Practicalities of the NHR

The NHR is a tax program that offers a privileged taxation for a period of 10 years (counting from the year you move to Portugal and apply for it).

For example if you move to Portugal and become resident in 2023, the NHR is for the period of 2023 – 2032.

This privileged taxation covers two sources of income: national income and foreign income.

Common question between my clients who are freelancers/self-employed: the income raised by the services I provide to customers based outside Portugal are considered foreign income? The answer is NO. Such income is generated by you, who lives in Portugal and has a Portuguese residence, so it is usually deemed as a national income (and if from an activity qualified as high added value, may be taxed under the 20% flat fee).

Within the national income is the income sourced by an activity qualified as high added value activity, performed under an employment contract or as self-employed/freelancer – taxed under the 20% flat fee.

The biggest range of the NHR application and benefits comes with the foreign income. In this category are the exemptions and reductions on taxations over pensions, rental income, real estate capital gains, dividends, and interests.

In the length of the foreign income comes the Double Taxation Treaties (known as “DTAs”) .

Portugal has a network of double taxation treaties with more than 100 countries, which can help prevent double taxation of income and provide added clarity and security for NHR program participants.

Is based on such DTAs settled with each country of where your foreign income is sourced that we may analyze the correspondent taxation in Portugal under the NHR Program.

Generally speaking, the NHR-Taxation benefits could work as follows, when compared with a NO-NHR-Taxation:

(*) option for determining taxable income by aggregation of income received regarding IRS.
“National” means the income sourced in Portugal.
“Foreign” means the income sourced abroad (outside Portugal).

Key takeaways

1. Note that, as previously mentioned, such projections and the respective taxation over the income under the NHR regime may vary according to diverse elements, particularly:
   • the Double Treaty that Portugal has with the sourced country of the income, and mainly if the sourced country is blacklisted.
   • the corporate structure and specific circumstances of the individuals who owns the assets and controls the source assets/companies.
   • the type of transactions and figures of the foreign incomes.
2. To get a clear picture of potential taxes in Portugal falling under the NHR the following should be considered:
   • (i) Identify the type of the gain being earned
   • (ii) Establish the origin of the gain (the source country).
   • (iii) Confirm the existence of a tax treaty between Portugal and the source country (that originated the gain) and assess how tax obligations are allocated.
     • Understand the international rules under OECD Model when no tax treaty is in place;
     • If the capital gains are taxed in the source state according to the provisions of a tax treaty with Portugal; or
     • If the capital gains are be taxed in another non-treaty jurisdiction as provided in OECD Model Convention and to the extent is not derived from a blacklisted jurisdiction.
   • (iv) calculate the capital gains on the basis of local Portuguese rules (which may differ from source country rules).
   • (v) identify and understand the transactions between the involved parties (i.e. yourself and the sourced companies and entities)