Change of tax residence to obtain a better taxation

It is an obligation or duty to pay the required taxes of the country one has decided to reside in and important for foreigners and non-EU citizens to know what taxes they need to pay in his tax residence. There are two definitions of taxpayers.

  • Natural person is a human individual capable of assuming obligations and considered a subject of rights.
  • Legal person is an entity endowed with a personality that has been decided by the courts

However, a better taxation of assets can be acquired by changing residence particularly to a country like Portugal where a special tax regime for foreign or non-EU professionals who change residence from another country are entitled to a reduced flat tax rate of 20% for ten years.  Retirees or pension holders are entitled to a 10% tax on the pension they receive.

Tax residence in Portugal

According to Portuguese law, a natural person shall be considered a tax resident when:

  • He has remained in the country for more than 183 days of the year
  • He owns property in Portugal with the intention to keep it and use as a habitual residence
  • He has not been taxed

Non-habitual residence regime or NHR

The non-habitual residence tax regime or NHR was created in 2009 by the Portuguese government to benefit foreigners or non-EU citizens who live and work in Portugal. Non-habitual residents can enjoy for a period of ten years, a 20% flat rate to income from dependent or independent work from “high value-added activities” as well as the right to apply the exemption method to certain categories of income earned abroad.

Qualifications for Special Tax Regime

  • Applicant must have been a resident of Portugal for at least 183 days in one year.
  • Applicant owns real estate or property in Portugal with the intention to keep it and use as habitual residence.
  • Applicant must not have been taxed as a tax resident in the five years prior to the application for residence.
  • Applicant has applied for the status of non-habitual resident to the Portuguese authorities until March 31 of the following year.
  • Benefits of the Special Tax Regime
  • Non-habitual residents may enjoy tax benefits for up to ten consecutive years and is non-renewable
  • Non-habitual residents enjoy tax reductions from the income of work as an employee or self-employed in Portugal
  • Non-habitual residents on pensions and passive income from outside Portugal pay 10% on this income and may even be exempted depending on the situation
  • Non-habitual residents have many tax advantages from income earned from what the Portuguese government considers high value-added activities as an employee or self-employed

The high value-added activities that the Portuguese government recognizes are the following:

  • Technical and humanistic professions like law, social scientist or economist.
  • Investors, administrators and managers
  • Architects, engineers and communication technology specialists
  • Artists, actors and musicians
  • Doctors and dentists
  • Auditors and tax consultants
  • University professors
  • Agriculture and livestock farmers, fishermen
  • Forestry workers
  • Other professions that are not considered high value-added activities by the Portuguese government will be taxed at the same progressive rates of Portuguese and general personal income tax

Golden visa Portugal tax residence benefits

  • Golden Visa Portugal’s income tax benefits are a big draw for foreign investors looking to get the most out of their financial contribution. Visa holders don’t need to pay extra taxes on income produced outside of Portugal.
  • There’s also an option to register as a fiscal resident for tax purposes in Portugal. This is a fantastic option as it’ll allow you to then directly benefit from Portugal’s Non-Habitual Tax Regime or NHR. NHR is a generous tax program with numerous benefits pertaining to your global income. It offers tax-free incentives on certain categories for a period of up to ten years.
  • Additionally, any Portuguese-sourced income would be taxed at a flat rate of 20% during the first ten years and there is also the ability to pass on your wealth to a spouse or dependent without incurring inheritance or gift taxes.

Advantages of a Golden Visa Portugal

A Golden Visa Portugal allows the holder free movement meaning that one can live, work, and study in Portugal and anywhere else within the European Union, European Economic Area, Switzerland and the United Kingdom.

For a minimum investment of €500,000 in real estate or capital investments, the Golden Visa Portugal has the following benefits:

  • Travel visa-free to 186 countries
  • Includes family members
  • Renewable every two years with no residency requirements
  • Citizenship is possible in 5 years.

For more specific information on the different tax incentives for foreigners and non-EU residents, please contact Orience. They can advise each person or company on the best place to acquire their tax residence according to their personal or corporate circumstances with an in-depth study and interviews.