Tax-free as a foreign national?

Let’s break the quintessential details down.

You can migrate to countries like  Panama, the non-dom countries of the UK, Ireland, Malta or Cyprus to enjoy the advantageous special taxation regime. But Portugal has also a very interesting programme for non-habitual residents, offering fiscal advantages that make this country one of the most appealing for some who want to emigrate to a country with a Western culture which is geographically within Europe,  with a non-violent population, with a mild climate - and the best: only 3 hours flight from their home country. 

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Advantages of the NHR regime

  • Residency in a European Union member state with a good reputation (your country’s tax office will not cause you problems)

  • A modern and liberal country with a high quality of life and no minimum stay is required

  • Easy to emigrate and apply for the NHR programme


Double taxation agreements to enjoy tax exemption.

Unlike the majority of tax haven programmes, residency in Portugal also has advantages to foreign entrepreneurs with businesses that physically tie them down somewhere. The advantage, of course, is that you won’t find Portugal on any blacklist, despite allowing you to live there without paying taxes or, in certain cases, paying very little. In other words, they do not raise any type of suspicion regarding income and asset optimisation.

 In practice, this option of taxation in other states is very common. Yet, it is something that should be reviewed for each specific case. So far, Portugal has signed an individual DTA with approximately 80 countries. The EU member states generally follow the OECD principle. 

Of course, this seems great at first, but when we take a closer look, things become more complex. This is due to the fact that all tax exemptions are only a possibility and depend on each particular situation. Instead of simply granting tax privileges, the Portuguese Government has followed the OECD’s guidelines and designed a tax optimization scheme that is challenging to understand and requires careful consideration and professional guidance. 

The stern Portuguese CFC rules additionally complicate this situation. The solution: the possibility of taxation in other states allows you to enjoy tax exemption in Portugal. Conclusively, tax exemption results from the interaction of the NHR tax regime with Portugal’s double taxation treaties made with other countries. 

Double taxation agreements frequently allow different kinds of income to be taxed in the country of origin, an option that is frequently neglected for non-residents so as to be more attractive as a place of investment. This is what happens with the NHR regime in Portugal.

A large part of the income that falls into this classification and could be taxed in the country of origin (without actually being taxed in most cases) is not taxed in Portugal either. Ultimately, this means that a large part of the NHR’s foreign income could be tax-exempt.

 In practice, this option of taxation in other states is very common. Yet, it is something that should be reviewed for each specific case. So far, Portugal has signed an individual DTA with approximately 80 countries. The EU member states generally follow the OECD principle. 

For instance, the double taxation agreement between the UK and Portugal:  If you reside as an NHR in Portugal but you receive dividends from the UK, according to Article 10 of the DTA, the English government is able to tax those dividends, but in reality, they do not do this if you are not a resident there. Therefore, in Portugal, you will not be taxed on your English dividends as an NHR, since the UK would theoretically have the right to do so. Therefore, as a non-habitual resident in Portugal, you can receive tax-free dividends from England. 

Please note, there is an important limitation as foreign income from tax havens on Portugal’s blacklist is subject to taxes. Portugal’s blacklist is quite broad and covers almost all the world’s tax havens. Then again, Portugal has signed a double taxation agreement with some tax havens. So despite blacklisted,  the following jurisdictions, notwithstanding being on the blacklist, are valid, therefore an NHR resident does not pay taxes in Portugal for the dividends coming from:

  • Barbados
  • Hong Kong
  • Ireland
  • Kuwait
  • Luxemburg
  • Malta
  • Macao
  • Panama
  • Qatar
  • San Marino
  • Switzerland
  • Singapore
  • The United Arab Emirates
  • Uruguay
  • Cyprus

Foreign income from those countries is likely not being taxed in its country of origin and, therefore, is also not taxed in Portugal. In any case, each double taxation agreement (DTA) must be looked at in detail in order to avoid surprises. 

Do you need help becoming an NHR?

If you are not sure whether the NHR regime is the most suitable for you, you can go over the programme in a consultation session and, in doing so, clarify the more suitable alternatives for tax-exemption. We can put you in touch with one of our local lawyers who we know are knowledgable and experienced as to the complex regulations. We offer a list of lawyer you can choose from if you want assurance, who will help you to analyse the double taxation agreements relevant for your foreign income. You might, of course, opt to make your own choice and instruct a lawyer. Nevertheless, we do not recommend you to try to submit tax returns in Portugal by yourself but look for a tax advisor with experience in the NHR regime.

Regardless of what you decide, we hope we have been able to show you the interesting opportunities that this country offers which you probably know as a holiday destination but certainly not as a tax haven.

Q&A

If you have further questions about the NHR, feel free to get in touch with us. We will pass them on to competent legal advisers or accountants. 


Disclaimer:
Nothing in this analysis is to be considered legal advice. It is solely an interpretation of the information we have accumulated through research and various professionals dedicated to this topic. For comprehensive explanations of specific subjects, please consult your lawyer. If you don’t yet have a lawyer, contact A1 ALGARVE REAL ESTATE to receive an unbiased list of competent and knowledgeable lawyers in the Algarve.


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Financial advantages 

  • The possibility of tax exemption on dividends, interests, rental incomes, property returns, royalties and pensions (provided that there are not public) on income from abroad

  • The possibility of tax exemption on foreign income for certain professions

  • The possibility of a fixed tax rate of 20% on domestic income from the eligible professions

  • Tax-free inheritances and gifts

  • A possibility of obtaining a Portuguese passport after 6 years