Anyone who is nearing or at retirement age wants to protect his or her hard-earned pension. Many want to do this in a safe country with a warm climate, friendly people and a great lifestyle. Now one country has made it easy to do all the above.
Portugal, voted the world’s best golfing destination and Europe’s best beach destination by the World Travel Awards, has improved legislation aimed at attracting foreign residents and investors to the country. The Non-Habitual Resident (NHR) law previously allowed qualifying individuals who have not been resident in Portugal during the previous five (5) years, to become resident in the country and receive a private foreign pension or non-Portuguese income, tax-free for a period of ten (10) years. However, this was recently increased to 10% from zero, in 2020.
Foreign or non-Portuguese income was exempt from taxation if the country from which it is paid has the right to tax the payment (even if it does not).
Qualifying individuals include EU/EEA/Swiss nationals and those who qualify based on special programs such as retirement, dependent employee, entrepreneurship, study, business investment or the Golden Visa.
The formal requirement for residency is 183 days.
Under the NHR law, a flat rate of 20%* (less than half the highest taxpayer rate of tax) will be levied on any income originating from Portuguese sources, work conducted in the country or foreign income not taxed or subject to taxes at source.
According to most double tax treaties (conventions) taxation of pension income occurs in the country where the person is resident. It thus follows that, under the NHR law, most foreign income will be tax-free. An important exception to the law involves pensions paid to anyone previously employed by their government, in that each country typically reserves the right to deduct tax at source which means that full exemption will not be possible. People who fall into this category can nonetheless offset or mitigate any tax due using the double taxation treatment between Portugal and the country of origin.
It is also important to analyse each sub-category of assets, such as dividends, royalties, bank interest, etc. in order to ensure that maximum tax relief is obtained in each case. The process for eligible applicants (i.e. those who meet the prerequisites explained above) is simple: it involves registration with the local Finanças (or tax office) in order to obtain a tax number, indication of a place of residence (either proof of ownership or of a long-term rental contract) and a written request to the relevant government department. All applications must be submitted by the 31st of March of the year following that to which the application refers.
Applications which used to take 4-8 months to process are now much quicker with the implementation of an online application process. It is highly recommended that all prospective applicants liaise with firms such as Portugal Senior Living, experienced in assisting with multiple aspects of the NHR process: when to apply, obtaining a NIF, obtaining rental or purchased accommodation, and obtaining proof of residency.
The NHR law provides an excellent solution for pensioners as well as liberal professionals such as consultants, company directors, doctors, dentists, architects and engineers, and anyone promoting active investment in the country. Occupational pensions, as long as deemed not to be sourced in Portugal, are exempt under the NHR law.
The possibility of a tax-free pension, the current absence of inheritance or gift tax, low real estate wealth taxes (0.3% per annum on estates with a value greater than €600,000 per person), access to the state health system for residents and EU citizens, a lower cost of living than most of the EU-18, and the availability of quality and cost-effective private health, have earned Portugal the accolade of the “Best Place in the World to Retire” 6 years’ running from the Overseas Retirement Index.
In addition to the traditional route involving the purchase of real estate, long-term rental options (including some options with care) also exist. We are one of the leading companies, with a proven track record of finding suitable long-term solutions for successful NHR applicants from more than half a dozen countries. These long-term solutions include rental properties with legally valid rental contracts, appropriate property for sale, including the management and rental of any unoccupied periods, assistance with the logistics of in-country installation, and many more.
* There is still a surcharge imposed on all personal income tax in Portugal, linked to Portugal’s bail-out from the EU/ECB/IMF.