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NON-HABITUAL RESIDENTS - STATUTE AND TAX REGIME

The Legal Regime foe Non-Habitual Residents was created in 2009 by the Law-by-Decree Nr. 249/2009 on 14th of September, however, because of its complexity there was a need for clarification and an update, which occurred with the Circular Nr. 9/2012 dated on the 3rd of August 2012 which approved the tax regime for Non-Habitual Residents.

SCOPE OF APPLICATION
All European Citizens who are Non Residents in Portugal.

OBJECTIVES
The Portuguese Governments has as main objectives;

  • The attraction of Non Resident Citizens to Portugal, and
  • The attraction of Investment.

However, in order to benefit from this regime it isn’t necessary to purchase any property or real estate asset, being sufficient that the conditions foreseen in the regime are satisfied. 

HOW TO OBTAIN THE STATUTE OF NON-HABITUAL RESIDENT?
By request addressed at the Department of Registration of Taxpayers in Lisbon, as long as the following Requirements are satisfied:

  • To be considered a Resident, for tax purposes, in Portuguese territory since 01/01/2009,

(One is considered a Fiscal Resident when staying in Portuguese territory for more than 183 days per year OR who, on the 31st of December of that year owns a property in those conditions that allow suggesting the intention to maintain and occupy it as regular residence).

  • Not to have been taxed as a Fiscal Resident in Portugal in any of the 5 previous years.

CONSEQUENCES AND TERM TO ASSURE THE STATUTE - NON-HABITUAL RESIDENT
The taxable person to whom is granted the Statute of Non-Habitual Residence obtains the right to be taxed as such for the period of 10 consecutive years, counting from the year of registration as Resident in Portuguese Territory, provided that in each of those 10 years he will be considered a resident there.

 

TAXATION ON THE INCOME OBTAINED BY THE NON-HABITUAL RESIDENTS

A - INCOME FROM A PORTUGUESE SOURCE

1 – Categories A and B earned with High Value Added Activities
The net income of categories A (dependent work) and B (independent work) earned with high value added activities are taxed at a special rate of 20%.

2 – Categories A and B (Not Considered as high value added)
With regard to the remaining income of categories A and B (not considered as high value added) and the income of all other categories from Portuguese sources, these are encompassed and taxed according to the general rules set out in the Income Tax Code.

 

B - INCOME FROM A FOREIGN SOURCE

The Regime for the Non-Habitual Residents foresees the elimination of international judicial double taxation by EXEMPTION method.
However, this elimination of double taxation results in, in most cases, as will be seen, a Double Non-Taxation.

 

1 - Category A - Income from dependent labor 
To the non-habitual resident in Portuguese territory obtaining, from abroad, INCOME FROM DEPENDENT LABOR, the EXEMPTION Method is applied, for which it is sufficient that any of the following conditions are verified:

  • That they are taxed in the contracting State in accordance with the Convention to eliminate double taxation agreed by Portugal with that State;

or

  • That they are taxed in another country, territory or region, where there is no Convention to eliminate double taxation agreed by Portugal, provided that the income is not considered to be obtained in Portuguese territory.

The Regime for Non-Habitual Residents does not foresee the elimination of international judicial double taxation by Exemption method.
However, this elimination of double taxation results in, in most cases, as will be seen, a Double Non-Taxation.

 

2 - Category B, Category E, Category F and Category G (Income derived from Capital Gain)

  • Income from Independent labor (high value added activities)
    or
  • Royalties and Copyright
    or
  • Revenue from capital assets, property and capital gain

The EXEMPTION method is applied, for which it is sufficient that one of the following conditions is verified:

  • That they are taxed in the contracting State in accordance with the Convention to eliminate double taxation agreed by Portugal with that State

or

  • In the event there is no convention to eliminate the double taxation that they are taxed in another country, territory or region, according the OECD convention model and provided that they are not on the list approved by the Ministry of State and Finance regarding the regimes of privileged taxation, clearly more advantageous and, also, provided that the income is not considered to be obtained in Portuguese territory.

 

CONCLUSION:

In order for the Exemption of Taxation to be applied, the taxation in the country of origin of the income is not required, but they can be. 

And also, the regime of double non-taxation occurs whenever:

  • the convention agreed by Portugal and the State where the income comes from (or the OECD convention model,  interpreted according the observations and reservation expressed by Portugal) foresees that possibility

and

  • that this possibility is not exploited by the State that is the source of the income. 

 

3 – Income from Category H (pensions)
The non-habitual residents in Portuguese territory who obtain from abroad income from category H, in as far as they originate from contributions without deductions for purposes of subsection 2 from section 25º of the CIRS  (IRS Code), the exemption method is applied, for which it is sufficient that one of the following conditions is verified:

  • That they are taxed in the contracting State in accordance with the Convention to eliminate double taxation agreed by Portugal with that State

or

  • are not considered to be obtained in Portuguese territory.

CONCLUSION:
The Income from Category H (Pensions), are, in general, EXEMPT, because they fall under the  DOUBLE NON-TAXATION.

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