Non Habitual Residency
What an enticing tax system you have
Can you live tax free?
The Non-Habitual Residency scheme – NHR – is quickly becoming the hottest ticket in town for professionals looking to benefit from the reduced taxes and tax free pensions this wonderful programme has to offer.
With the lure to spend your retirement in Portugal and not have to pay any tax on the pension you receive for the next 10 years, the NHR programme is attracting some of Europe’s wealthiest individuals who, in turn, are helping to build a much stronger economy.
Created in 2009 by the Portuguese Government, the NHR is open to anyone who has not been tax resident in Portugal for the five consecutive years prior to application and who has the right to reside in Portugal – EU / EEA / Swiss citizen or a holder of a residence permit.
Under the law an unregistered individual will be deemed resident for tax purposes if he/she spends more than 183 days
in the country during a 12 month period, or has a place of residence in the country “in a way that may lead to the supposition of an intention to keep and occupy it as a habitual home”. Application is simple and your status as a Non-Habitual resident should be confirmed within eight weeks.
Focused on two sets of people – retirees who are receiving pensions from overseas and professionals that are either employed or self-employed – the NHR offers beneficial tax treatment for the first 10 years of residence.
For those with employment or self-employment income derived from a “high value-added activity” within Portugal, a special tax rate of 20% is applicable and a significantly reduced rate or even exemption from tax for certain foreign source income (pension, employment income, self-employment income, rental income, certain capital gains, interest, dividends, as well as other investment income), provided certain conditions are met.
The rate paid on foreign income from outside of Portugal is dependent on the tax agreements Portugal has in place, every nationality is different, and it is important to get some financial advice from tax experts to ascertain exactly what reductions you qualify for and to work out how much you could benefit from the scheme. We can put you in touch with tax specialists who will be able to go into more detail about this.
The NHR becomes even more attractive when you factor in the UK’s “pension freedoms” which, from April 6th, 2015 allow those with UK pension schemes greater flexibility in how they can take their pension. It is now possible to simply “drawdown” pension capital on a regular basis, or take the whole of the pension pot as a single lump sum. The attraction for retirees, who intend to live off pension income, and interest and dividends from investments is obvious. Structured correctly, it could be possible to live almost tax-free for 10 years, under the sun here in Portugal.