The Portuguese Non-Habitual

Tax Resident Regime

Julho 2014

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Decree-Law nr.

249/2009, of

September 23,

created a new

Personal Income Tax

regime for NHR

individuals.

A. The non-habitual tax resident

regime

1. The Decree-Law

Decree-Law nr. 249/2009, of

September 23, among other

measures directed at improving

Portuguese international

competitiveness, such as the

approval of the Tax Code for

Investment (“Código Fiscal do

Investimento”), created a new

Personal Income Tax (“Imposto

sobre o Rendimento das Pessoas

Singulares”, hereinafter “IRS”)

regime for NHR individuals.

This status would apparently be

granted to individuals who became

resident for tax purposes in

Portugal starting from January 1,

2009 without having been so in the

five years preceding its acquisition.

NHR individuals may enjoy such

status for a ten-year period, after

which they will be taxed under the

standard IRS regime.

Portuguese tax residence for IRS

purposes, in each tax year, may be

acquired via different ways, such

as:

a) Staying for more than 183 days

in the Portuguese territory,

whether these days are

consecutive or not, in any 12-

month period beginning or

ending in the given tax year;

b) If staying for a shorter period,

having in the Portuguese

territory, on any day during the

period referred above, a

dwelling under circumstances

that lead to the presumption of

an intention to hold and occupy

it as a place of habitual abode; or

September 2017

The Portuguese Non-Habitual

Tax Resident (NHR) Regime

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c) Being, on December 31, a crew

member of a ship or aircraft at

the service of an entity with

residence, head office or

effective management in

Portugal.

The new tax regime targets non-

resident individuals who are likely

to establish a permanent or a

temporary residence in Portugal.

The regime includes three different

sets of rules, (i) one of them

applicable to foreign-sourced

passive income (interest,

dividends, certain royalties, other

income from capital, capital gains

and income from immovable

property), similar to non-

domiciled taxation regimes such as

the ones of the United Kingdom

and Switzerland, (ii) another

applicable to pensions and (iii) the

remaining to active income, in this

case encompassing income derived

both from foreign and domestic

sources, following expatriate,

rectius impatriate, taxation regimes

such as the ones existing in Spain

and France.

Under the first set of rules, passive

income derived by NHR residents

will be IRS exempt (without

progression except in the case of

capital gains on real estate, where

the income being exempted must

be considered to determine the tax

rates applicable to non-exempt

income) in Portugal, provided that

it may be taxed in the source State

under the rules of a tax treaty

entered into by Portugal or, if no

treaty exists, that (i) it may be taxed

in the source State according to the

rules of the OECD Model Tax

Convention on Income and on

Capital, as interpreted in the light

of the Portuguese reservations on

its articles and of the observations

on its commentary; (ii) it is not

considered to arise from a

The new tax regime

targets non-resident

individuals who are

likely to establish a

permanent or a

temporary residence

in Portugal.

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The passive income

included in this

regime comprises

interest, dividends,

certain royalties,

other income from

capital, capital gains

and income from

immovable property.

Portuguese source under the IRS

Code territoriality rules; and (iii)

the source State, region or territory

is not included in the Portuguese

tax havens’ blacklist.

The regime requires only a

potential liability to taxation in the

source State under the rules of a tax

treaty or of the OECD Model Tax

Convention, no effective taxation

being thus required.

The second set of rules relates to

pension income, where actual

taxation on the source State under

the rules of a tax treaty or,

alternatively, no connection of the

income with the Portuguese

territory under the territorial scope

rules of the IRS Code, is required

for the exemption (with

progression) to be applicable. This

last rule exempts pensions which

are not paid by entities with

residence, head office, effective

management or permanent

establishment, to which the

payment relates to, in Portugal.

The third set of rules will be

applicable to active income

deriving from employment,

independent personal services and

also to foreign-sourced income

from intellectual and industrial

property or from the provision of

information relating to experience

gained in the industrial,

commercial or scientific sectors

(know-how), when derived by the

original holder.

Under it, foreign-sourced

employment income will be

exempt from IRS (with

progression, except insofar as it

derives from certain high value

added activities of a scientific,

artistic or technical nature, as

defined by Ministerial Order),

provided that it is taxed in the

source State according to the rules

of a tax treaty entered into by

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Tax Resident Regime

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Portugal or, if no treaty is in place,

that it is taxed in the source State

and that it is not considered to arise

from a Portuguese source under

the IRS Code territoriality rules.

Foreign-sourced income from

independent personal services (i)

derived from high value added

activities of a scientific, artistic or

technical nature, as defined by

Ministerial Order, or (ii) foreign-

sourced income from intellectual

and industrial property or from the

provision of information relating to

experience gained in the industrial,

commercial or scientific sectors

(know-how), when these royalties

were derived by the original holder

(i) will be exempt (without

progression in the first case and

with progression in the second), as

long as such income may be taxed

in the source State according to the

rules of a tax treaty entered into by

Portugal or, if no treaty is in place,

that (i) it may be taxed in the source

State according to the rules of the

OECD Model Tax Convention on

Income and on Capital, as

interpreted in the light of the

Portuguese reservations on its

articles and of the observations on

its commentary; (ii) it is not

considered to arise from a

Portuguese source under the IRS

Code territoriality rules; and (iii)

the source State, region or territory

is not included in the Portuguese

tax havens’ blacklist.

Effective taxation is therefore only

required in regard of employment

income. However, the independent

personal services exemption will

only be applicable to income

derived from certain high value-

added activities of a scientific,

artistic or technical nature, as

defined by Ministerial Order.

High value-added activities’

income deriving from employment

or independent personal services

of a domestic or foreign source

(only if not exempt), are liable to

autonomous taxation at a special

20% flat rate and not to the general

and progressive IRS rates (whose

higher bracket is of 48% for taxable

income above € 80.640 in the tax

year of 2017; moreover, taxpayers

with taxable income above € 80.000

are liable to an additional solidarity

rate of 2,5% on income exceeding

such amount and of 5% on income

exceeding € 250.000 during the tax

year.

NHRs deriving foreign-sourced

income that will be IRS exempt

under both these sets of rules will

be allowed to opt, in its regard, for

the credit method, the standard

method for the elimination of

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Tax Resident Regime

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High value-added

activities’ income

deriving from

employment or

independent

personal services of a

domestic or foreign

source (if not

exempt) are liable to

autonomous

taxation at a special

20% flat rate.

international double taxation in

Portugal. Whenever this option is

exercised, the income will be taxed

under the standard IRS regime,

being liable either to progressive

rates of up to 48% (plus 2,5% on

taxable income above € 80.000 and

5% on taxable income above €

250.000 during 2017) or to special

lower flat rates, depending on its

nature. The option for credit must

be exercised on an all-or-nothing

basis, meaning that opting for the

credit method in regard of one

category of income will imply that

the option is extended to all

remaining categories of income

and the exemption method

completely forfeited.

Additionally, NHRs deriving

income taxed at the special 20% flat

rate may also opt for the

progressive IRS rates (of up to 48%,

plus 2,5% on taxable income above

€ 80.000 and 5% on taxable income

above € 250.000, during 2017) in its

regard.

2. The Ministerial Order

Ministerial Order nr. 12/2010, of

January 7, defined the “high value-

added activities of a scientific,

artistic or technical nature”

qualifying for the regime. The main

feature to be highlighted from this

Order is the fact that

sportspersons’ activities are not

included in its scope, contrarily to

what was initially expected and

thereby departing this regime from

the well-known and so-called

Spanish “Beckham Law”.

Nevertheless, the Ministerial Order

encompasses a wide range of

professions and activities, as

follows:

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Tax Resident Regime

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Portuguese English

1 - Arquitectos, engenheiros e técnicos similares:

101 - Arquitectos;

102 - Engenheiros;

103 - Geólogos.

1 - Architects, engineers and similar technicians:

101 - Architects;

102 - Engineers;

103 - Geologists.

2 - Artistas plásticos, actores e músicos:

201 - Artistas de teatro, bailado, cinema, rádio e

televisão;

202 - Cantores;

203 - Escultores;

204 - Músicos;

205 - Pintores.

2 - Visual artists, actors and musicians:

201 - Theater, ballet, film, radio and television

Artists;

202 - Singers;

203 - Sculptors;

204 - Musicians;

205 - Painters.

3 - Auditores:

301 - Auditores;

302 - Consultores fiscais.

3 - Auditors:

301 - Auditors;

302 - Tax Consultants.

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Tax Resident Regime

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Portuguese English

4 - Médicos e dentistas:

401 - Dentistas;

402 - Médicos analistas;

403 - Médicos cirurgiões;

404 - Médicos de bordo em navios;

405 - Médicos de clínica geral;

406 - Médicos dentistas;

407 - Médicos estomatologistas;

408 - Médicos fisiatras;

409 - Médicos gastroenterologistas;

410 - Médicos oftalmologistas;

411 - Médicos ortopedistas;

412 - Médicos otorrinolaringologistas;

413 - Médicos pediatras;

4 - Doctors and dentists:

401 - Dentists;

402 – Analyst Doctors;

403 - Surgeons;

404 – Board doctors in ships;

405 - General Practitioners;

406 - Dentists;

407 - Dentist Doctors;

408 - Physiatrists;

409 - Gastroenterologists;

410 - Ophthalmologists;

411 - Orthopaedists;

412 - Otorhinolaryngologists;

413 - Paediatricians;

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Tax Resident Regime

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Portuguese English

414 - Médicos radiologistas;

415 - Médicos de outras especialidades.

414 - Radiologists;

415 - Doctors in other specialties.

5 - Professores:

501 - Professores universitários.

5 - Teachers:

501 - University professors.

6 - Psicólogos:

601 - Psicólogos.

6 - Psychologists:

601 - Psychologists.

7 - Profissões liberais, técnicos e assimilados:

701 - Arqueólogos;

702 - Biólogos e especialistas em ciências da vida;

703 - Programadores informáticos;

704 - Consultoria e programação informática e

actividades relacionadas com as tecnologias da

informação e informática;

705 - Actividades de programação informática;

706 - Actividades de consultoria em informática;

7 - Professional services, technicians and similar:

701 - Archaeologists;

702 - Biologists and experts in life sciences;

703 - Computer Programmers;

704 - Software consultancy and activities related

to information technology and information

technology;

705 - Computer programming activities;

706 - Computer consultancy activities;

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Tax Resident Regime

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Portuguese English

707 - Gestão e exploração de equipamento

informático;

708 - Actividades dos serviços de informação;

709 - Actividades de processamento de dados,

domiciliação de informação e actividades

relacionadas; portais Web;

710 - Actividades de processamento de dados,

domiciliação de informação e actividades

relacionadas;

711 - Outras actividades dos serviços de

informação;

712 - Actividades de agências de notícias;

713 - Outras actividades dos serviços de

informação;

714 - Actividades de investigação científica e de

desenvolvimento;

715 - Investigação e desenvolvimento das

ciências físicas e naturais;

707 - Management and operation of computer

equipment;

708 - Activities of information services;

709 - Activities of data processing, hosting

information and related activities; Web portals;

710 - Activities of data processing, hosting

information and related activities;

711 - Other information service activities;

712 - Activities of news agencies;

713 - Other information service activities;

714 - Scientific research and development;

715 - Research and development of science

physical and natural;

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Tax Resident Regime

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Portuguese English

716 - Investigação e desenvolvimento em

biotecnologia;

717 — Designers.

716 - Research and development in

biotechnology;

717 - Designers.

8 — Investidores, administradores e gestores:

801 — Investidores, administradores e gestores

de empresas promotoras de investimento

produtivo, desde que afectos a projectos elegíveis

e com contratos de concessão de benefícios fiscais

celebrados ao abrigo do Código Fiscal do

Investimento;

802 — Quadros superiores de empresas.

8 - Investors, administrators and managers:

801 - Investors, administrators and managers of

companies promoting productive investment, if

allocated to eligible projects under tax benefit

contracts awarded under the Tax Code for

Investment;

802 - Senior employees of companies.

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Tax Resident Regime

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3. The Administrative Rulings

The Portuguese tax authorities

issued a ruling in May 6, 2010

(Administrative Ruling nr. 2/2010)

dealing with practical aspects of

the regime, namely its application

in 2009 and the requirements to

obtain the NHR status.

Concerning the application of the

regime in 2009, Portuguese tax

authorities therein assume the

position that the features

depending on the definition of the

qualifying activities (the 20% flat

tax rate for employment and

independent personal services’

income, as well as the exemption

for foreign-sourced independent

personal services’ income) are only

applicable starting from fiscal year

2010.

The remaining features of the

regime (the exemptions for other

types of foreign-sourced income)

were deemed applicable in 2009.

This position raised serious doubts,

as the law sets out that the benefits

of the regime are granted for a ten-

year period. It remains to be seen if

this ten-year period will be taken

into account in different ways,

starting in 2009 for the benefits not

depending on the Ministerial

Order and in 2010 for those which

are.

In regard of the requirements to

obtain the NHR status, the ruling

took the position that for those

becoming Portuguese tax residents

in 2009 the regime would only be

applied on a case-by-case basis,

and to:

a) taxpayers registering as tax

residents “under the assumption

that they would be covered by the

regime”; and

b) doing so after September 23,

2009, the publication date of the

Decree-Law approving the regime.

Both requirements may be viewed

as illegal, as the Decree- Law

clearly establishes that it is

applicable starting from January 1,

2009.

A second ruling has been issued in

August 3, 2012 (Administrative

Ruling nr. 9/2012).

Among other minor features (all

already clearly established by law),

this ruling has changed the tax

authorities’ position concerning the

requirements to obtain the NHR

status. Under the new ruling, it is

sufficient that a taxpayer adds to its

application to the regime a

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Tax Resident Regime

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It is sufficient that a

taxpayer states in its

application that he

solemnly declares

that he or she did not

fulfil the conditions

to be considered a

Portuguese tax

resident in the five

preceding tax years.

statement under which he

solemnly declares that he or she

did not fulfil the conditions to be

considered a Portuguese tax

resident in the five preceding tax

years, either under our domestic

law or by effect of a tax treaty

entered into by Portugal.

This ruling partially revokes ruling

nr. 2/2010, which (illegally)

required taxpayers to present upon

application foreign certificates of

residence and certificates

establishing that they had suffered

an effective tax burden abroad in

the five tax years preceding their

redomiciliation into Portugal.

This change renders new

applications to the regime

significantly less burdensome and

will also unblock previously

submitted applications whose

decision was being delayed by the

lack of any of the mentioned

documents, as ruling nr. 9/2012

expressly states that it is applicable

to pending applications.

Finally, it must be noted that, vis-à-

vis activity code 802 - senior

employees of companies, ruling nr.

2/2010 has adopted a very

restrictive view, which has

remained unchanged by ruling nr.

9/2012. According to this view,

only persons with management

roles and powers to bind

companies may fit into this

category, which is an

incomprehensible position, as

usually only members of corporate

bodies (maxime, members of the

board) have such powers and the

concept of “senior employees of

companies” must naturally differ

from that of “investors, directors

and managers”. Despite this

position, it should be said that, in

practice, this activity code has been

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Tax Resident Regime

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recognised by the tax authorities

on requests by taxpayers with

more leeway than one might

anticipate given the rulings’

position.

Ruling nr. 2/2010 has also clarified

that those employed in companies

fully or partially owned by the

Portuguese State, Autonomous

Regions and Municipalities and

those in charge of a Portuguese

permanent establishment of a non-

resident company also qualify for

activity code 801 - investors,

administrators and managers of

companies promoting productive

investment, provided of course

that such companies and

permanent establishments have

entered into tax benefit contracts

under the Tax Code for Investment

and that the activity of such

persons is allocated to the specific

projects giving rise to the tax

benefit contracts.

4. State Budget Law for 2012

Law nr. 64-B/2011, of December 30,

which approved the State Budget

Law for 2012, has introduced a new

20% withholding tax rate for

domestic source employment or

independent personal services

income deriving from high value-

added activities of a scientific,

artistic or technical nature.

This rate, applicable from January 1,

2012 onwards, means that NHRs

with domestic source income of

these categories are, from that date

on, no longer liable to the standard withholding tax rates of up to 45,3%

(in 2017) for employment income

(depending on the amount of the

income and on their personal and family circumstances) and of 25%

for independent personal services

The State Budget

Law for 2012

introduced a 20%

withholding tax rate

for domestic source

employment or

independent personal

services income

deriving from high

value-added

activities of a

scientific, artistic or

technical nature.

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Tax Resident Regime

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income. This solved the previous

problem of the tax paid in advance

during the year being higher than

the final tax due, as such income is

liable to a special 20% flat tax rate

and not to the general and

progressive rates of up to 48% (plus

2,5% on taxable income above €

80.000 and 5% on taxable income

above € 250.000 during 2017), as

mentioned in point 1. above.

5. Amended State Budget Law for

2012

Law nr. 20/2012, of May 14 - the

Amended State Budget Law for

2012 -, introduced a term for the

submission of applications to the

NHR regime.

Under the changes introduced to

the IRS Code, applications must

now be submitted until March 31 of

the tax year following that in which

Portuguese tax residence is

acquired.

It has been expressly established in

the Amended State Budget Law for

2012 that such deadline was

previously non-existent, which

means that applications previously

denied on the grounds of being

extemporaneous and still pending

appreciation, namely due to the

submission of administrative

appeals, will now be decided

favourably. It is also possible that

cases of applications previously

denied on the grounds of being

extemporaneous and already fully

decided (i.e., where no appeals are

pending) might again be submitted

to the Portuguese tax authorities,

although this should be

approached with care.

6. State Budget Law for 2013

The State Budget Law for 2013

(Law nr. 66-B/2013, of December

31) introduced two changes to the

regime.

One of them was that taxable

income of individuals became

subject to an extraordinary surtax

of 3,5% in 2013, applicable to the

employment or independent

personal services income deriving

from high value-added activities of

a scientific, artistic or technical

nature obtained by NHRs liable to

autonomous taxation at a special

20% flat rate, as well as to any non-

exempt income liable to the general

and progressive IRS rates.

In the case of employment income

deriving from high value-added

activities of a scientific, artistic or

technical nature, the 3,5%

surcharge was added to the 20%

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Tax Resident Regime

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The State Budget

Law for 2013

introduced an

extraordinary surtax

of 3,5%.

withholding tax rate introduced by

the State Budget Law for 2012. In

the case of independent personal

services income of the same nature

the surcharge was only levied

upon the submission of the yearly

tax return.

The second aspect of State Budget

Law for 2013 was a change to the

wording of paragraphs (3), (4) and

(5) of article 81 of the IRS Code,

which establish the conditions for

the exemption of (i) employment

income; (ii) independent

professional services income

obtained through high value-

added activities, royalties, capital

income, rental income and capital

gains; and (iii) pension income,

respectively.

This change is, in our opinion,

irrelevant, in all cases, as it does not

amend the already previously tax-

exempt status of such items of

income.

However, as far as pension income

is concerned, it had the intention to

put an end to an abusive

interpretation by the tax

authorities of the second condition

of paragraph (5) of article 81 of the

IRS Code, according to which the

non-taxation of non-Portuguese

sourced pensions applies only in

cases where no tax treaty exists.

This interpretation had no

sustenance, as the tax exemption

for foreign sourced pensions was

clearly applicable to pensions

sourced in States with which

Portugal both had and had not

entered into a tax treaty. Moreover,

it made no sense to sustain this

position, as it would imply that

foreign pensions earned by NHRs

which had not been taxed at source

would be exempt if they originated

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Tax Resident Regime

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from tax havens (with no tax treaty

with Portugal) but would be

taxable if they originated from

States with a tax treaty entered into

with Portugal.

Other additional problems have

also arisen in the application of the

regime, especially deriving from

the poor adaptation of the IRS

return form to some of the regime’s

features. Namely, the tax return

form seemed to require that

pensions were taxed abroad for

them to be IRS exempt under the

regime (which, we stress again, is

not legally required) and the

electronic filing system seemed to

have been configured in a way that

raised difficulties in the application

of the regime to passive income,

such as capital income, rental

income, royalties and capital gains

on real estate.

The tax authorities’ interpretation,

together with the poor drafting of

the IRS return form, raised

practical and important doubts on

the application of the regime

concerning pensions which were

not fully clarified with the very

subtle change deriving from the

State Budget Law for 2013.

The effects of that change have

been debated. As the new wording

was enacted without retroactive or

interpretative effect, it remained

doubtful whether the tax

authorities would accept to apply

the exemption for pension income

to pensions received until

December 31, 2012, and sourced in

States with which Portugal has

entered into a tax treaty.

7. Other developments in 2013

It was expected that an

administrative ruling would be

The tax authorities’

interpretation and

the poor drafting of

the IRS return form

have raised practical

and important

doubts in the past on

the application of the

regime concerning

pensions. However,

the regime is now

fully applied by

Portuguese tax

authorities.

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Tax Resident Regime

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issued by the Secretary of State of

Tax Affairs or the Director-General

of Taxes in the aftermath of the said

legislative change, to fully

eradicate the existing doubts.

However, the expected

clarifications emerged more

prosaically, with the issuing in

December 2012 of tax assessments

for taxpayers under the regime and

with no foreign sourced pension

income, and with the issuing in the

end of March 2013 of tax

assessments for taxpayers with

foreign sourced pension income.

Tax assessments for taxpayers

under the regime were pending

issuance since its inception, which

was previously a source of major

concern regarding its practical

application. The regime clearly

then became fully applied by

Portuguese tax authorities.

The said assessments were,

however, incorrectly issued as

regards foreign sourced capital

income, rental income, royalties

and capital gains on real estate, as

these were deemed taxable even

when the requirements for their

exemption – (a) possibility of

taxation at source according to the

rules of a tax treaty entered into by

Portugal or, if no treaty is in place,

(b) that (i) it may be taxed in the

source State according to the rules

of the OECD Model Tax

Convention on Income and on

Capital, as interpreted in the light

of the Portuguese reservations on

its articles and of the observations

on its commentary; (ii) it is not

considered to arise from a

Portuguese source under the IRS

Code territoriality rules; and (iii)

the source State, region or territory

is not included in the Portuguese

tax havens’ blacklist - were

verified.

In certain cases, taxpayers were

forced to submit administrative

appeals against assessments

bearing such a mistake, to be fully

protected.

This problem was also solved at the

end of 2013. Pending appeals were

decided in favour of taxpayers and

Portuguese tax authorities have

issued corrective tax assessments

replacing all assessments suffering

from this mistake, even those not

under appeal.

8. Changes to the procedure to

register as tax resident in

Portugal

Decree-Law nr. 14/2013, of January

18, changed the rules applicable to

the registration of taxpayers. Non-

Portuguese nationals are now

required to obtain a valid residence

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Tax Resident Regime

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permit or a long-term residence

certificate to register as tax

residents in Portugal, something

which was previously not

required, at least in theory.

Registering as a tax resident in

Portugal is a requirement to be

granted the NHR status, which

means that those wishing to apply

for the regime must now: (i)

register as non-resident taxpayers;

(ii) obtain residence permits (for

non-EU nationals) or long-term

residence certificates (for EU

nationals); (iii) register as tax

residents; (iv) request the password

to access the tax authorities’

website; and (v) only then apply for

the NHR status. Decree-Law nr.

41/2016, of August 1, also changed

the means of application to the

NHR status, which is now

submitted via the tax authorities’

website.

9. State Budget Law for 2014 and

subsequent developments

The State Budget Law for 2014

(Law nr. 83-C/2013, of December

31) once again approved a 3,5%

extraordinary surtax, applicable in

the exact same terms as the one in

force during 2013.

Moreover, Ministerial Order nr.

365/2013, of December 23,

approved a new IRS return form,

applicable to returns submitted as

from January 1 of 2014, concerning

income obtained in preceding tax

years.

Following the clarifications of 2013

in regard of pensions and passive

income, the changes introduced to

the form clarified that only foreign-

sourced employment income must

be effectively taxed by the State of

source to qualify for the NHR

exemptions. In fact, the form now

Registering as a tax

resident in Portugal

is a requirement to

be granted the NHR

status.

The Portuguese Non-Habitual

Tax Resident Regime

Julho 2014

19

expressly states that (i) all foreign

sourced pensions and (ii) foreign

sourced passive income that is

liable to tax at the State of source

is tax exempt in Portugal,

regardless of effective taxation

abroad.

10. Expected changes for 2015 - the

IRS Code Reform

The Commission charged with the

2014 IRS reform, which entered

into force on January 1, 2015, had

proposed to the Government the

enactment of significant changes to

the NHR regime, directed at

increasing its attractiveness.

The most relevant proposed

change was a widening of the

exemptions for foreign-sourced

income to encompass: (i) all

passive income (interest,

dividends, royalties, other income

from capital, capital gains on any

foreign asset, including shares, and

income from immovable property),

regardless of the liability to

potential taxation at source under

an existing tax treaty or the OECD

Model Tax Convention; and (ii)

independent personal services

income of any kind, provided that it is potentially liable to taxation in

the source State under the rules of

a tax treaty or of the OECD Model

Tax Convention.

Moreover, the Commission also

proposed the inclusion of

actuaries, airline pilots and

directors and managers of all

companies, regardless of their activity sector and of the existence

of a tax benefit contract with the

Portuguese State, in the list of high value-added activities of a

scientific, artistic or technical

nature which qualify non-exempt employment and independent

The changes

introduced to the

form clarify that

only foreign-sourced

employment income

must be effectively

taxed by the State of

source to qualify for

the NHR

exemptions.

The Portuguese Non-Habitual

Tax Resident Regime

Julho 2014

20

personal services income for the

special 20% flat rate.

This inclusion would operate

through an amendment to the

Ministerial Order mentioned above

in point 2.

Finally, the Commission also

proposed the abolishing of an

existing withholding tax, applicable to cases where exempt

foreign-sourced income derived by

NHRs from securities is paid

through Portuguese entities, as in

practice the withholding was

rendering the exemption

ineffective in such cases.

11. Effective changes for 2015

Despite high expectations, only the

last of the mentioned changes

proposed by the Commission

charged with the 2014 IRS Reform

was approved.

However, additions to the list of

high value-added activities of a

scientific, artistic or technical nature

– which qualify non-exempt

employment and independent

personal services income for the

special 20% flat rate – do not require

legislative action, but only a change

in the Ministerial Order approving

the list, and therefore may simply

be approved by the Minister of

Finance.

Additionally, there have been

changes to more general aspects of

the IRS Code which may impact the

NHR regime. The most relevant is

the option granted to NHRs

deriving foreign-sourced income

that will be IRS exempt to opt for

progressive rates (of up to 48%, plus

2,5% on taxable income above

€80.000 and 5% on taxable income

above € 250.000, during 2017) in its

regard.

In fact, whereas in the past this

option had to be exercised on an all-

or-nothing basis, meaning that if

exercised in regard of one category

of income all remaining categories

would be subject to the said

progressive rates, with the credit

method being applied and the

exemption method forfeited in

regard of all of them, it is now

possible to opt for the progressive

IRS rates on a per-income category

basis.

This means that it is now possible to

have income from one category

taxed under the IRS progressive

rates, with the credit method being

applicable, and the remaining ones

still benefiting from the applicable

exemptions or special rates.

The main advantage of this option

is that the application of the

progressive rates enables the carry-

forward of losses (between 5 and 12

The Portuguese Non-Habitual

Tax Resident Regime

Julho 2014

21

years) in the categories of income

where it is applicable. As the

application of the progressive IRS

rates to a category of income in

which losses are registered in a

given year and in regard of which

the carry forward of losses is

available in general terms no longer

implies the forfeiting of the

exemption method in regard of the

remaining categories of income, this

option, together with an also new

possibility to carry forward existing

excess foreign tax credit (during 5

years), may prove beneficial with

regard to income not encompassed

by the NHR exemptions.

The option for the credit method

regarding exempt income remains

available, but it is still applicable on

an all-or-nothing basis, meaning

that, when exercised in regard of

one category of income, income of

all categories will be taxed under

the standard IRS regime, being

liable either to progressive rates of

up to 48% (plus 2,5% on taxable

income above € 80.000 and 5% on

taxable income above € 250.000,

during 2017) or to special lower flat

rates, depending on its nature. This

option also implies that the credit

method will be applied to income of

all categories and the exemption

method completely forfeited.

The consequences of the options for

the IRS progressive rates and for the

credit method may be summarized

as follows:

Option for the

IRS progressive

rates

Per-category

basis

Credit method

applicable to

categories

where the

option was

made

Exemption and

special rates

retained on

remaining

categories

Option for the

credit method

All-or-nothing

basis

Exemption lost

on all categories

of income

Special rates

retained on

remaining

categories,

whenever

applicable

The Portuguese Non-Habitual

Tax Resident Regime

Julho 2014

22

Finally, the State Budget Law for

2015 (Law nr. 82-B/2014, of

December 31) has once again

approved a 3,5% extraordinary

surtax, applicable in the exact same

terms as the one in force during

2013 and 2014.

12. Other tax features and

planning opportunities

Law nr. 15/2010, of June 26, has

abolished a long-standing IRS

exclusion for capital gains on

shares held for more than 12

months.

This has relevant consequences for

the NHR regime, as its tax

exemption for capital gains had

been built with that exclusion in

mind and in such a way that it is

only applicable if the income may

be taxed in the source State under

the rules of a tax treaty entered into

by Portugal (or, if no treaty exists,

according to the rules of the OECD

Model Tax Convention on Income

and on Capital, as interpreted in

light of the Portuguese

reservations on its articles and of

the observations on its

commentary).

This implies that most capital gains

(maxime on foreign shareholdings

and other securities) will remain

taxable in Portugal as both most of

the Portuguese tax treaties and the

OECD Model Tax Convention

establish in this case that the

residence state has exclusive

competence to tax.

Additionally, several other

attractive features remain for the

Portuguese taxation of individuals.

Firstly, several capital gains are

excluded from IRS taxation, such

as those on:

a) shares and quotas, acquired

before January 1, 1989;

b) real estate, except land for

construction, owned before

January 1, 1989;

c) a taxpayer's personal and

permanent residence insofar as

the sale proceeds are reinvested

in another personal residence in

the Portuguese, European

Union or European Economic

Space territory (in the latter case

if there is an instrument

providing for exchange of

information between the tax

authorities of both States in

terms similar to the ones in force

within the European Union).

Contributions made by the

employer to pension funds and life

and health insurance schemes are

not regarded as employment

The Portuguese Non-Habitual

Tax Resident Regime

Julho 2014

23

Most capital gains

(maxime on

foreign

shareholdings and

other securities)

remain taxable in

Portugal.

income provided that certain

conditions are met.

Finally, since January 1, 2004, close

family (spouses, children,

grandchildren, parents and

grandparents) is exempt from

Stamp Tax on gifts and

inheritances. Other situations

involving the gratuitous disposal

of Portuguese assets are taxed

through a 10% (or 10,8% when a

gift of real estate is concerned)

Stamp Tax.

However, the disposal of foreign

assets, even towards Portuguese

residents (such as the disposal of (i)

shares in companies whose head-

office, effective management or

permanent establishment is not in

Portuguese territory, and of (ii)

credit rights or rights with an

economic content over individuals

or companies, with residence,

head-office, effective management

or a permanent establishment

outside of Portugal), is not liable to

this type of taxation.

As of November 2015, the Socialist

party, with the parliamentary

support of three far-left parties (the

Left Block, the Communist and the

Green parties) has formed the

current Government. The Socialist

party has proposed in its electoral

program the reintroduction of

inheritance taxation between

spouses and direct line

descendants for “high value” estates

(in principle those with a taxable

value above 1 million Euros, with a

rate of 28% applying to the

surplus), but “taking into account the

need to avoid phenomena of multiple

inheritance taxation”. It is therefore

possible that a mild form of

inheritance taxation may be re-

introduced in Portugal, but it is not

clear how it will target NHR with

The Portuguese Non-Habitual

Tax Resident Regime

Julho 2014

24

non-Portuguese assets, due to the

caveat in commas, or when it will be

reintroduced since there were no

substantial developments on this

issue lately.

B. Endnotes on the status of the

regime and on its predictable

developments

The State Budget Law for 2017

(Law nr. 42/2016, of December 28)

has once again maintained an

extraordinary surtax, applicable to

employment or independent

personal services income, deriving

from high value-added activities of

a scientific, artistic or technical

nature, obtained by NHRs liable to

autonomous taxation at a special

20% flat rate, as well as to any non-

exempt income liable to the general

and progressive IRS rates.

However, such surtax is now

progressive, being that the higher

bracket – for income above € 80.640

– is now taxed via a 3,21% rate.

According to this State Budget

Law, the extraordinary surtax will

finally be revoked by the end of

2017.

It is also worth noting that a

renegotiation of tax treaties in force

between Portugal and other States

is currently an issue with two

Nordic countries, and is driven by

the double non-taxation of private

pensions allowed by the

combination of the NHR regime

with tax treaties following the

OECD Model Tax Convention. The

two countries at issue are Sweden

and Finland. In the case of Finland

that led its Government to request

an amendment to the private

pension article of the tax treaty,

which was already accepted by the

Portuguese Government. Sweden

has also expressed the desire to

revise the same provision in its tax

treaty with Portugal and

negotiations are expected to begin

soon. These amendments will, in

principle, allow Finland and

Sweden, as source States of private

pensions, to impose tax on them

(Sweden’s existing tax treaty with

Portugal already allows Swedish

taxation on disbursements made

under the Swedish Social Security

legislation and paid to Portuguese

tax residents). However, it is

important to realize that the

amendment (Finland) or possible

amendment (Sweden) of a tax

treaty does not mean that Portugal

will unilaterally change its

domestic NHR regime, namely by

starting to impose tax on foreign-

sourced pension income. Currently

no other State has publicly

signalled a will to revise its tax

treaty with Portugal.

The Portuguese Non-Habitual

Tax Resident Regime

Julho 2014

25

Additionally, the current

Government has already indicated

the intention of revising the list of

high value-added activities of a

scientific, artistic or technical

nature – which qualify non-exempt

employment and independent

personal services income for the

special 20% flat rate. This

modification may probably

encompass the proposal of the

Commission charged with the 2014

IRS Reform of including actuaries,

airline pilots and directors and

managers of all companies,

regardless of their activity sector

and of the existence of a tax benefit

contract with the Portuguese State,

in the list of high value-added

activities.

The tax regime for NHRs seems to

be effective in the attraction to

Portugal of high net worth

individuals, increasing demand in

the domestic market, and fostering

increased fiscal revenue, namely in

regard of real estate and

consumption taxes, from

individuals that otherwise would

not be taxpayers in Portugal.

The previous Government,

announced the intention to attract

investors, qualified workers and

researchers into Portugal in the

Government Programme, although

this has not been specifically linked

with the NHR regime and, as far as

investors are concerned, may be

tied more clearly to the Golden

Visa Program. It was also

announced the intention to

implement a specific program to

boost the attractiveness of Portugal

as a destination for northern

European retirees - the Retirement

in the Sun (“Reforma ao Sol”)

Program.

The NHR regime

seems to be effective

in the attraction to

Portugal of high net

worth individuals.

The Portuguese Non-Habitual

Tax Resident Regime

Julho 2014

26

Although this Program never came

to light, the NHR regime has been

gathering political support, also

aiming at the return of highly

qualified Portuguese nationals

currently domiciled abroad.

In this regard, as from January 1,

2014, no relevant doubts remain on

the application of the NHR regime,

which means that it may be fully

and unrestrictedly enjoyed by

those wishing to move to Portugal.

***

Proper legal advice is

recommended before any decision

is taken to become a Portuguese tax

resident, and more so if one wants

to profit from the NHR status.

RPBA has an in-depth knowledge

and expertise on this regime.

Visit our microsite to know more

about the NHR regime. You can

also check our presentations on this

subject: A Detailed Guide on the

NHR Tax Rules and Frequently

Asked Questions and Reasons to

Move to Portugal.

To book a consultation or to obtain

our professional fees on this subject

please e-mail us (Ricardo da Palma

Borges): ricardo@rpba.pt

September 13, 2017

Ricardo da Palma Borges

Carlos Alcântara Neves

(formerly, Pedro Ribeiro de Sousa)

Disclaimer: Although great care

has been taken when drafting this

Information Note, Ricardo da

Palma Borges & Associados

(RPBA) - Sociedade de

Advogados, S.P., R.L. does not

accept any responsibility

whatsoever for any consequences

arising from the use of the

information contained herein.

The information is provided

solely for general purposes,

cannot be regarded as legal or

other advice and was last revised

on the stated date.