Maximising Tax Savings in Portugal: A Guide for Non-Residents

10 Jul 2024

Introduction

The closure of the popular Portugal Non-Habitual Residency (NHR) scheme on 1st January 2024 has left expats wondering how they can still benefit from tax savings in Portugal. Under the scheme, new residents were capped at a 20% flat rate on personal income tax for 10 years, leading to substantial savings. The closure means that expats looking to relocate to Portugal can no longer access this special tax regime, unless they held a valid residence visa or met certain requirements on 31st December 2023. But while the Portuguese NHR scheme was a game-changer for many, there are still ways to minimise your tax burden as a non-resident. In this article, we'll explore the strategies you can use to save on taxes with non-resident status in Portugal.

Understanding Non-Resident Tax Status in Portugal

If you're planning to live in Portugal but don't want to be taxed as a resident, obtaining non-resident tax status can be beneficial. Non-residents in Portugal are taxed only on their Portuguese-sourced income, which can result in significant savings compared to residents who are taxed on their worldwide income.

To be considered a non-resident in Portugal, you must currently live abroad and not have been a Portuguese resident within the last five years. You must also show a desire to move to Portugal. You are considered a resident in Portugal if you stay in the country for 183 days a year or if your primary home is here. The tax rates for non-residents differ from residents. Non-residents typically face a flat rate of 25% on all Portuguese-sourced income.

Strategies for Non-Residents to Save on Taxes

With the closure of the NHR scheme, non-residents in Portugal need to explore alternative ways to minimise their tax burden. Here are three practical tips to help you save on taxes as a non-resident in Portugal:

1. Maximise Double Taxation Agreements (DTAs)

Portugal has agreements with many countries to avoid double taxation, ensuring that you don’t pay tax on the same income in both countries. Portugal has DTAs with the United Kingdom, France and Germany, among many others. Under these agreements, specific types of income may be taxed at reduced rates or be exempt from tax in one of the countries.

2. NHR 2.0: The Incentivised Tax Status Program (ITS)

The new NHR regime in Portugal no longer benefits retirees and other high-value jobs, focusing instead on employment in scientific research and innovation. Eligible roles include educational activities, scientific research, positions in technology and innovation centres, and employment in companies benefitting from significant tax incentives for substantial investments. Start-ups also qualify, provided they meet specific criteria related to size, turnover, and innovation. The benefits of this scheme remain the same – a 20% flat tax rate on personal income and tax exemptions on dividends, interest, royalties, and capital gains from outside Portugal.

3. Stay Updated on Tax Law Changes

Portuguese tax laws can change, so it’s important to stay informed about any updates or new regulations that could affect your tax status within the country. Consulting with a tax professional who specialises in Portuguese taxation for non-residents can be invaluable, ensuring you remain compliant whilst minimising your liabilities.

What’s Next After the Closure of the Portugal NHR Program?

The closure of the NHR program has made it essential for expats to look for alternative ways to save on their taxes. The new Incentivised Tax Status Program provides a unique opportunity for eligible individuals to optimise their taxes within the country, with the same incentives as the old NHR scheme. However, if you don’t meet the terms of eligibility, it is still possible to streamline your tax burden through double taxation agreements and other exemptions. Furthermore, the Portuguese government may introduce new tax incentives or programs aimed at attracting expats. Keeping an eye on official announcements can help you take advantage of any new opportunities that arise.

Given the complexities of international tax law, seeking advice from a tax professional who understands both Portuguese and international tax regulations can make a significant difference. They can provide personalised strategies to ensure you are compliant while minimising your tax liability.

Conclusion

While the closure of the popular Portugal NHR program may seem like a disadvantage for expats, there are still plenty of ways to save on taxes as a non-resident in Portugal. By understanding non-resident tax rules, leveraging double taxation agreements, and staying informed about future tax law changes, you can effectively manage your tax burden. Whether you are planning to move to Portugal or are already living here, strategic tax planning is key to maximising your wealth.

If you are seeking more detailed guidance, it is recommended that you consult with a tax expert who specialises in Portuguese taxation for expats to receive tailored advice. Contact our team of local tax experts at Portutax via email at accounts@portutax.com or phone at +351 289 463271 for more information regarding our services.

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