Portugal Non-Habitual Tax Regime

Background and Taxation Summary

This summary provides an initial overview and explains the main guidelines and possible implications of the non-habitual resident (“NHR”) regime for foreigners and Portuguese individuals settling in Portugal after an extended period of living abroad.

It deals mainly with individuals receiving pension income, but also sets out other key points of the tax regime.

Taxation

• Foreign-source self-employment or sole trader income derived from an eligible occupation (see below), royalties, capital gains, and investment or rental income will be exempt from Portuguese tax as long as they may be taxed in the source country either under a double taxation agreement or under the OECD model tax convention. In addition, such income must not be deemed Portugal-sourced under applicable Portuguese law, and must not be sourced from a blacklisted tax haven.
• Foreign-source employment income will be exempt from Portuguese tax as long as it is liable to tax (at whatever rate) in the source country either under a double taxation treaty or under the OECD model tax convention, and is not deemed Portugal-sourced under applicable Portuguese law.
• Pension income will be liable to a 10% flat tax as long as it is liable to tax in the source country under a double taxation treaty or it is deemed as not being Portuguese-source income under applicable Portuguese law.

Pensions

Individuals covered by the NHR regime can benefit from a special personal income tax (PIT) regime for a ten-year period.

The 2020 Portuguese State Budget introduced slight changes to the tax treatment of some types of income.

• Foreign source pensions (including periodic and lump sum payments from life insurance policies, pension funds, retirement savings plans, and other complementary social security regimes) are liable to a 10% flat rate with the possibility of offsetting the taxes eventually paid in the country of source.

Other Types of Income

For each type of income, a specific set of conditions apply to determine if it can indeed be tax exempt in Portugal or taxed at a special rate. This analysis must be addressed on a case-by-case basis.

In broad summary, this tax regime allows other types of foreign source income to be tax exempt in Portugal if:

• It may be taxed in the country of source in accordance with the applicable Tax Treaty, under a double taxation treaty or under the OECD model tax convention.
• The income is not sourced from a tax haven.