The benefits of non-habitual resident status

Over the past few years, Portugal has developed a reputation as the new tax haven for affluent and high-net-worth individuals, all of whom wish to achieve tax optimization by relocating to a friendly, discreet and safe EU country. They are able to do so through a special tax regime for non-habitual residents that presents many attractive fiscal benefits.

Firstly, it renders any private pension income earned abroad tax exempt – with similar exemption possible for other incomes earned abroad. In addition, income derived from high value-added activities earned in Portugal is taxed at a flat rate of 20%. It is also worth bearing in mind that there is no wealth or inheritance tax under the Portuguese system.

In order to apply for non-habitual residency, an individual needs to become a Portuguese taxpayer – having not already been so in the five years prior to application and also will need to be able to spend at least 183 days per fiscal year in Portugal.

Having fulfilled these requirements, they are then free to enjoy the benefits of this taxation for a consecutive 10-year period – true fiscal stability.

The regime was first introduced in Portugal in 2009, with one of its principal objectives to attract wealthy individuals and their families to Portugal by making it financially beneficial to become tax resident.

As a result, Portuguese NHRs have the ability to  grow their wealth in a white-listed jurisdiction, earn income in a tax-friendly environment, dispose of their assets and benefit from tax exemptions, and also enjoy their retirement without tax on their pensions.

However, anyone that applied for NHR after March 31, 2020 will now pay a 10% tax on their pension income. Besides pensions, dividends, royalties and interest from non-Portuguese-sourced income are all exempt from personal income tax in Portugal.

As we can see, there is much more to the Algarve lifestyle than golf and yachts – it makes clear financial sense too.

The Golden Visa is a much-vaunted attraction to the Algarvian coast and the Golden Triangle, but, as non-habitual taxation demonstrates, there are many other financial incentives to entice an affluent individual. Offshore strategies are not as reassuring as they once were – all of which makes the Algarve a highly-desirable alternative for the future.

Besides the benefits under the NHR regime, Portugal as a jurisdiction has a very favourable tax regime, here are some highlights: 
■ No gift and inheritance tax for assets outside of Portugal. Inheritances or gifts of Portuguese assets to spouse, descendants or ascendants are tax exempt. 
■ Gifts to other individuals are subject to a flat 10% stamp tax rate.
■ No wealth tax and free remittance of funds either to Portugal or abroad. 
■ Beneficial treatment for pensions and other life insurance products may also significantly reduce the effective tax burden on capital invested.
■ Portuguese companies may take advantage of EU non-discrimination rules and EU directives on mergers, dividends, interest and royalties, as well as Double Taxation Treaties (DTT) signed by Portugal.
■ Dividends and capital gains obtained by Portuguese companies can benefit from a participation exemption regime, thus making Portugal an interesting location for investments abroad.

Located within the heart of Central Algarve, at Blacktower we can advise on how non-habitual residency can work for you. We are specialists in wealth management, tax planning and more. Our focus is your future financial security.

By Manuela Robinson

Manuela Robinson is the Joint-Country Manager of Blacktower in Portugal. With offices in Quinta do Lago and Cascais.
[email protected] | 289 355 685
Blacktower Financial Management (International) Limited is licensed by the Gibraltar Financial Services Commission. Licence 00805B. Blacktower Financial Management Limited is authorised and regulated in the UK by the Financial Conduct Authority.