English speaking accountants in Portugal

Taxation of Non Residents and the Portuguese Non-Habitual Residence Scheme

Taxation of Non-Residents in Portugal

 

Portugal taxes individuals who are not resident for tax purposes in Portugal generally only on income arising in Portugal, subject to the provisions of any applicable double taxation agreement.

Income arising from Portuguese immovable property, including rental income and certain capital gains arising from the disposal of Portuguese property, is generally regarded as Portuguese-source income.

 

Tax Residence

 

An individual is generally regarded as tax resident in Portugal where:

• they spend more than 183 days, whether consecutive or not, in Portugal during a 12-month period beginning or ending in the relevant tax year; or
• they spend fewer than 183 days in Portugal but, on any day during the relevant period, have a dwelling in Portugal in circumstances indicating an intention to maintain and occupy it as their habitual residence.

Other specific rules can apply, including to individuals who are members of the household of a Portuguese tax resident.

Tax residence is therefore not determined solely by counting the number of days spent in Portugal. The individual's residential circumstances and other relevant facts must also be considered.

 

Non-Habitual Resident Regime

 

The Non-Habitual Resident (NHR/RNH) regime was repealed with effect from 1 January 2024 and is no longer generally available to individuals becoming Portuguese tax residents for the first time after that date.

However, transitional provisions allow certain individuals who met the relevant conditions to continue to benefit from the NHR regime. Individuals who were already registered as NHRs on 1 January 2024 can continue to benefit from the regime for the remainder of their original 10-year period, provided they continue to meet the relevant requirements.

There were also transitional rules for certain individuals who became tax resident in Portugal during 2024 and who could demonstrate specified links to Portugal established before the relevant deadlines.

Consequently, the NHR regime should no longer be described as a general tax incentive available to individuals moving to Portugal in 2026. (info.portaldasfinancas.gov.pt)

 

Tax Incentive for Scientific Research and Innovation (IFICI)

 

The principal replacement for the NHR regime is the Tax Incentive for Scientific Research and Innovation (IFICI).

IFICI is designed to attract individuals engaged in specified scientific, research, innovation and other qualifying activities to Portugal.

Subject to satisfying the statutory conditions, qualifying individuals may benefit from a 20% special IRS rate on Portuguese-source employment and self-employment income arising from qualifying activities.

Certain foreign-source income may also benefit from an exemption from Portuguese IRS, subject to the specific rules and conditions of the IFICI regime.

The regime is not available simply because an individual moves to Portugal. The individual must satisfy the eligibility requirements concerning, among other matters, previous tax residence, the nature of their activity and the relevant employer or organisation.

An individual seeking to benefit from IFICI must generally not have been tax resident in Portugal during the preceding five years and must satisfy the other statutory requirements. Individuals who have previously benefited from the NHR regime are generally excluded from subsequently benefiting from IFICI. (info.portaldasfinancas.gov.pt)

 

Taxation of Non-Residents

 

A non-resident individual is generally subject to Portuguese tax only on income which is regarded as arising in Portugal.

Where the income is subject to a final withholding tax, the tax withheld will generally satisfy the Portuguese tax liability in respect of that income and the individual may not need to submit a Portuguese income tax return in respect of that income.

However, this is not universally the case. Certain types of Portuguese-source income require a tax return or are subject to different taxation rules. Double taxation agreements may also limit Portugal's taxing rights or provide relief from double taxation.

 

Employment and Professional Income

 

Employment income and certain business or professional income earned in Portugal by a non-resident individual is generally subject to Portuguese tax at a 25% rate where the income is subject to the non-resident withholding regime.

The precise treatment can depend on the nature of the activity, where the work is physically performed and the provisions of any applicable double taxation agreement.

 

Pensions

 

Portuguese-source pensions received by non-residents are generally subject to a 25% withholding tax rate, subject to applicable deductions and the provisions of any relevant double taxation agreement.

The tax treatment of foreign pensions can be different where the pension is paid from outside Portugal, particularly where the recipient is resident in Portugal and qualifies for a special regime such as NHR or IFICI.

 

Rental Income

 

Rental income from Portuguese property received by a non-resident is generally subject to Portuguese IRS at a 28% autonomous rate.

There are, however, specific reduced rates and reliefs for certain qualifying residential rental arrangements. The applicable rate should therefore be determined by reference to the type and duration of the tenancy and the conditions contained in Portuguese legislation.

 

Interest and Dividends

 

Portuguese-source interest and dividends paid to a non-resident are generally subject to a 28% withholding tax rate, subject to exemptions, reduced rates or other relief that may be available under Portuguese domestic law or an applicable double taxation agreement.

For example, a double taxation agreement between Portugal and the country in which the recipient is tax resident may restrict the rate of Portuguese withholding tax.

EU directives can also provide exemptions or reduced taxation in certain circumstances where the relevant conditions are satisfied.

 

Capital Gains

 

The taxation of capital gains received by a non-resident depends on the asset being disposed of and the circumstances of the transaction.

Capital gains arising from the disposal of Portuguese real estate can be subject to Portuguese taxation.

The rules applicable to Portuguese property gains are not the same as those applying to every other type of capital gain. In particular, the Portuguese tax legislation contains specific rules for non-residents disposing of immovable property situated in Portugal.

Capital gains arising from the disposal of shares and other securities may also be subject to Portuguese tax in particular circumstances, including where the relevant company derives its value principally from Portuguese immovable property, subject to the detailed domestic rules and any applicable double taxation agreement.

Accordingly, it is not appropriate to state generally that all capital gains of non-residents are taxed at a flat rate of 28%.

 

Double Taxation Agreements

 

Portugal has an extensive network of double taxation agreements (DTAs) with other countries.

A DTA may reduce or eliminate Portuguese taxation on particular categories of income or determine which country has the primary right to tax the income.

Therefore, the domestic Portuguese rates should not be considered in isolation. The individual's country of tax residence and the relevant DTA should always be considered when determining the final Portuguese tax liability.

 

Wealth, Gifts and Inheritance

 

Portugal does not have a general wealth tax.

There is