Portuguese residents (domestic taxpayers) are liable to pay Personal Income Tax (PIT) in Portugal for all worldwide income obtained, by the application of progressive tax rates ranging from 14,5% to 56,5%.
Foreign taxpayers (non-residents) are subject to PIT taxation in Portugal for all deemed income obtained from the country, by withholding tax at the rate of 25% (employment income, business and professional income, pension income) or 28% (investment income, real estate rental income, capital gains), depending on the nature of the income.
With the Decree-Law 249/2009, of September 23rd, a new special tax regime has entered into force in Portugal – the tax regime of “Non-Habitual Residents” – , with the purpose of attracting qualified professionals, people with high net worth and foreign pensioners to Portugal.
Indeed, that regime allows individuals not resident in Portugal which obtain income from here and that qualify as tax resident in Portugal, the option to choose a special regime with a lower taxation than the other two above mentioned which apply to residents and non-residents.
For this purpose, foreign persons can become tax residents in Portugal, among others, for the following reasons:
1. By staying in Portuguese territory for more than 183 days, consecutives or interpolated in any period of 12 months started or ended in that year, or
2. By having stayed for less time, but having on any day of the aforementioned period, a domicile place under the circumstances which imply intention to keep and occupy such place as permanent residence.
With this regime, a new tax concept has been created in Portugal, which is the concept of Non-Habitual Resident, in addition to the already existing concepts of Resident and Non-Resident for tax purposes.
Non-Habitual Resident is a foreign taxperson who transfers its residence to Portugal, who has acquired the status of resident in Portuguese territory, who has not been taxed as a domestic taxpayer in the last five years and, in addition, who decides to be registered before the Portuguese Tax Authorities under the tax regime of Non-Habitual Residents until March 31st of the following year to which he has become resident in Portugal.
The regime is applicable for a 10 years period counted from the registration year, inclusively. However, it is possible to suspend the registration and return the application of the regime through the mere re-inscription before the Portuguese Tax Authorities. During the suspension period, the foreign taxpayer will be taxed as Non-Resident for tax purposes in Portugal.
They may choose this special regime, individuals that carry out activities considered as high-value added activities, such as the jobs developed by architects and engineers, auditors and tax consultants, doctors and dentists, university professors, independent professionals, investors, administrators and managers, and others defined as such in the Order 12/2010, from January 7th.
This regime sets a flat tax rate of 20% (to which can be added a surcharge of 3.5%) for employee income, business and professional income, among others, resulting from activities qualified as being high-value added obtained by Non-Habitual Residents in Portugal.
At the same time, this regime exempt from taxation in Portugal, all worldwide income obtained abroad by these taxpayers registered as Non-Habitual Residents in Portugal, provided that such income has been subject to taxation in the Origin State in accordance with the Convention to Avoid the Double Taxation celebrated between Portugal and that other State.
The benefits of this regime are huge: besides the possibility to tax the income from Portuguese source at a reduced and flat rate of 20% avoiding the progressive taxation to 56.5%, the income obtained overseas can benefit from total exemption in Portugal, including, in the case of pensions income, depending on the terms of each Convention to Avoid the Double Taxation, cannot be subject to taxation either in Portugal or abroad.