Portugal: Tax Authorities Change NHR Activity Control Mechanisms
After having recently published a new list of “high value added activities” applicable to non-habitual residents (NHR) that register as of 2020, the Portuguese Tax Authorities have now decided to change the manner in which they control how these activities are performed.
The changes were communicated in a circular issued on 8 October by the Taxations and Customs Authority (AT).
Non-Habitual Resident: Previous procedure
Up until today, the AT had adopted an administrative procedure involving prior recognition that took place simultaneously with the request for registration as a non-habitual resident. This procedure, however, was very lengthy and did not rule out a subsequent control by the AT with respect to compliance with the underlying pre-requisites for such an authorization.
Non-Habitual Resident: New procedure
From now on, any NHR who wishes to benefit from the personal income tax regime applicable to the activities recognized as being of high added value need only refer to the respective framework in the duly filled out annual income declaration, without any need to obtain prior recognition by the AT for the invoked activity.
This new procedure shall not prevent the AT from subsequently requiring the non-habitual resident to prove that he or she actually exercises the activity in question.
It allows for the worker to be called to submit proof that he or she actually performs the activity, namely an employment or supply of services contract, proof of registration in a Professional Association, document proving that he or she has an administrative position, declaration attesting to the beginning of the activity, in the case of independent workers, or other official documents that serve as proof that he or she exercises the invoked activity.
Special tax regime for Non-Habitual Resident (NHR)
The non-habitual resident tax regime was created in 2009 in order to attract qualified professionals to Portugal with respect to high value added activities and intellectual property, industrial or know-how activities, as well beneficiaries of pensions obtained abroad.
Among other things, this regime allows net revenue from categories A and B earned by non-habitual residents in Portuguese territory in high value added activities to be taxed at a special rate of 20%, as well as allowing category B revenue obtained from abroad from those same activities to be exempt from taxation in Portugal, as long as certain requirements have been met.
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