On the 23rd of September 2009, the Portuguese Government approved Decree-Law 249/2009, introducing to the already existing ‘Investment Tax Code’ an innovative tax scheme for non-habitual residents willing to benefit from the country’s avant-garde framework for persons willing to establish residency.
This new regime was created to attract non-resident professionals that are qualified in inter alia ‘high added value or intellectual, industrial property or know-how activities.’
In terms of Article 16(1) of the Personal Income Tax Code (CIRS), mention is made that to be registered as a non-habitual resident the criteria of the article need to be adhered to including the fact that the person should not be a resident within the country in any of the five years prior to notifying Authorities of his/her intention of applying for this NHR Scheme. Within this context, it must be stated that one must apply for NHR Status after first registering as a resident in Portuguese territory.
Registration normally entails accreditation via the Portuguese Finance Website wherein a Declaration is provided that all conditions are consented to, and that the person has been non-resident in Portugal for the previous five years. Should the request be rejected, the client will receive a communication from the Tax and Customs Authority notifying him/her of the rejection together with a ‘rationale’. This normally allows some time to the client to present a counterclaim and submit supporting documentation accordingly.
However, provided that the registration is successful, any person who is deemed to be ‘non-habitual resident’ acquires the right to be taxed in terms of his newly acquired status for an uninterrupted period of ten (10) years from and including the year of his/her registration as a resident in Portugal.
The law also provides for a list of activities of high added value that are relevant to the non-habitual resident tax regime. In some ways, the legislator would like to cater for a certain level of exclusivity. The list, exhaustive by nature, is as per Article 72(6) and Article 81(5) of the CIRS and inter alia includes ‘Auditors, Engineers, Doctors, Information Technology and Computer Science and Investors/Directors & Company Managers’ – the latter classification of which will be given more prominence.
Naturally, clients will be willing to obtain more information regarding Investors, Directors and/or managers – since this is undoubtedly what concerns readers. In this case, the law in terms of Code 8 dealing with activities specifies that ‘investors can only benefit from the regime applicable to non-habitual residents if the income is obtained under director or manager quality’. So much so, that when it comes to Directors/Managers, the legislation mentions positions akin to ‘Company Chief Executive Officers – as those having management positions and binding powers of the legal person.’
Innovative tax scheme for non-habitual residents
This new regime was created to attract non-resident professionals that are qualified in inter alia ‘high added value or intellectual, industrial property or know-how activities.’
The Taxation of Income
The Taxation of Income obtained by Non-Habitual Residents is classified into two (2) main categories these being either ‘Income obtained in Portugal’ or ‘Income Obtained Abroad’. In terms of the first Category, the net income of Categories A (Employees) and B (Self-Employed) earned through the high added value activities by non-habitual residents in Portugal are taxed at a special rate of 20%.
On the other hand, for ‘Income obtained abroad’, Employees (Category A), who are non-habitual residents in Portuguese territory, an exemption method is applied if conditions are met which include that the person is taxed in the other contracting state which has a double-taxation treaty with Portugal and provided the income is not considered as being obtained in Portuguese territory.
Non-Habitual Residents is classified into two (2) main categories
The Taxation of Income obtained by Non-Habitual Residents is classified into two (2) main categories these being either ‘Income obtained in Portugal’ or ‘Income Obtained Abroad’. In terms of the first Category, the net income of Categories A (Employees) and B (Self-Employed) earned through the high added value activities by non-habitual residents in Portugal are taxed at a special rate of 20%.
Employees
Solely for Category A, provided that the income is taxed in the other Contracting State, as per the convention for the elimination of double taxation signed with that relevant jurisdiction; or it is taxed in the other country, territory or region, whenever there is no convention for the elimination of double taxation signed by Portugal as per Article 18(1) of the CIRS, this income is not considered as being obtained in Portuguese territory and will hence benefit from an exemption.
Self-Employed
On the other hand, income derived from Category B (Self-Employed), Category E (Capital Income), Category F (Property Income) and G (Capital Gains) individuals and who are non-habitual residents can also benefit from the exemption method if conditions are met such as not being on a list approved by the Ministry of State and Finances on privileged tax regimes and provided that the income is not considered as obtained in Portuguese territory.
It must be stated that for Category B income (Self-Employed) – provided that the income is earned in activities of service provision of high-added value (e.g., intellectual or industrial property) or from information provision regarding an experience acquired in the e.g., commercial sector, the procedure will be as follows:
- The income may be taxed in the other contracting State in accordance with the double taxation treaty signed between Portugal and the other jurisdiction OR
- The income may be taxed in the other country, territory, or region, in accordance with the OECD Model Tax Convention on Income and Equity model, whenever there is no convention to eliminate double taxation signed by Portugal, except for those found in the list related privileged tax regimes, and provided that the income, according to the criteria established in the Article 18 (CIRS) is not considered as obtained in Portuguese territory.
Finally, it is worth mentioning that Category A and B income obtained abroad, to which the exemption method is not applied due to certain requirements of the CIRS are not adhered to is taxed at a special rate of 20% if it derives from any of the designated high value-added activities.
For more information as to how to use this system to your advantage and the proposed mechanisms to afford the best possible flexibility and implementation, we would recommend contacting DW&P by emailing: info@drwerner.com
Would you like to receive more information on how to use this system to your advantage?
As described, there are good reasons to move to Portugal.
However, there are also some points to consider in order to take advantage of this system.
We would be happy to help you to use this system to your advantage and the proposed mechanisms to afford the best possible flexibility and implementation.
Use our free call-back service to get advice from an expert.
Request a free initial consultation
Disclaimer*
The above-mentioned article is simply based on independent research carried out by DW&P Dr. Werner and Partner and cannot constitute any form of legal advice. If you would like to meet with up with any of our representatives to seek further information, please contact us for an appointment.
