NHR status Portugal

Portugal is becoming an increasingly popular destination for expatriates due to its pleasant climate, good quality of life, and low cost of living compared to other European countries, as well as its low tax burden through the NHR status.

NHR status in Portugal

The NHR status (Non-Habitual Resident) is a tax program introduced by the Portuguese government to attract foreign experts and retirees. To obtain NHR status, you must have EU citizenship or, as a non-EU citizen, participate in programs like the Golden Visa, and have not been registered as a taxpayer in Portugal in the five years preceding the application. As an NHR status applicant, you must prove your residence in Portugal by providing evidence of a rental contract or property purchase. NHR status allows individuals who are not residents of Portugal but have their residence there to benefit from reduced tax rates for a period of 10 years. Some types of income, such as from self-employment, pensions, or capital income, are exempt from tax or subject to reduced taxation. However, it is important to note that NHR status should be carefully considered as it may not be suitable for all individuals or income types. To obtain NHR status, you also need a Portuguese tax number (NIF number).

NIF number in Portugal

In Portugal every person and company is required to have a NIF number (Número de Identificação Fiscal). This is a nine-digit tax number issued by the Portuguese Tax Authority and used for any type of tax matter, as well as for business and financial transactions. To obtain a NIF number, one typically needs to register in Portugal and apply at the tax office. For companies and freelancers, it is important that the NIF number is indicated on all invoices and business documents. It is also possible to obtain a NIF (Número de Identificação Fiscal) in Portugal even if you are not registered in Portugal. A NIF issued to non-Portuguese residents without residence in Portugal is usually only valid for specific purposes, such as managing property ownership, conducting business activities, or paying taxes on income earned in Portugal. This can be claimed, for example, by people who live in Germany, possess a property in Portugal, and whose rental income is taxed in Portugal. However, it is important to note that the issuance of NIFs to non-Portuguese non-residents within Portugal is handled differently, on a case-by-case basis, and must be approved by the Portuguese tax authorities. In these cases, the NIF is applied for using the applicant’s address outside Portugal. Important: Once you apply for your NIF with a Portuguese address, you cannot enter the NHR program for 6-7 years. Therefore, we always recommend first applying for a NIF with a non-Portuguese address and then submitting the NHR application. The NIF number must be used on your Portuguese bank account to conduct financial transactions. Without a valid NIF number, there can be difficulties in conducting financial transactions and fulfilling tax obligations. NIF numbers in Portugal are unique to each person and company; it is not shared with other countries.

Private income tax return in Portugal

In Portugal, all individuals who are residents or earn income in Portugal must file a personal income tax return. This also applies to individuals with NHR status (Non-Habitual Resident). The tax return must be submitted each year by May 31 of the following year. In Portugal, there are two types of tax rates, progressive and regressive, which vary depending on income level. Progressive means the tax rate increases with income, while regressive means the tax rate decreases with income. The personal income tax return must include all types of income, such as wages, salaries, self-employment, pensions, capital income, rental income, and other income. It is also important to report all deductible expenses, such as advertising costs, donations, and medical expenses. There is also the option to complete and submit an electronic income tax return (IRS). This can be done through the online portal of the Portuguese tax authority (Portal das Finanças). It is essential to fill out your income tax return carefully and correctly, as errors or incompleteness may lead to additional claims or penalties. It is therefore advisable to seek professional help.

D5 & D6 visas for non-EU and UK citizens in Portugal

D5 and D6 visas are special visas for non-EU citizens who want to live and work in Portugal. D5 visa is for freelancers and D6 visa is for employees. .
Das D5 Visa ermöglicht es Nicht-EU-Bürgern, ein Unternehmen in Portugal zu gründen oder ein bestehendes Unternehmen zu erwerben. Um ein D5 Visa zu beantragen, muss der Antragsteller nachweisen, dass er über ausreichende Mittel verfügt, um das Unternehmen zu gründen oder zu erwerben, und dass das Unternehmen legal und wirtschaftlich tragfähig ist. The D6 visa allows non-EU citizens to take up employment in Portugal. To apply for a D6 visa, the applicant must obtain a work permit from the Portuguese labor authority. stating that no Portuguese citizen is qualified for the position. It is important to note that both visas need to be renewed on a regular basis, and that there are certain length of stay requirements to maintain them in Portugal. It is imperative that you are aware of the current regulations and requirements for D5 and D6 visas, as these are subject to change. Here, it is likewise advisable to seek professional help.

Freelancer registration in Portugal

In Portugal, freelancers must register for a Social Security tax (Segurança Social) (which functions at a rate of 21% from the second year) and at the Tax Office (Finanças). This registration is essential to be recognised as a self-employed entrepreneur and to fulfil legal obligations, such as social security contributions and the filing of tax returns. As a freelancer in Portugal, you must register as a “trabalhador independente” (self-employed worker) and comply with the country’s tax laws. This usually means that you have to pay annual taxes on your earnings (about 20%). However, there are also certain tax breaks and benefits that may apply to freelancers in Portugal, such as the Simplified Regime.

Simplified Regime

The “Simplified Regime” (Regime Simplificado) in Portugal is a tax system designed for small businesses and self-employed individuals, including freelancers. It allows you to file your tax returns more easily and quickly instead of by the traditional win/loss method. By assessing a fixed percentage of the gross invoice, small self-employed individuals can simplify their accounting, reduce taxes, and increase productivity. You qualify for this regime if your annual turnover does not exceed €200,000. Some of the advantages of the Simplified Regime include:

• Lower Tax Burden: In the Simplified Regime, freelancers only pay income tax on part of their total income, while in the traditional system freelancers must pay income tax on their entire income.
• Tax Allowance: Sole proprietors can claim a tax allowance of €4,104, which reduces the tax burden.
• Expense accounting: In the simplified regime, freelancers can submit expense receipts to exempt part of their income from taxes, while in the traditional system they cannot account for expenses. Additionally, certain deduction amounts are automatically calculated.
• Easier Procedures: the Simplified Regime has a simpler procedure than the traditional tax system, making it easier for freelancers to declare and pay their taxes.
• Lower Cost: since the Simplified Regime is simpler, it requires less time and effort, resulting in lower costs.
• Freelancers are entitled to a 50% income tax reduction in the first year of doing business in Portugal, and a 25% reduction in the second year.
• For the self-employed who fall under the simplified scheme, the basic contribution rate is 29.6% of taxable income.
• Further, there is a reduced tax rate of 20% (instead of the usual 22%) on income below €35,000 per year.
• If annual gross income exceeds €10,000, sole proprietors become subject to VAT in the following year. When invoicing outside of Portugal, most invoices are exempt from VAT.

However, it should be noted that the Simplified Regime also has some limitations for freelancers, such as a limited ability to deduct their expenses, and not being allowed to distribute profits. There are also some restrictions on using the Simplified Regime. For example, companies engaged in certain activities, such as banking and financial services, cannot benefit from this regime. Important: It is possible to switch to another method at a later date. Although non-habitual residency can be advantageous for some individuals/businesses under certain circumstances, the simplified tax system may be a better choice for some freelancers. We always emphasise one principle: it differs from case to case. Depending on your situation, the NHR programme alone may not be appropriate for you The NHR status is particularly suitable for those who receive passive income from abroad – especially foreign pension income. Therefore, part of our consultation at DW&P – Dr. Werner & Partners involves examining your initial situation and business activities. This enables us to make recommendations as to whether you would derive greater benefit from the NHR programme, Simplified Regime, or a combination of both. Registration with social security is done online via the “Portal da Segurança Social” or in person at one of the social security offices. Certain documents including a valid passport, confirmation of registration, and a NIF number must be presented. It is important to note that freelancers in Portugal have to pay regular social security contributions and taxes, and that there are certain bookkeeping and tax filing requirements.