) in Portugal. What does this mean for US citizens? Simple, single taxation vs double taxation.
The US is one of the worst countries when it comes to taxation. As a US citizen, you are mandated to file US taxes for incomes in the USA AND abroad. The only other backward country that does this is Eritrea. I don’t even know where that is.
What is the Portuguese Non-Habitual Tax Residency (NHR)
It is important to understand that the Portuguese Non-Habitual Residency status is not truly “tax-free”. The Portuguese NHR allows some people who become residents in Portugal to not be taxed on certain income types in Portugal as well as the country where that income is made.
What Type of Income is Tax-Free Under NHR
If you apply for a Portuguese Non-Habitual Residency and get it, then pensions, dividend, royalty and interest income are “tax-free”. Other types of professional income will be taxed at a flat rate of 20%.
Below is a list of the foreign incomes that are or can be exempt from taxation in Portugal under the NHR:
- Dividends & Interest
- In the case of income derived from employment, when:
- Income is taxed in the State of the source, in accordance with the convention to eliminate double taxation, signed by Portugal and that State
- In the case of income such as rental income or capital gain on sale of properties, when:
- The income may be taxed in the source country, territory or region, in accordance with the convention to eliminate double taxation, or;
***If your income is sourced from a tax haven, it will be taxed at a rate of 35%.
Am I Eligible for a Portuguese Non-Habitual Tax Residency?
If you become a Portuguese tax resident who has not been a tax resident in Portugal for the past 5 years you may be eligible for the NHR. You must spend more than 183 days in Portugal during the tax year (Jan 1 – Dec 31) or have a home in Portugal on Dec 31 of that year that will become your permanent residence. This home does not have to be a place you own, it can also be a property that you rent.
How Long Does NHR Last?
If you are granted NHR status, you will have it for 10 years.
How to Apply for Portuguese Non-Habitual Tax Residency
You must apply before March 31 of the next tax year. If you are going to apply, we recommend that you hire a lawyer that specializes in Portuguese NHR residency. It will cost you but will save you time and aggravation.
PRO TIP – unlike the United States where lawyers/accountants will write you back as soon as they get an email, here in Portugal, this is not standard practice. Here, it is considered inpolite to email you back with empty words. It is considered a waste of your time, so many times your lawyer/accountant won’t get back to you immediately. They will write you back once a process has finished or when they have results.
How Long Does the Process Take
Our Portuguese NHR Lawyer got us approved within a week after putting in the application, so the process was incredibly quick and simple. Don’t try to do this yourself. Let a professional handle it for you.
Where to Find the Application Forms
Should you be insane and want to do this yourself (Portugal loves paperwork and bureaucracy), you can begin the process yourself at the Portal das Financas website. Just be warned that taxes and bureaucracy in Portugal are complicated…to say the least. All paperwork is and legally must be done in Portuguese. So work on your language skills Memrise. There is plenty of conflicting info everywhere which is why I highly recommend that you go the way of a lawyer. On top of this, the AT website is a mess. It is hard to navigate, links often break and it is not updated often.
Steps to take after getting the initial paperwork.
You will need to get:
- Portuguese Lease or Deed to Property
- Document from your Fiscal Representative
- Copy of Passport
- Copy of your Registo Central de Contribuinte (NIF)
- Application from AT website for NHR
Your representative will have to join you when you visit the AT to attest the documentations. So you will still need a Fiscal Rep. Just get a friggin lawyer do this for you. It will cost you 100 Euros more and be done with.
Have specific questions on the NHR? Leave a comment. We’ll get back to you in a jiffy.
*UPDATE: As of 2018 it appears they may be adding a 5% or 10% tax on dividend, royalty and interest income due to a law suit filed by Finland in the European Tax Court. This will effect all future NHR holders. So get your NHR immediately!
**NOTE: We try our best to keep this updated, but you should always discuss with your lawyer since things are changing so fast.