Portugal: the safe haven in the sun

By Geoffrey Graham, senior partner, NDR

Added 17th May 2016

Increasing numbers of high-value professionals are benefiting from bilateral double-tax agreements that offer Portuguese non-habitual residents qualifying income tax-free in a safe haven.

Portugal: the safe haven in the sun

The Portuguese non-habitual residency (NHR) programme has now been running for seven years and gives the opportunity to new Portuguese residents to receive qualifying income tax-free.

Qualifying income includes not only non-resident pension income but non-resident dividends, interest and royalties.

In addition, there is a list of high added-value activities, for example, doctors, engineers, tax advisers, dentists, computer consultants and medical researchers, who benefit from a flat rate of 20% tax on Portuguese sourced income connected to their activity.

This is particularly interesting for those professionals who may shortly be in receipt of pension income but who wish to continue with their professional activities in Portugal. It has also been used by professionals to relocate their business to Portugal.

Efficient handling

As a general rule, applications for the NHR programme are now being dealt with more efficiently than ever before. In the past, an application would have taken a minimum of four months. Today this has been cut to two, and approval is backdated to the day the applicant became a Portuguese tax resident.

It is not difficult to satisfy the residency terms, based on habitual residency rather than a strict 183-day test. It is not necessary to purchase property to satisfy this requirement, and a long-term rental contract, usually more than one year in duration – will suffice.

Portuguese tax residency will begin on the day a declaration is made in person to the tax authorities that the individual is a Portuguese tax resident. The applicant needs to have been previously tax resident outside Portugal for five years.

Numbers growing

While reliable and up-to-date statistics are hard to obtain, the published numbers show there were 3,730 NHRs in Portugal at the end of 2014. Some 1,068 of these were retired and 1,603 were in receipt of sources of income other than salary. These numbers are likely to have increased significantly in 2015 due to the number of French citizens, in particular, applying in 2015.

These figures already show the NHR programme is not only benefitting individuals in receipt of pension income. Even so, these numbers do not come close to rivalling the numbers of non-domiciled residents in the UK, even taken as a proportion of the population, showing there is still some way to go before the NHR market is considered in any way saturated.

NHR status is granted for a period of 10 years and while there has been a change of government, the programme was mentioned in the manifesto of the majority party in the current coalition government as being a key part of the investment programme.

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