The NHR (Non-Habitual Resident) regime in Portugal provides tax benefits for those who decide to become tax residents here. The regime is valid for 10 years after receiving it, but since 2024 it has been canceled for new contracts. Its application is appealing to entrepreneurs, especially to those earning income from abroad. The advantages of NHR include the possibility of exemption from taxes on foreign income in Portugal, as well as the opportunity to pay low tax rates on income within the country.
There are several NHR codes, depending on the applicant's specific situation, such as a code for retirees, which provides exemption from taxes on pension income, or a code for highly qualified professionals, which may provide exemption from taxes on income from intellectual property. For example, NHR can help to reduce the effective IRS tax rate to 7.5% for entrepreneurs in the first year of starting a business. This regime also offers other benefits, such as tax benefits for inheritance, tax protection regarding passive income, and reduction of tax liabilities on property tax.
On entrepreneur or employee income, to benefit from this regime you must do activities under high qualify profession consider at Portaria n.º 12/2010 of 7 January as amended by Portaria n.º 230/2019 of 23 July. All documents, from contract to invoices, must indicate the activity correctly to avoid any possible correction from Tax Authority and fully benefit from NHR. For example marketing and human resources services are not consider high qualify profession, but if you are Director of the department it is under NHR.
This high qualify professions are:
I – Professional activities (codes of the Portuguese Classification of Occupations(CPP):
112 – Director General and Chief Executive of companies
12 – Directors of administrative and commercial services
13 – Directors of production and specialised services
14 – Directors of hotels, restaurants, stores and other services
21 – Specialists in the physical sciences, mathematics, engineering and related techniques
221 – Physicians
2261 – Dentists and Stomatologists
231 – University and higher education professors
25 – Specialists in information and communication technologies (IT)
264 – Authors, journalists and linguists
265 – Creative artists and of performative arts
31 – Technicians and professionals of science and engineering, of intermedia level
35 – Technicians of information and communication technology, market oriented.
61 – Market-oriented farmers and skilled workers in agriculture and animal production
62 – Market-oriented skilled workers in forest, fishing and hunting
7 – Skilled workers in industry and construction and handicraftsmen, including in particular skilled workers in metallurgy, metal mechanics, food processing, wood and clothing, in craftsmanship, in printing, manufacturing precision instruments, jewelers, craftsmen, electricity and electronics workers.
8 – Operators of installations and machinery and assembly workers, in particular fixed plant operators and machinery.
On annual declaration of IRS, anexo L, you will indicate the amount of income that can be under NHR regime and what profession is related to, and the regime for taxation for them, NHR or progressive scale. Also regarding income obtained outside of Portugal as to be here indicate and the mechanism that will be used to avoid double taxation if you paid already taxes on country of source.
Another benefit of NHR is an opportunity to alternate progressive scale or NHR each year while keeping NHR status for next year if you choose a progressive scale for the current period. For example, a person with NHR that have 32.000€ of TI for foreign company and employee income for Portuguese company, with retention of 3.500€, using NHR regime will pay 4.000€. So in total the IRS with NHR will be 7.500€. But with family declaration with partner and 2 children, that will use progressive scale regime, will pay just 800€. In this option of progressive scale, IRS will be 4.300€, less 3.200€ then NHR. This optimization was possible because the options available was explored and compared.
At Kilobanan we study your case and always compare an ultimate income under NHR or on a progressive scale and deductible amounts to choose a more beneficial tax strategy for you.
Book an online consultation with 20% discount using promo code KILOBLOG with one of our specialists to find out if and how you can benefit from NHR regime.
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