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The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
1
Decree-Law nr.
249/2009, of
September 23,
created a new
Personal Income Tax
regime for NHR
individuals.
A. The non-habitual tax resident
regime
1. The Decree-Law
Decree-Law nr. 249/2009, of
September 23, among other
measures directed at improving
Portuguese international
competitiveness, such as the
approval of the Tax Code for
Investment (“Código Fiscal do
Investimento”), created a new
Personal Income Tax (“Imposto
sobre o Rendimento das Pessoas
Singulares”, hereinafter “IRS”)
regime for NHR individuals.
This status would apparently be
granted to individuals who became
resident for tax purposes in
Portugal starting from January 1,
2009 without having been so in the
five years preceding its acquisition.
NHR individuals may enjoy such
status for a ten-year period, after
which they will be taxed under the
standard IRS regime.
Portuguese tax residence for IRS
purposes, in each tax year, may be
acquired via different ways, such
as:
a) Staying for more than 183 days
in the Portuguese territory,
whether these days are
consecutive or not, in any 12-
month period beginning or
ending in the given tax year;
b) If staying for a shorter period,
having in the Portuguese
territory, on any day during the
period referred above, a
dwelling under circumstances
that lead to the presumption of
an intention to hold and occupy
it as a place of habitual abode; or
September 2017
The Portuguese Non-Habitual
Tax Resident (NHR) Regime
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
2
c) Being, on December 31, a crew
member of a ship or aircraft at
the service of an entity with
residence, head office or
effective management in
Portugal.
The new tax regime targets non-
resident individuals who are likely
to establish a permanent or a
temporary residence in Portugal.
The regime includes three different
sets of rules, (i) one of them
applicable to foreign-sourced
passive income (interest,
dividends, certain royalties, other
income from capital, capital gains
and income from immovable
property), similar to non-
domiciled taxation regimes such as
the ones of the United Kingdom
and Switzerland, (ii) another
applicable to pensions and (iii) the
remaining to active income, in this
case encompassing income derived
both from foreign and domestic
sources, following expatriate,
rectius impatriate, taxation regimes
such as the ones existing in Spain
and France.
Under the first set of rules, passive
income derived by NHR residents
will be IRS exempt (without
progression except in the case of
capital gains on real estate, where
the income being exempted must
be considered to determine the tax
rates applicable to non-exempt
income) in Portugal, provided that
it may be taxed in the source State
under the rules of a tax treaty
entered into by Portugal or, if no
treaty exists, that (i) it may be taxed
in the source State according to the
rules of the OECD Model Tax
Convention on Income and on
Capital, as interpreted in the light
of the Portuguese reservations on
its articles and of the observations
on its commentary; (ii) it is not
considered to arise from a
The new tax regime
targets non-resident
individuals who are
likely to establish a
permanent or a
temporary residence
in Portugal.
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
3
The passive income
included in this
regime comprises
interest, dividends,
certain royalties,
other income from
capital, capital gains
and income from
immovable property.
Portuguese source under the IRS
Code territoriality rules; and (iii)
the source State, region or territory
is not included in the Portuguese
tax havens’ blacklist.
The regime requires only a
potential liability to taxation in the
source State under the rules of a tax
treaty or of the OECD Model Tax
Convention, no effective taxation
being thus required.
The second set of rules relates to
pension income, where actual
taxation on the source State under
the rules of a tax treaty or,
alternatively, no connection of the
income with the Portuguese
territory under the territorial scope
rules of the IRS Code, is required
for the exemption (with
progression) to be applicable. This
last rule exempts pensions which
are not paid by entities with
residence, head office, effective
management or permanent
establishment, to which the
payment relates to, in Portugal.
The third set of rules will be
applicable to active income
deriving from employment,
independent personal services and
also to foreign-sourced income
from intellectual and industrial
property or from the provision of
information relating to experience
gained in the industrial,
commercial or scientific sectors
(know-how), when derived by the
original holder.
Under it, foreign-sourced
employment income will be
exempt from IRS (with
progression, except insofar as it
derives from certain high value
added activities of a scientific,
artistic or technical nature, as
defined by Ministerial Order),
provided that it is taxed in the
source State according to the rules
of a tax treaty entered into by
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
4
Portugal or, if no treaty is in place,
that it is taxed in the source State
and that it is not considered to arise
from a Portuguese source under
the IRS Code territoriality rules.
Foreign-sourced income from
independent personal services (i)
derived from high value added
activities of a scientific, artistic or
technical nature, as defined by
Ministerial Order, or (ii) foreign-
sourced income from intellectual
and industrial property or from the
provision of information relating to
experience gained in the industrial,
commercial or scientific sectors
(know-how), when these royalties
were derived by the original holder
(i) will be exempt (without
progression in the first case and
with progression in the second), as
long as such income may be taxed
in the source State according to the
rules of a tax treaty entered into by
Portugal or, if no treaty is in place,
that (i) it may be taxed in the source
State according to the rules of the
OECD Model Tax Convention on
Income and on Capital, as
interpreted in the light of the
Portuguese reservations on its
articles and of the observations on
its commentary; (ii) it is not
considered to arise from a
Portuguese source under the IRS
Code territoriality rules; and (iii)
the source State, region or territory
is not included in the Portuguese
tax havens’ blacklist.
Effective taxation is therefore only
required in regard of employment
income. However, the independent
personal services exemption will
only be applicable to income
derived from certain high value-
added activities of a scientific,
artistic or technical nature, as
defined by Ministerial Order.
High value-added activities’
income deriving from employment
or independent personal services
of a domestic or foreign source
(only if not exempt), are liable to
autonomous taxation at a special
20% flat rate and not to the general
and progressive IRS rates (whose
higher bracket is of 48% for taxable
income above € 80.640 in the tax
year of 2017; moreover, taxpayers
with taxable income above € 80.000
are liable to an additional solidarity
rate of 2,5% on income exceeding
such amount and of 5% on income
exceeding € 250.000 during the tax
year.
NHRs deriving foreign-sourced
income that will be IRS exempt
under both these sets of rules will
be allowed to opt, in its regard, for
the credit method, the standard
method for the elimination of
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
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High value-added
activities’ income
deriving from
employment or
independent
personal services of a
domestic or foreign
source (if not
exempt) are liable to
autonomous
taxation at a special
20% flat rate.
international double taxation in
Portugal. Whenever this option is
exercised, the income will be taxed
under the standard IRS regime,
being liable either to progressive
rates of up to 48% (plus 2,5% on
taxable income above € 80.000 and
5% on taxable income above €
250.000 during 2017) or to special
lower flat rates, depending on its
nature. The option for credit must
be exercised on an all-or-nothing
basis, meaning that opting for the
credit method in regard of one
category of income will imply that
the option is extended to all
remaining categories of income
and the exemption method
completely forfeited.
Additionally, NHRs deriving
income taxed at the special 20% flat
rate may also opt for the
progressive IRS rates (of up to 48%,
plus 2,5% on taxable income above
€ 80.000 and 5% on taxable income
above € 250.000, during 2017) in its
regard.
2. The Ministerial Order
Ministerial Order nr. 12/2010, of
January 7, defined the “high value-
added activities of a scientific,
artistic or technical nature”
qualifying for the regime. The main
feature to be highlighted from this
Order is the fact that
sportspersons’ activities are not
included in its scope, contrarily to
what was initially expected and
thereby departing this regime from
the well-known and so-called
Spanish “Beckham Law”.
Nevertheless, the Ministerial Order
encompasses a wide range of
professions and activities, as
follows:
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
6
Portuguese English
1 - Arquitectos, engenheiros e técnicos similares:
101 - Arquitectos;
102 - Engenheiros;
103 - Geólogos.
1 - Architects, engineers and similar technicians:
101 - Architects;
102 - Engineers;
103 - Geologists.
2 - Artistas plásticos, actores e músicos:
201 - Artistas de teatro, bailado, cinema, rádio e
televisão;
202 - Cantores;
203 - Escultores;
204 - Músicos;
205 - Pintores.
2 - Visual artists, actors and musicians:
201 - Theater, ballet, film, radio and television
Artists;
202 - Singers;
203 - Sculptors;
204 - Musicians;
205 - Painters.
3 - Auditores:
301 - Auditores;
302 - Consultores fiscais.
3 - Auditors:
301 - Auditors;
302 - Tax Consultants.
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
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Portuguese English
4 - Médicos e dentistas:
401 - Dentistas;
402 - Médicos analistas;
403 - Médicos cirurgiões;
404 - Médicos de bordo em navios;
405 - Médicos de clínica geral;
406 - Médicos dentistas;
407 - Médicos estomatologistas;
408 - Médicos fisiatras;
409 - Médicos gastroenterologistas;
410 - Médicos oftalmologistas;
411 - Médicos ortopedistas;
412 - Médicos otorrinolaringologistas;
413 - Médicos pediatras;
4 - Doctors and dentists:
401 - Dentists;
402 – Analyst Doctors;
403 - Surgeons;
404 – Board doctors in ships;
405 - General Practitioners;
406 - Dentists;
407 - Dentist Doctors;
408 - Physiatrists;
409 - Gastroenterologists;
410 - Ophthalmologists;
411 - Orthopaedists;
412 - Otorhinolaryngologists;
413 - Paediatricians;
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
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Portuguese English
414 - Médicos radiologistas;
415 - Médicos de outras especialidades.
414 - Radiologists;
415 - Doctors in other specialties.
5 - Professores:
501 - Professores universitários.
5 - Teachers:
501 - University professors.
6 - Psicólogos:
601 - Psicólogos.
6 - Psychologists:
601 - Psychologists.
7 - Profissões liberais, técnicos e assimilados:
701 - Arqueólogos;
702 - Biólogos e especialistas em ciências da vida;
703 - Programadores informáticos;
704 - Consultoria e programação informática e
actividades relacionadas com as tecnologias da
informação e informática;
705 - Actividades de programação informática;
706 - Actividades de consultoria em informática;
7 - Professional services, technicians and similar:
701 - Archaeologists;
702 - Biologists and experts in life sciences;
703 - Computer Programmers;
704 - Software consultancy and activities related
to information technology and information
technology;
705 - Computer programming activities;
706 - Computer consultancy activities;
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
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Portuguese English
707 - Gestão e exploração de equipamento
informático;
708 - Actividades dos serviços de informação;
709 - Actividades de processamento de dados,
domiciliação de informação e actividades
relacionadas; portais Web;
710 - Actividades de processamento de dados,
domiciliação de informação e actividades
relacionadas;
711 - Outras actividades dos serviços de
informação;
712 - Actividades de agências de notícias;
713 - Outras actividades dos serviços de
informação;
714 - Actividades de investigação científica e de
desenvolvimento;
715 - Investigação e desenvolvimento das
ciências físicas e naturais;
707 - Management and operation of computer
equipment;
708 - Activities of information services;
709 - Activities of data processing, hosting
information and related activities; Web portals;
710 - Activities of data processing, hosting
information and related activities;
711 - Other information service activities;
712 - Activities of news agencies;
713 - Other information service activities;
714 - Scientific research and development;
715 - Research and development of science
physical and natural;
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
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Portuguese English
716 - Investigação e desenvolvimento em
biotecnologia;
717 — Designers.
716 - Research and development in
biotechnology;
717 - Designers.
8 — Investidores, administradores e gestores:
801 — Investidores, administradores e gestores
de empresas promotoras de investimento
produtivo, desde que afectos a projectos elegíveis
e com contratos de concessão de benefícios fiscais
celebrados ao abrigo do Código Fiscal do
Investimento;
802 — Quadros superiores de empresas.
8 - Investors, administrators and managers:
801 - Investors, administrators and managers of
companies promoting productive investment, if
allocated to eligible projects under tax benefit
contracts awarded under the Tax Code for
Investment;
802 - Senior employees of companies.
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
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3. The Administrative Rulings
The Portuguese tax authorities
issued a ruling in May 6, 2010
(Administrative Ruling nr. 2/2010)
dealing with practical aspects of
the regime, namely its application
in 2009 and the requirements to
obtain the NHR status.
Concerning the application of the
regime in 2009, Portuguese tax
authorities therein assume the
position that the features
depending on the definition of the
qualifying activities (the 20% flat
tax rate for employment and
independent personal services’
income, as well as the exemption
for foreign-sourced independent
personal services’ income) are only
applicable starting from fiscal year
2010.
The remaining features of the
regime (the exemptions for other
types of foreign-sourced income)
were deemed applicable in 2009.
This position raised serious doubts,
as the law sets out that the benefits
of the regime are granted for a ten-
year period. It remains to be seen if
this ten-year period will be taken
into account in different ways,
starting in 2009 for the benefits not
depending on the Ministerial
Order and in 2010 for those which
are.
In regard of the requirements to
obtain the NHR status, the ruling
took the position that for those
becoming Portuguese tax residents
in 2009 the regime would only be
applied on a case-by-case basis,
and to:
a) taxpayers registering as tax
residents “under the assumption
that they would be covered by the
regime”; and
b) doing so after September 23,
2009, the publication date of the
Decree-Law approving the regime.
Both requirements may be viewed
as illegal, as the Decree- Law
clearly establishes that it is
applicable starting from January 1,
2009.
A second ruling has been issued in
August 3, 2012 (Administrative
Ruling nr. 9/2012).
Among other minor features (all
already clearly established by law),
this ruling has changed the tax
authorities’ position concerning the
requirements to obtain the NHR
status. Under the new ruling, it is
sufficient that a taxpayer adds to its
application to the regime a
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
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It is sufficient that a
taxpayer states in its
application that he
solemnly declares
that he or she did not
fulfil the conditions
to be considered a
Portuguese tax
resident in the five
preceding tax years.
statement under which he
solemnly declares that he or she
did not fulfil the conditions to be
considered a Portuguese tax
resident in the five preceding tax
years, either under our domestic
law or by effect of a tax treaty
entered into by Portugal.
This ruling partially revokes ruling
nr. 2/2010, which (illegally)
required taxpayers to present upon
application foreign certificates of
residence and certificates
establishing that they had suffered
an effective tax burden abroad in
the five tax years preceding their
redomiciliation into Portugal.
This change renders new
applications to the regime
significantly less burdensome and
will also unblock previously
submitted applications whose
decision was being delayed by the
lack of any of the mentioned
documents, as ruling nr. 9/2012
expressly states that it is applicable
to pending applications.
Finally, it must be noted that, vis-à-
vis activity code 802 - senior
employees of companies, ruling nr.
2/2010 has adopted a very
restrictive view, which has
remained unchanged by ruling nr.
9/2012. According to this view,
only persons with management
roles and powers to bind
companies may fit into this
category, which is an
incomprehensible position, as
usually only members of corporate
bodies (maxime, members of the
board) have such powers and the
concept of “senior employees of
companies” must naturally differ
from that of “investors, directors
and managers”. Despite this
position, it should be said that, in
practice, this activity code has been
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
13
recognised by the tax authorities
on requests by taxpayers with
more leeway than one might
anticipate given the rulings’
position.
Ruling nr. 2/2010 has also clarified
that those employed in companies
fully or partially owned by the
Portuguese State, Autonomous
Regions and Municipalities and
those in charge of a Portuguese
permanent establishment of a non-
resident company also qualify for
activity code 801 - investors,
administrators and managers of
companies promoting productive
investment, provided of course
that such companies and
permanent establishments have
entered into tax benefit contracts
under the Tax Code for Investment
and that the activity of such
persons is allocated to the specific
projects giving rise to the tax
benefit contracts.
4. State Budget Law for 2012
Law nr. 64-B/2011, of December 30,
which approved the State Budget
Law for 2012, has introduced a new
20% withholding tax rate for
domestic source employment or
independent personal services
income deriving from high value-
added activities of a scientific,
artistic or technical nature.
This rate, applicable from January 1,
2012 onwards, means that NHRs
with domestic source income of
these categories are, from that date
on, no longer liable to the standard withholding tax rates of up to 45,3%
(in 2017) for employment income
(depending on the amount of the
income and on their personal and family circumstances) and of 25%
for independent personal services
The State Budget
Law for 2012
introduced a 20%
withholding tax rate
for domestic source
employment or
independent personal
services income
deriving from high
value-added
activities of a
scientific, artistic or
technical nature.
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
14
income. This solved the previous
problem of the tax paid in advance
during the year being higher than
the final tax due, as such income is
liable to a special 20% flat tax rate
and not to the general and
progressive rates of up to 48% (plus
2,5% on taxable income above €
80.000 and 5% on taxable income
above € 250.000 during 2017), as
mentioned in point 1. above.
5. Amended State Budget Law for
2012
Law nr. 20/2012, of May 14 - the
Amended State Budget Law for
2012 -, introduced a term for the
submission of applications to the
NHR regime.
Under the changes introduced to
the IRS Code, applications must
now be submitted until March 31 of
the tax year following that in which
Portuguese tax residence is
acquired.
It has been expressly established in
the Amended State Budget Law for
2012 that such deadline was
previously non-existent, which
means that applications previously
denied on the grounds of being
extemporaneous and still pending
appreciation, namely due to the
submission of administrative
appeals, will now be decided
favourably. It is also possible that
cases of applications previously
denied on the grounds of being
extemporaneous and already fully
decided (i.e., where no appeals are
pending) might again be submitted
to the Portuguese tax authorities,
although this should be
approached with care.
6. State Budget Law for 2013
The State Budget Law for 2013
(Law nr. 66-B/2013, of December
31) introduced two changes to the
regime.
One of them was that taxable
income of individuals became
subject to an extraordinary surtax
of 3,5% in 2013, applicable to the
employment or independent
personal services income deriving
from high value-added activities of
a scientific, artistic or technical
nature obtained by NHRs liable to
autonomous taxation at a special
20% flat rate, as well as to any non-
exempt income liable to the general
and progressive IRS rates.
In the case of employment income
deriving from high value-added
activities of a scientific, artistic or
technical nature, the 3,5%
surcharge was added to the 20%
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
15
The State Budget
Law for 2013
introduced an
extraordinary surtax
of 3,5%.
withholding tax rate introduced by
the State Budget Law for 2012. In
the case of independent personal
services income of the same nature
the surcharge was only levied
upon the submission of the yearly
tax return.
The second aspect of State Budget
Law for 2013 was a change to the
wording of paragraphs (3), (4) and
(5) of article 81 of the IRS Code,
which establish the conditions for
the exemption of (i) employment
income; (ii) independent
professional services income
obtained through high value-
added activities, royalties, capital
income, rental income and capital
gains; and (iii) pension income,
respectively.
This change is, in our opinion,
irrelevant, in all cases, as it does not
amend the already previously tax-
exempt status of such items of
income.
However, as far as pension income
is concerned, it had the intention to
put an end to an abusive
interpretation by the tax
authorities of the second condition
of paragraph (5) of article 81 of the
IRS Code, according to which the
non-taxation of non-Portuguese
sourced pensions applies only in
cases where no tax treaty exists.
This interpretation had no
sustenance, as the tax exemption
for foreign sourced pensions was
clearly applicable to pensions
sourced in States with which
Portugal both had and had not
entered into a tax treaty. Moreover,
it made no sense to sustain this
position, as it would imply that
foreign pensions earned by NHRs
which had not been taxed at source
would be exempt if they originated
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
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from tax havens (with no tax treaty
with Portugal) but would be
taxable if they originated from
States with a tax treaty entered into
with Portugal.
Other additional problems have
also arisen in the application of the
regime, especially deriving from
the poor adaptation of the IRS
return form to some of the regime’s
features. Namely, the tax return
form seemed to require that
pensions were taxed abroad for
them to be IRS exempt under the
regime (which, we stress again, is
not legally required) and the
electronic filing system seemed to
have been configured in a way that
raised difficulties in the application
of the regime to passive income,
such as capital income, rental
income, royalties and capital gains
on real estate.
The tax authorities’ interpretation,
together with the poor drafting of
the IRS return form, raised
practical and important doubts on
the application of the regime
concerning pensions which were
not fully clarified with the very
subtle change deriving from the
State Budget Law for 2013.
The effects of that change have
been debated. As the new wording
was enacted without retroactive or
interpretative effect, it remained
doubtful whether the tax
authorities would accept to apply
the exemption for pension income
to pensions received until
December 31, 2012, and sourced in
States with which Portugal has
entered into a tax treaty.
7. Other developments in 2013
It was expected that an
administrative ruling would be
The tax authorities’
interpretation and
the poor drafting of
the IRS return form
have raised practical
and important
doubts in the past on
the application of the
regime concerning
pensions. However,
the regime is now
fully applied by
Portuguese tax
authorities.
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
17
issued by the Secretary of State of
Tax Affairs or the Director-General
of Taxes in the aftermath of the said
legislative change, to fully
eradicate the existing doubts.
However, the expected
clarifications emerged more
prosaically, with the issuing in
December 2012 of tax assessments
for taxpayers under the regime and
with no foreign sourced pension
income, and with the issuing in the
end of March 2013 of tax
assessments for taxpayers with
foreign sourced pension income.
Tax assessments for taxpayers
under the regime were pending
issuance since its inception, which
was previously a source of major
concern regarding its practical
application. The regime clearly
then became fully applied by
Portuguese tax authorities.
The said assessments were,
however, incorrectly issued as
regards foreign sourced capital
income, rental income, royalties
and capital gains on real estate, as
these were deemed taxable even
when the requirements for their
exemption – (a) possibility of
taxation at source according to the
rules of a tax treaty entered into by
Portugal or, if no treaty is in place,
(b) that (i) it may be taxed in the
source State according to the rules
of the OECD Model Tax
Convention on Income and on
Capital, as interpreted in the light
of the Portuguese reservations on
its articles and of the observations
on its commentary; (ii) it is not
considered to arise from a
Portuguese source under the IRS
Code territoriality rules; and (iii)
the source State, region or territory
is not included in the Portuguese
tax havens’ blacklist - were
verified.
In certain cases, taxpayers were
forced to submit administrative
appeals against assessments
bearing such a mistake, to be fully
protected.
This problem was also solved at the
end of 2013. Pending appeals were
decided in favour of taxpayers and
Portuguese tax authorities have
issued corrective tax assessments
replacing all assessments suffering
from this mistake, even those not
under appeal.
8. Changes to the procedure to
register as tax resident in
Portugal
Decree-Law nr. 14/2013, of January
18, changed the rules applicable to
the registration of taxpayers. Non-
Portuguese nationals are now
required to obtain a valid residence
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
18
permit or a long-term residence
certificate to register as tax
residents in Portugal, something
which was previously not
required, at least in theory.
Registering as a tax resident in
Portugal is a requirement to be
granted the NHR status, which
means that those wishing to apply
for the regime must now: (i)
register as non-resident taxpayers;
(ii) obtain residence permits (for
non-EU nationals) or long-term
residence certificates (for EU
nationals); (iii) register as tax
residents; (iv) request the password
to access the tax authorities’
website; and (v) only then apply for
the NHR status. Decree-Law nr.
41/2016, of August 1, also changed
the means of application to the
NHR status, which is now
submitted via the tax authorities’
website.
9. State Budget Law for 2014 and
subsequent developments
The State Budget Law for 2014
(Law nr. 83-C/2013, of December
31) once again approved a 3,5%
extraordinary surtax, applicable in
the exact same terms as the one in
force during 2013.
Moreover, Ministerial Order nr.
365/2013, of December 23,
approved a new IRS return form,
applicable to returns submitted as
from January 1 of 2014, concerning
income obtained in preceding tax
years.
Following the clarifications of 2013
in regard of pensions and passive
income, the changes introduced to
the form clarified that only foreign-
sourced employment income must
be effectively taxed by the State of
source to qualify for the NHR
exemptions. In fact, the form now
Registering as a tax
resident in Portugal
is a requirement to
be granted the NHR
status.
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
19
expressly states that (i) all foreign
sourced pensions and (ii) foreign
sourced passive income that is
liable to tax at the State of source
is tax exempt in Portugal,
regardless of effective taxation
abroad.
10. Expected changes for 2015 - the
IRS Code Reform
The Commission charged with the
2014 IRS reform, which entered
into force on January 1, 2015, had
proposed to the Government the
enactment of significant changes to
the NHR regime, directed at
increasing its attractiveness.
The most relevant proposed
change was a widening of the
exemptions for foreign-sourced
income to encompass: (i) all
passive income (interest,
dividends, royalties, other income
from capital, capital gains on any
foreign asset, including shares, and
income from immovable property),
regardless of the liability to
potential taxation at source under
an existing tax treaty or the OECD
Model Tax Convention; and (ii)
independent personal services
income of any kind, provided that it is potentially liable to taxation in
the source State under the rules of
a tax treaty or of the OECD Model
Tax Convention.
Moreover, the Commission also
proposed the inclusion of
actuaries, airline pilots and
directors and managers of all
companies, regardless of their activity sector and of the existence
of a tax benefit contract with the
Portuguese State, in the list of high value-added activities of a
scientific, artistic or technical
nature which qualify non-exempt employment and independent
The changes
introduced to the
form clarify that
only foreign-sourced
employment income
must be effectively
taxed by the State of
source to qualify for
the NHR
exemptions.
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
20
personal services income for the
special 20% flat rate.
This inclusion would operate
through an amendment to the
Ministerial Order mentioned above
in point 2.
Finally, the Commission also
proposed the abolishing of an
existing withholding tax, applicable to cases where exempt
foreign-sourced income derived by
NHRs from securities is paid
through Portuguese entities, as in
practice the withholding was
rendering the exemption
ineffective in such cases.
11. Effective changes for 2015
Despite high expectations, only the
last of the mentioned changes
proposed by the Commission
charged with the 2014 IRS Reform
was approved.
However, additions to the list of
high value-added activities of a
scientific, artistic or technical nature
– which qualify non-exempt
employment and independent
personal services income for the
special 20% flat rate – do not require
legislative action, but only a change
in the Ministerial Order approving
the list, and therefore may simply
be approved by the Minister of
Finance.
Additionally, there have been
changes to more general aspects of
the IRS Code which may impact the
NHR regime. The most relevant is
the option granted to NHRs
deriving foreign-sourced income
that will be IRS exempt to opt for
progressive rates (of up to 48%, plus
2,5% on taxable income above
€80.000 and 5% on taxable income
above € 250.000, during 2017) in its
regard.
In fact, whereas in the past this
option had to be exercised on an all-
or-nothing basis, meaning that if
exercised in regard of one category
of income all remaining categories
would be subject to the said
progressive rates, with the credit
method being applied and the
exemption method forfeited in
regard of all of them, it is now
possible to opt for the progressive
IRS rates on a per-income category
basis.
This means that it is now possible to
have income from one category
taxed under the IRS progressive
rates, with the credit method being
applicable, and the remaining ones
still benefiting from the applicable
exemptions or special rates.
The main advantage of this option
is that the application of the
progressive rates enables the carry-
forward of losses (between 5 and 12
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
21
years) in the categories of income
where it is applicable. As the
application of the progressive IRS
rates to a category of income in
which losses are registered in a
given year and in regard of which
the carry forward of losses is
available in general terms no longer
implies the forfeiting of the
exemption method in regard of the
remaining categories of income, this
option, together with an also new
possibility to carry forward existing
excess foreign tax credit (during 5
years), may prove beneficial with
regard to income not encompassed
by the NHR exemptions.
The option for the credit method
regarding exempt income remains
available, but it is still applicable on
an all-or-nothing basis, meaning
that, when exercised in regard of
one category of income, income of
all categories will be taxed under
the standard IRS regime, being
liable either to progressive rates of
up to 48% (plus 2,5% on taxable
income above € 80.000 and 5% on
taxable income above € 250.000,
during 2017) or to special lower flat
rates, depending on its nature. This
option also implies that the credit
method will be applied to income of
all categories and the exemption
method completely forfeited.
The consequences of the options for
the IRS progressive rates and for the
credit method may be summarized
as follows:
Option for the
IRS progressive
rates
Per-category
basis
Credit method
applicable to
categories
where the
option was
made
Exemption and
special rates
retained on
remaining
categories
Option for the
credit method
All-or-nothing
basis
Exemption lost
on all categories
of income
Special rates
retained on
remaining
categories,
whenever
applicable
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
22
Finally, the State Budget Law for
2015 (Law nr. 82-B/2014, of
December 31) has once again
approved a 3,5% extraordinary
surtax, applicable in the exact same
terms as the one in force during
2013 and 2014.
12. Other tax features and
planning opportunities
Law nr. 15/2010, of June 26, has
abolished a long-standing IRS
exclusion for capital gains on
shares held for more than 12
months.
This has relevant consequences for
the NHR regime, as its tax
exemption for capital gains had
been built with that exclusion in
mind and in such a way that it is
only applicable if the income may
be taxed in the source State under
the rules of a tax treaty entered into
by Portugal (or, if no treaty exists,
according to the rules of the OECD
Model Tax Convention on Income
and on Capital, as interpreted in
light of the Portuguese
reservations on its articles and of
the observations on its
commentary).
This implies that most capital gains
(maxime on foreign shareholdings
and other securities) will remain
taxable in Portugal as both most of
the Portuguese tax treaties and the
OECD Model Tax Convention
establish in this case that the
residence state has exclusive
competence to tax.
Additionally, several other
attractive features remain for the
Portuguese taxation of individuals.
Firstly, several capital gains are
excluded from IRS taxation, such
as those on:
a) shares and quotas, acquired
before January 1, 1989;
b) real estate, except land for
construction, owned before
January 1, 1989;
c) a taxpayer's personal and
permanent residence insofar as
the sale proceeds are reinvested
in another personal residence in
the Portuguese, European
Union or European Economic
Space territory (in the latter case
if there is an instrument
providing for exchange of
information between the tax
authorities of both States in
terms similar to the ones in force
within the European Union).
Contributions made by the
employer to pension funds and life
and health insurance schemes are
not regarded as employment
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
23
Most capital gains
(maxime on
foreign
shareholdings and
other securities)
remain taxable in
Portugal.
income provided that certain
conditions are met.
Finally, since January 1, 2004, close
family (spouses, children,
grandchildren, parents and
grandparents) is exempt from
Stamp Tax on gifts and
inheritances. Other situations
involving the gratuitous disposal
of Portuguese assets are taxed
through a 10% (or 10,8% when a
gift of real estate is concerned)
Stamp Tax.
However, the disposal of foreign
assets, even towards Portuguese
residents (such as the disposal of (i)
shares in companies whose head-
office, effective management or
permanent establishment is not in
Portuguese territory, and of (ii)
credit rights or rights with an
economic content over individuals
or companies, with residence,
head-office, effective management
or a permanent establishment
outside of Portugal), is not liable to
this type of taxation.
As of November 2015, the Socialist
party, with the parliamentary
support of three far-left parties (the
Left Block, the Communist and the
Green parties) has formed the
current Government. The Socialist
party has proposed in its electoral
program the reintroduction of
inheritance taxation between
spouses and direct line
descendants for “high value” estates
(in principle those with a taxable
value above 1 million Euros, with a
rate of 28% applying to the
surplus), but “taking into account the
need to avoid phenomena of multiple
inheritance taxation”. It is therefore
possible that a mild form of
inheritance taxation may be re-
introduced in Portugal, but it is not
clear how it will target NHR with
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
24
non-Portuguese assets, due to the
caveat in commas, or when it will be
reintroduced since there were no
substantial developments on this
issue lately.
B. Endnotes on the status of the
regime and on its predictable
developments
The State Budget Law for 2017
(Law nr. 42/2016, of December 28)
has once again maintained an
extraordinary surtax, applicable to
employment or independent
personal services income, deriving
from high value-added activities of
a scientific, artistic or technical
nature, obtained by NHRs liable to
autonomous taxation at a special
20% flat rate, as well as to any non-
exempt income liable to the general
and progressive IRS rates.
However, such surtax is now
progressive, being that the higher
bracket – for income above € 80.640
– is now taxed via a 3,21% rate.
According to this State Budget
Law, the extraordinary surtax will
finally be revoked by the end of
2017.
It is also worth noting that a
renegotiation of tax treaties in force
between Portugal and other States
is currently an issue with two
Nordic countries, and is driven by
the double non-taxation of private
pensions allowed by the
combination of the NHR regime
with tax treaties following the
OECD Model Tax Convention. The
two countries at issue are Sweden
and Finland. In the case of Finland
that led its Government to request
an amendment to the private
pension article of the tax treaty,
which was already accepted by the
Portuguese Government. Sweden
has also expressed the desire to
revise the same provision in its tax
treaty with Portugal and
negotiations are expected to begin
soon. These amendments will, in
principle, allow Finland and
Sweden, as source States of private
pensions, to impose tax on them
(Sweden’s existing tax treaty with
Portugal already allows Swedish
taxation on disbursements made
under the Swedish Social Security
legislation and paid to Portuguese
tax residents). However, it is
important to realize that the
amendment (Finland) or possible
amendment (Sweden) of a tax
treaty does not mean that Portugal
will unilaterally change its
domestic NHR regime, namely by
starting to impose tax on foreign-
sourced pension income. Currently
no other State has publicly
signalled a will to revise its tax
treaty with Portugal.
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
25
Additionally, the current
Government has already indicated
the intention of revising the list of
high value-added activities of a
scientific, artistic or technical
nature – which qualify non-exempt
employment and independent
personal services income for the
special 20% flat rate. This
modification may probably
encompass the proposal of the
Commission charged with the 2014
IRS Reform of including actuaries,
airline pilots and directors and
managers of all companies,
regardless of their activity sector
and of the existence of a tax benefit
contract with the Portuguese State,
in the list of high value-added
activities.
The tax regime for NHRs seems to
be effective in the attraction to
Portugal of high net worth
individuals, increasing demand in
the domestic market, and fostering
increased fiscal revenue, namely in
regard of real estate and
consumption taxes, from
individuals that otherwise would
not be taxpayers in Portugal.
The previous Government,
announced the intention to attract
investors, qualified workers and
researchers into Portugal in the
Government Programme, although
this has not been specifically linked
with the NHR regime and, as far as
investors are concerned, may be
tied more clearly to the Golden
Visa Program. It was also
announced the intention to
implement a specific program to
boost the attractiveness of Portugal
as a destination for northern
European retirees - the Retirement
in the Sun (“Reforma ao Sol”)
Program.
The NHR regime
seems to be effective
in the attraction to
Portugal of high net
worth individuals.
The Portuguese Non-Habitual
Tax Resident Regime
Julho 2014
26
Although this Program never came
to light, the NHR regime has been
gathering political support, also
aiming at the return of highly
qualified Portuguese nationals
currently domiciled abroad.
In this regard, as from January 1,
2014, no relevant doubts remain on
the application of the NHR regime,
which means that it may be fully
and unrestrictedly enjoyed by
those wishing to move to Portugal.
***
Proper legal advice is
recommended before any decision
is taken to become a Portuguese tax
resident, and more so if one wants
to profit from the NHR status.
RPBA has an in-depth knowledge
and expertise on this regime.
Visit our microsite to know more
about the NHR regime. You can
also check our presentations on this
subject: A Detailed Guide on the
NHR Tax Rules and Frequently
Asked Questions and Reasons to
Move to Portugal.
To book a consultation or to obtain
our professional fees on this subject
please e-mail us (Ricardo da Palma
Borges): ricardo@rpba.pt
September 13, 2017
Ricardo da Palma Borges
Carlos Alcântara Neves
(formerly, Pedro Ribeiro de Sousa)
Disclaimer: Although great care
has been taken when drafting this
Information Note, Ricardo da
Palma Borges & Associados
(RPBA) - Sociedade de
Advogados, S.P., R.L. does not
accept any responsibility
whatsoever for any consequences
arising from the use of the
information contained herein.
The information is provided
solely for general purposes,
cannot be regarded as legal or
other advice and was last revised
on the stated date.
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