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Update on Portugal's Non-Habitual Residence Program

Update on Portugal's Non-Habitual Residence Program

Concerned about the tax implications of buying property in Portugal? Good news! Foreigners who want to buy in Portugal and meet certain criteria may be exempt from paying tax on most forms of overseas income. Here's how!
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In a bid to bounce back from the 2008 financial crisis, Portugal has transformed itself into a honey pot for high net-worth individuals across the globe.
 
From the UK to South Africa and from Scandinavia to the US, Portugal is attracting investment from all over the world.
 
The Golden Visa is a major driving force behind the country’s recovery. It requires a €500,000 injection into the Portuguese property market, after which investors and their families are granted permanent residency, and the right to travel freely through Europe in accordance with the EU’s freedom of movement.
 
A natural extension to the Golden Visa, or a standalone option for international expats, is Portugal’s Non-Habitual Residence scheme. Aimed at attracting foreign investment into the country’s property market, the programme offers fantastic tax breaks for foreigners looking to relocate.
 
And it seems to be working: Portugal’s economy expanded in 2017 at its fastest rate in a decade, while unemployment dropped from 17.5% in 2013 to 9.2% in 2017.
 
With tax breaks, a strong economic outlook and beautiful sunshine for much of the year (not to mention the golf, wine and food!), Portugal is a magnet for expats and investors.
 
Let’s take a closer look at the Non-Habitual Residence (NHR) programme.
 
What is the NHR?
Introduced in 2009, foreigners who reside in Portugal and meet certain criteria are exempt from paying tax on most forms of overseas income, including pensions, for a period of ten years.
 
In essence, the NHR provides a ten year tax break on certain types of income streams. Advance planning can make these income streams tax efficient beyond the ten years.
 
Who does this benefit?
The NHR is extremely attractive to Brits, Scandinavians and citizens from other European countries paying higher tax rates. The programme is also popular with Americans and South Africans.
 
It also makes a huge difference to UK buyers who wish to withdraw a lump sum from their pensions to invest in overseas property – something that would accrue heavy tax penalties if completed while resident in the UK.
 
Do you have to live in Portugal to take advantage of the NHR?
The residency scheme requires participants to be in the country for more than 183 days of the year. Most expats choose to buy property, but there is the option to rent – as long as you have a settled presence there for those 183 days.
 
How do you apply?
The process is simple for EU citizens, who have the right to freely relocate. Once settled in Portugal, they simply file an application or register with a local authority. The NHR application takes place within Portugal and could take a couple of months.
 
Residents of non-EU countries must take a slightly different, and more long-winded approach. For example, South African citizens would need to obtain a long stay visa, which is usually granted for about four months. Once in Portugal, they can simultaneously apply for the NHR and a residence permit. The residence permit can take over four months to be processed in some cases, but authorities will permit them to stay in the country as long as they’ve got proof that the application has been filed.
 
How does the NHR benefit Portugal?
By attracting expats to Portugal, where they will be spending money on goods and services, the NHR boosts the economy. Many expats also start businesses after spending several years in Portugal (including those who ‘retired’ there!) which has a knock-on effect on employment rates.
 
Should I seek expert assistance?
It’s important to remember that even if you’re on the NHR programme, you’re still paying capital gains tax at Portuguese rates – so you need to ensure that you’ve transmuted any future capital gains into a different type of income stream. The double tax treaty might also come into play for more complication transactions.
 
With this in mind, recruiting the help of an expert with an intimate knowledge of tax and residency rules in both Portugal and your home country is probably wise.
 
At Ideal Homes Portugal, we make it our mission to provide you with honest, comprehensive advice and take the stress out of relocation. Feel free to contact us today for a friendly chat – we’re all expats ourselves and we’d love to share our first-hand knowledge of moving to Portugal with you!

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