According to the highly-regarded newspaper Expansión, Spanish investors have discovered the benefits of living in Portugal and the number of questions regarding the tax regime for non-habitual residents has sky-rocketed in Spain recently. According to the article published this week and which can be read here in its entirety, “Our neighbouring country offers many benefits that range from its close geographic location to lower real estate prices, while also having one of the most attractive tax systems in the EU, without being considered a special taxation territory or tax haven.”
A special tax regime for non-habitual residents was created in 2009, in order to attract high-net-worth individuals to Portugal. This new, more favourable personal income tax regime for non-habitual residents will apply for a period of 10 consecutive years.
Expatriates, who establish their tax residence in Portugal but have not had resident status during any of the previous five years, are not considered to have habitual residence in Portugal. As a general rule, anyone who spends more than 183 days per year in Portugal acquires residence for tax purposes. The same is true even if they spend less time in Portugal, but possess, on any given day during the year, housing under conditions that indicate an intention to maintain it and occupy it as a habitual residence.
Under this regime, income is taxed as follows:
INCOME SOURCE OUTSIDE PORTUGAL
As regards income from “non-Portuguese” resources, the non-habitual-resident tax regime implements an exemption mechanism as long as certain conditions have been met. These conditions can vary according to the type of income in question.
Income from Work – As regards income from work, this exemption applies whenever income is subject to taxation in another country with which Portugal has signed a double taxation treaty.
Income from Pensions – As regards income from pensions, the regime is very attractive, allowing pensions to be received in Portugal without taxation. In fact, this exemption applies whenever income is subject to taxation in another country with which Portugal has signed a double taxation treaty, or the source of the income is not considered Portuguese, as per Portuguese domestic law. This regime only applies if the person in question has not made contributions in Portugal toward the social security system that pays the pension.
Corporate income, capital income, capital gains and rental income – In such cases (excepting corporate income), the exemption applies whenever income is taxable in another country with which Portugal has signed a double taxation treaty; or, in the absence of a double taxation treaty, the income is taxable in another country, region or territory in accordance with the OECD Model Tax Convention on Income and on Capital, interpreted in accordance with the observations and reservations made by Portugal, and the income is not considered to be from a Portuguese source, in accordance with Portuguese domestic legislation. In relation to corporate income, the exemption shall only apply to services that are considered to be of added value of a scientific, artistic and technical nature, or intellectual property and transfer of know-how.
INCOME SOURCE IN PORTUGAL
Income from a Portuguese source from services that are considered to be of added value of a scientific, artistic and technical nature (salaried and independent workers) shall be taxed at a fixed rate of 20%.
Examples of professions listed in the table of high value-added activities for the purpose of applying the non-habitual resident regime:
Corporate executives / research and development in biotechnology, physical and natural sciences / scientific research and development activities / data processing activities, domiciliation of information and related activities; web portals / information services activities / programming activities, IT consulting, management and operation of IT equipment / biologists and specialists in life sciences / designers / psychologists / teachers / physicians / tax consultants / artists, musicians, painters, etc. / architects and engineers
With the application of this regime and taking into account the characteristics that have made Madeira a destination of excellence with a mild climate, security, quality of life and modern and efficient infrastructure, Portugal and Madeira offer unmatched conditions for attracting high value-added entrepreneurs or professionals and retirees. To find out more about all these benefits, download our guide Living in Madeira.