NHR reduced tax scheme
Introduction
Portugal has created a scheme(non-habitual resident or NHR) which is designed to attract new people to the country, by providing significant tax incentives, related to income within Portugal and also from other countries. The benefits are significant, and it is simple to register for the NHR scheme. It is not a benefit designed only for high net worth individuals, in fact it is of interest to all, and particularly retirees.
When combined with the D7 visa (more info here) this is a common route for those wanting to move permanently to Portugal from the UK post Brexit.
The scheme runs for 10 years from when you join the scheme, and is not renewable.
Everyone who becomes tax resident in Portugal is eligible to join the scheme, but you are not allowed to join the scheme if you are already tax resident in Portugal (or have been tax resident in the last five years)
Tax rates are significantly reduced for income within Portugal (in certain cases) and also for income from outside of Portugal.
Income from outside of Portugal
Salaries generated outside of Portugal are treated in two different ways. If the income is generated from an eligible profession then it is tax free. Examples of eligible professions are architects, engineers, dentists, musicians, doctors and university lecturers (there are many more eligible professions). Alternatively (in the case of non-eligible professions) you pay a flat rate of 20% IRS (personal income tax), as long as the income is considered under a double taxation agreeement.
Rental income, investment income and capital gains is, in most cases, tax free.
Pensions-this is one of the key attractions to the NHR scheme, as pensions can be received with only 10% of tax to be paidas in most cases pensions are paid without any tax being deducted in the country holding the pension. Anyone with a reasonable pension will see more money in their pocket as a result of this reduced tax rate of 10%.
Income from Portugal
If your profession is on the list of eligible professions, then you are taxed at a flat rate of 20%. All other professions will be subject to IRS which is paid on a scale, up to a maximum of 48%.
Pension income is taxed at the normal rates.
Other taxes
There are other fiscal benefits to the NHR scheme, which include the attractions of no wealth tax or inheritance tax in Portugal
Conclusion
The NHR scheme has been very successful in attracting many people to Portugal, and by creating a low tax scheme, it has made many people choose Portugal as a place to live.
It has many benefits, and is particularly attractive for those retiring from other countries, who are able to receive their pension with a much reduced tax rate. The amount of money saved over the 10 year period of the scheme is significant.
The rules of the scheme are reviewed and subject to change (as an example the rate of tax on foreign pension income was zero, and this is only now increasing to 10%). Our advice is to take advantage of the NHR scheme as soon as you can.
