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The Portuguese tax regime for Non-Habitual Residents

Estate Planner

Key takeaways:

  • The Portuguese tax regime for non-habitual residents (hereafter “RNH regime”) was introduced in 2009 (1). It has been continually improved in subsequent years (2).
  • The benefits offered by the tax regime are different depending on the type and source of income: foreign pensions, foreign-source passive income and employment and self-employment income.
  • Portugal also offers attractive taxation rates for domains such as inheritance/gift taxes, wealth tax and life insurance taxes.
  • Individuals may benefit from the RNH status if they meet the requirements: they become Portugese residents for tax purposes and they have not been resident for tax purposes in Portugal for the previous 5 years.
  • The RNH-regime will apply for 10 consecutive years provided the taxpayer remains a Portuguese resident for tax purposes for each year.
     

Introduction

The Portuguese tax regime for non-habitual residents (hereafter “RNH regime”) was introduced in 20091. It has been continually improved in subsequent years2 in order to attract highly-skilled professionals, wealthy individuals and foreign pensioners to Portugal.

Foreign pensions

Pension is tax-exempt in Portugal3 if:

  • the pension is taxable in the country of source under the relevant tax treaty, or
  • the pension is not paid by a Portuguese entity.

In addition, under most tax treaties, the country of source does not tax pension benefits received by Portuguese residents for tax purposes (a standard exception here is pensions paid to former civils servants). In practice, this could generally lead to a double tax exemption on pensions.

Foreign-source passive income (investment income, rental income, capital gains)

Foreign-source passive income is tax exempt in Portugal if it may be taxed in the country of source under a relevant tax treaty. If the country has not signed a double tax treaty with Portugal, the income will be tax exempt in Portugal if it could be taxed in the country of source under the OECD Model Tax Convention, as applied by Portugal, and if it is not sourced in a tax haven4 with which Portugal has not concluded a double tax treaty5.

In practice, it means that under most tax treaties foreign dividends, interest, foreign rental income and capital gains on foreign real estate should be tax exempt in Portugal. However, the income may be subject to taxation in the source country, notably by application of foreign source withholding tax on income distribution (dividends, interest, royalties).

Conversely, foreign-source income which under a relevant tax treaty cannot be taxed in the source country, as is typically the case for capital gains on the sale of securities, should be taxed in Portugal at the normal rates applicable. In the case of capital gains realised on the sale of securities this will be 28%.

Employment and self-employment income

Portuguese-source employment income or self-employment income deriving from “high value added” activities is subject to 20% flat taxation (by comparison, the marginal income tax rate is 48%) and the surcharge of up to 3.21% (which will be abolished at the end of 2017).

The “high value added” activities are set out by the Portuguese tax authorities6 and could cover scientific, artistic or technical professions such as architects, engineers, singers, musicians, top management, auditors or tax advisors.

Additional tax information

Portugal also offers attractive taxation rates in the following areas, which apply to RNH residents as well as ordinary residents.

Inheritance / gift taxes (Stamp Duty)

In Portugal, there is no gift or inheritance tax as such. Instead, inheritances and gifts are taxed under the Stamp Duty Code. Furthermore, the liability of free transfers under the Stamp Duty follows a territorial principle, meaning that only assets which are located or deemed to be located in Portugal are subject to taxation. Concerning tax rates, free transfers are subject to a 10% tax rate and free transfers of immovable property are also subject to an additional 0.8% tax rate. Nonetheless, Portuguese tax law foresees an exemption to the 10% tax rate rule when the transfer is made between spouses, unmarried partners, descendants and ascendants.

Wealth tax

There is no wealth tax in Portugal. However, there is a new tax applicable on real estate located in Portugal for which the total tax registration value exceeds EUR 600,0007

For individuals, this tax applies as follow:

  • For real estate exceeding EUR 600,000: 0.7% on the value above EUR 600,000
  •  For real estate exceeding EUR 1 million: 0.7% on the tranche between EUR 600,000 and EUR 1 million and 1% on the amount exceeding EUR 1 million

Life insurance contracts

Life insurance premiums and commissions contributed to a life insurance wrapper are not subject to Stamp Duty in Portugal8. However, premiums contributed to the policy are subject to parafiscal charges: 0.048% to the Insurance Supervisory Authority and 2.5% to the National Medical Emergency Service (“INEM”) in case of death cover (not mandatory).

In case of withdrawals, the surplus over the contributions made is subject to taxation in Portugal at a 28% flat rate. This can, under certain conditions, be reduced to 22.4% if the contract is held more than 5 years or to 11.2% if the contract is held more than 8 years.

Eligibility criteria for the RNH regime

Individuals may benefit from the RNH status if they meet the following requirements:

  • they become Portuguese residents for tax purposes under Portuguese legislation9;
  • they have not been a resident for tax purposes in Portugal for the previous 5 years.

Taxpayers must file an electronic request with the Portuguese tax authorities before 31 March of the tax year following the one in which they became a Portuguese resident for tax purposes.

Duration

The RNH regime, once selected, will apply for 10 consecutive years provided the taxpayer remains a Portuguese resident for tax purposes for each year. During the 10-year period an individual may interrupt his or her Portuguese residence for tax purposes, but may then resume his or her non-habitual residence status for the remaining years.

Do you have questions? Don't hesitate to contact Marie Melikov, Estate Planning Bank Degroof Petercam Luxembourg, or our department Estate Planning.

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1 Decree-Law no. 249/2009 of 23 September 2009
2 Administrative ruling no. 2/2010, administrative ruling no. 9/2012, law no. 64-B/2011 approving the State Budget for 2012, Amended State budget law for 2012, State Budget law for 2013, Decree-Law no. 14/2013, Ministerial Order no. 12/2010 published on 7 January 2010
3 Insofar as it has not given rise to an entitlement for a deduction for Portuguese tax purposes
4 The list was updated on 30 December 2016 and includes 79 counties (such as Monaco, Liechtenstein, Gibraltar and Hong Kong).
5 United Arabic Emirates, Hong Kong, Panama, Kuwait and Qatar

6 Ministerial Order no. 12/2010 dated 7 January 2010
7 The tax value is usually lower than the fair market value of the real estate. This ceiling can be doubled for a married couple under certain conditions.
8 Article 7 (1) (b) of the Portuguese Stamp Duty Code

9 Under Portuguese tax legislation there are alternate criteria to determine tax domicile: either the individual stays in Portugal for more than 183 days (continuously or not) during a 12 month period, which begins or ends in that tax year, or the individual has a residential accommodation available in Portugal on any day of that 12-month period that is used as the individual’s habitual abode.

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