Decree-Law nr 249/2009, of September 23, introduced several changes to the IRS Code, by creating the non-habitual residents regime (RNH), with a more favourable tax regime than the general tax regime, with the aim of attracting to the Portuguese territory, highly qualified and high net worth individuals.
1. Qualifying Conditions
This regime is applicable to all individual taxpayers who become tax residents in Portugal, provided they have not been taxed as tax residents in Portugal in the preceding five (5) tax years. This status is granted for a period of ten (10) consecutive years as from the year (inclusive) of registration as resident in Portugal.
As a condition to obtain RNH status the applicant must be tax resident in Portugal in accordance with the national legislation in force.
To be considered as tax resident in Portugal the individual has to remain in this country for more than 183 days during the relevant tax year or must have a dwelling in Portugal at any date during the year of the application, with the intention to hold and use the same as his/her habitual residence.
The procedure begins with the obtaining of a taxpayer number in Portugal. Subsequently the taxpayer has to obtain a residency visa, when being a non EU citizen, or a residency card, when being an EU citizen. Afterwards the same may alter his tax registration and file an electronic application with the Tax Authorities requesting the classification and registration as a RNH. The applicant has to declare that he/she has not qualified as Portuguese tax resident for the 5 years preceding the one in which the application is being filed.
The application for the RNH regime may be filed on the same year the applicant wishes to become a Portuguese non habitual tax resident or until 31 of March, inclusive, of the immediately subsequent year.
2. Income taxation
Portuguese resident taxpayers are subject to tax on their worldwide income. The elimination of double taxation is made through the tax credit mechanism. This regime introduces an innovation which is the elimination of double taxation by the exemption method.
2.1 Income arising from a Portuguese source – reduced taxation at a flat rate of 20%
A reduced taxation at a 20% flat rate is applicable to employment, business and professional income received by individuals registered as RNH pursuing a high added value activity as defined in the Ministerial Order nr 12/2010 of January 7, for example as:
- Architects, engineers and similar technicians;
- Artists, actors and musicians;
- Auditors and tax consultants;
- Doctors and dentists;
- University professors;
- Other business and professional categories:
- Computer programmers;
- Scientific investigation and similar activities including biotechnology;
- Investors, directors and managers in certain conditions;
- Senior employees.
Employment, business and professional income obtained from a source outside Portugal, may be exempt from Portuguese income tax.
2.2 Income arising from a foreign source – the exemption method
Elimination or reduction of the international double taxation on income obtained by RNH from a foreign source is made through the exemption method.
We may refer three situations allowing the elimination of the international double taxation on income obtained from a foreign source through the exemption method:
- Tax is due in the foreign country (employment income);
- Income that is potentially taxable in the foreign country (business and professional income; investment income; real estate income and capital gains);
- Tax is due in the foreign country, or the income is not considered as obtained in Portugal (pension income).
2.2.1 Employment income
Employment income obtained from a foreign source by a RNH is exempt from tax in Portugal if, alternatively:
a) Income is taxed in the foreign country, according to the Double Taxation Agreement (DTA) to which Portugal is a party; or;
b) Income is taxed in the foreign country in the absence of a DTA and it is not considered as obtained in Portugal under the Portuguese sourcing rules, i.e., has not been originated through the pursuit of an activity in Portugal and is not paid by an entity with residence, head-office, effective management or permanent establishment in Portugal.
In both situations referred above, effective taxation should occur in the source country.
2.2.2 Business and professional income, investment income, real estate income and capital gains
Business and professional income (as described in the Ministerial Order nr 12/2010, of January 7), investment income, real estate income and capital gains obtained from a foreign source by a RNH is exempt from income tax in Portugal if, alternatively:
a) It may be taxed in the foreign country under the terms of a DTA concluded between Portugal and such other contracting State; or
b) In the absence of an applicable DTA, income is potentially taxable in the foreign country under the OECD Model Convention rules, as interpreted by Portugal, provided that the foreign source country is not considered as having a more favourable tax regime under the Ministerial Order nr 150/2004, of May 13, as amended by Ministerial Order nr 292/2011, of November 8 (the “black list” Ministerial Order) and the income is not considered as obtained in Portugal.
Capital gains from securities and similar are in most of the DTA concluded with Portugal taxable in the country of residence of the beneficiary. Based on that, in such cases, capital gains will be taxed in Portugal at a 28% and not taxed at source.
2.2.3 Pension income
Pension income obtained from a foreign source by a RNH is exempt from income tax, if, alternatively:
a) Income is taxed in the foreign country, under a DTA concluded between Portugal and such other contracting State, or
b) Income is not considered as obtained in Portugal under the Portuguese sourcing rules, i.e., the pension is not paid by an entity with head-office, residence or effective management in Portugal nor is attributable to a Portuguese permanent establishment.
Case by case analysis of the type of income is required to ascertain when the exemption or reduced tax rate can be applicable.
© Abreu & Marques e Associados, RL 2018
a) Employment income arising from activities carried out in Portugal or when the income is paid by entities that are tax resident, have a head office, an effective management or permanent establishment in Portugal;
b) Remunerations earned by corporate bodies paid by entities that are tax resident, have a head office, and effective management or permanent establishment in Portugal;
c) Industrial and intellectual property income, as well as from the use of equipment not considered as real estate income, and technical assistance income paid by entities that are tax resident, have a head office, as effective management or permanent establishment in Portugal;
d) Business and professional income imputable to a permanent establishment in Portugal;
e) Pensions paid by entities that are tax resident, have a head office, effective management or permanent establishment in Portugal;
f) Capital income paid by entities that are tax resident, have a head office, an effective management or permanent establishment in Portugal.