The Ultimate Guide to Portugal’s Non-Habitual Residency Regime (NHR)
Independent contractors that are looking for a tax-favourable country, may consider Portugal due to its Non-Habitual Residency Regime (NHR). Available to all EU citizens the NHR is designed to attract wealthy citizens and retirees to the country but is also available to professionals and self-employed individuals.
Eligibility for the NHR in Portugal
The eligibility criteria for the NHR are fairly straightforward:
- Have the right to reside in Portugal as an EU citizen
- Establish tax residency
- Not have been a Portugal tax resident for the five years before taking up my current residence
Definition of Tax Residency in Portugal
To be deemed a tax resident you must have a place of abode by December 31 of the year before your application (rent or own), with the intent to hold residence in Portugal. A lease or deed of sale will be required with the NHR application.
Benefits of the Non-Habitual Residency Regime
The primary benefit of the NHR for independent contractors is the option to elect a 20% flat income tax instead of using Portuguese progressive rates. This applies to both Portuguese and foreign-sourced income, although it does differ slightly between the two. (You can also elect progressive rates if those would be lower.)
In addition, if you fall under the list of “eligible professions” foreign-sourced income is completely tax-exempt if your home country has a tax treaty with Portugal. However, you will still need to pay tax in the country of income source.
(Note: Anyone who relocates to Portugal under the NHR after March 31, 2020, would fall under a new change to the tax exemption for foreign-sourced income. Going forward, pension and social security income from a foreign country will be taxed at a flat 10%. This may affect contractors that are working under the NHR and plan to retire in Portugal.)
This is a real boon for contractors who may work for various clients in other EU countries. The eligible professions include fairly broad categories, such as “information and service activities” so it is likely most contractors would qualify for the tax exemption.
Once you have successfully applied for the NHR status, it is good for 10 years and no further documentation or application is required. There is no minimum stay for the NHR.
Application Process for the NHR in Portugal
Once tax residency is established by December 31, the NHR application is due by March 31 of the following year. It takes about 2 weeks to process the application. Other steps include:
- Obtain a Portuguese tax ID number
- Register as a tax resident
- Apply through the NHR online portal where you can track the application process
How Can an Umbrella Company Help With the NHR?
If you will have Portuguese-sourced income, then you will need to set up as self-employed in Portugal. An umbrella company can also assist you with this, including facilitating payment with your Portuguese clients, withholding tax, social contributions, and the initial application for the NHR. Please contact us for fully vetted umbrella companies in Portugal.