Retiring in sunny Portugal?

Tax benefits in Portugal

One of our legal associates, Juliette, completed an internship in Lisbon at Asdrúbal Calisto e Associados from September 2022 to January 2023. This is a law firm befriended with ours, where she wrote the following article about the Portuguese Non-Habitual Resident regime (NHR). This regime offers attractive tax benefits to foreign residents who wish to live and work in Portugal, under certain conditions.

The special NHR status

Thinking about retiring and moving from the Netherlands to sunlit Portugal? Then it might be helpful to know some more about the tax rules. Is your pension taxed in Portugal or in the Netherlands? Are you eligible for the non-habitual resident (NHR) status? And what are the advantages to receiving this status?

Firstly, it is interesting to know what the benefits are to having the NHR-status. In possession of this status, you can obtain great fiscal advantages. Pensions of Portuguese residents with the NHR-status are being taxed with a tax rate of only 10%. This tax rate is significantly lower than in the adjacent countries like Spain or France. The NHR-regime also offers a 20% flat rate on certain Portuguese-source income from qualifying professions and from self- employment. An additional benefit is that gifts or inheritances to family members are exempt of tax. These advantages are valid for a time period of ten years and this period can not be extended. After the ten-year period, the normal IRS-regime applies. There are however, as always, some conditions and exceptions.

Who can apply for the status?

To obtain the NHR-status and enjoy the special tax rates, you must meet a few conditions. Firstly, you must be qualified as a tax resident in Portugal. The most obvious ways are:

1. You have stayed in Portugal for more than 183 days in a twelve month-period. It doesn’t matter if this was consecutive or not.
2. You have stayed in Portugal for a shorter period than 183 days but you have a residence available to you that makes it possible to presume the intention to keep it as your habitual place of residence.

In either case it is required that you have not been a tax resident in Portugal for the past five years.

How to apply for the status?

Before applying for the NHR-status, you must be registered as a resident of Portugal. You can do this at a tax office (Finanças) or at a citizen’s service bureau (Loja de Cidadão). After you have been registered as a Portuguese resident, you must request a password on Portal das Finanças and fill out the online form with the requested data. After receiving the password, you are able to submit the NHR application on Portal das Finanças.

Deadline?

The NHR-status must be requested before the 31th of March of the year after the one in which you became a resident in Portugal.

And after the ten year-period?

Chances are you’ll never want to leave Portugal after moving there. The NHR-regime only lasts for ten years. How will your pension be taxed afterwards? Is it still beneficial to spend your retirement in Portugal? After the ten year-period, it is important where your pension derives from. The Netherlands and Portugal have a special treaty to prevent double taxation. Pensions paid to a resident of Portugal are only taxable in Portugal. The tax rate in Portugal is below the average in the EU. However, there are some conditions and exceptions.

Under the following circumstances the Netherlands is the taxing authority:

1. If and insofar as the entitlement to this pension or annuity is exempt from tax in the Netherlands or the contributions associated with these entitlements were deducted from Dutch taxable income in the past, and
2. If and insofar as this pension or annuity is not taxed in Portugal at the generally applicable tax rate or for less than 90%, and
3. If the aggregate amount of the pensions, annuities and social security benefits received in a calendar year exceeds an amount of €10,000.

A pension may also be taxed in the Netherlands if:

• It is not periodic and
• It is paid in respect of past employment and
• It is paid before the date on which the pension commences
• A lump-sum payment is made in lieu of the annuity right before the date on which the annuity takes effect.

In conclusion…

The tax benefits may be well worth moving to Portugal for. Retirees benefit from a special tax rate for a time period of ten years if they become a tax resident in Portugal. Their pensions may be taxed with a rate of only 10% and even after these ten years have passed, the tax rules of Portugal may be more advantageous than the rules that apply in the Netherlands.

Disclaimer

The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information in this article is for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.