With the desire for a fresh start and better quality of life, an increasing number of Irish people are considering moving abroad to countries like Portugal. The allure of nice weather, a relaxed lifestyle, and a new perspective on life is hard to resist.
However, in addition to the more obvious factors that make Portugal an attractive destination for Irish expats, there are also tax considerations to take into account.
For example, the Non-Habitual Residency (NHR) program is now considered one of the key tax considerations for Irish residents moving to Portugal. A scheme developed to increase Portugal’s global competitiveness, everyone from actively working professionals to pensioners is now taking note of what the NHR program has to offer.
But what exactly can it offer you?
Whether you’re already taking the leap by renting or buying a property in Portugal or are just assessing your options, our team of tax advisors is here to highlight the tax advantages of the NHR scheme and what it can mean for your move to Portugal.
What Exactly is the Non-Habitual Residency (NHR) Program in Portugal?
Introduced in 2009, the NHR program is a special tax scheme introduced by the Portuguese government to attract foreign residents, including Irish citizens, to live and work in Portugal.
Aimed at non-resident individuals likely to establish a permanent or temporary residence in Portugal, the program offers (under certain conditions) a personal income tax (IRS) exemption on foreign source income and limited taxation of income deriving from high value-added activities.
Under the program, individuals who qualify as non-habitual residents in Portugal might be able to avail of tax benefits for a period of ten consecutive years — an attractive start to any expat’s new life in a foreign country!
What Are the Main Tax Advantages of the NHR Scheme for Irish expats in Portugal?
For Irish residents considering a move to Portugal, the NHR program offers several appealing tax advantages.
Firstly, qualifying foreign income, such as pensions, royalties, and Capital Gains Tax (CGT), may be exempt from Portuguese taxation. This can result in substantial tax savings for Irish expats.
For reference, income deemed to be ‘foreign sourced’ is taxed as follows under the NHR program:
- Retirement and pension income are taxed at a 10% flat rate
- Employment income, provided it is effectively taxed abroad, is exempt from taxation in Portugal
- Independent service-rendering income (provided it derives from a high value-added activity defined in the law), may be exempt from taxation in Portugal
- Passive income (property rents, interest, dividends, certain royalties, other capital income, capital gains from any foreign asset, including shares or real estate) may also be exempt from taxation in Portugal (under the same conditions as independent service-rendering income)
Additionally, income from certain high-value professions may be subject to a flat income tax rate of 20%, offering a competitive advantage for professionals in areas such as technology, research, and finance.
Understanding the tax advantages available under the NHR program can help Irish expats make informed decisions and optimise their tax position, which is why we always recommend speaking to a tax expert before planning your move to Portugal.
Note: For non-Portuguese income that is exempt from Portuguese personal income tax under the NHR scheme, it’s important to note that this only applies when such income can be taxed:
- In the source State (according to the rules of a Double Taxation Agreement between Portugal and the source country), or
- According to the OECD Model Tax Convention on Income and Capital and on the condition that funds haven’t been obtained in a State or territory with privileged taxation regimes (known as tax havens)
How to Qualify for the NHR Scheme
To qualify for the NHR scheme, certain eligibility criteria must be met.
Firstly, Irish expats planning to move to Portugal must establish their tax residency there. This involves spending more than 183 days in Portugal within a 12-month period or having a permanent home in Portugal (with the intention to maintain and occupy it as a habitual residence).
Additionally, individuals must not have been a tax resident in Portugal in the previous five years preceding their application for NHR status.
In general, to obtain NHR status, those wishing to apply must:
- Register as non-resident taxpayers (optional in some cases);
- Obtain residence permits (for non-EU nationals) or long-term residence certificates (for EU nationals);
- Register as tax residents;
- Request the password to access the tax authorities’ website; and
- Apply for the NHR status
Applications can be submitted (on the tax authorities’ website) until March 31 of the tax year, following that in which Portuguese tax residence is acquired.
Tip: It’s essential to understand and fulfil these requirements to be eligible for the program, which again, is why speaking to an international tax expert is so important when planning your move to Portugal. Doing so will ensure your move to Portugal is as stress-free as possible and provide clarity on your financial future.
How Can Your Assets as an Irish Expat be Impacted by the NHR Scheme?
As mentioned, under the NHR regime, a capital gain is exempt in Portugal if it may be taxed (under tax treaty rules) in the country of source. However, the tax treatment of other assets and investments can also be affected.
For example, in the case of cryptocurrency taxation, Portugal follows a favourable approach.
Individuals who become tax residents in Portugal through the NHR program may benefit from a tax exemption on the income and gains derived from cryptocurrencies. However, seeking professional advice before making assumptions about reporting and compliance with Portuguese tax laws is crucial.
To ensure you don’t experience complications associated with assets as an Irish expat in Portugal, we recommend:
- Keeping accurate records and documentation of your assets
- Educating yourself on the impact of the NHR scheme on asset taxation (such as estate planning or inheritance tax)
- Researching your reporting obligations in both Ireland and Portugal
- Speaking to a tax advisor with experience in international cases
How Expat Taxes Can Help You Effectively Navigate the NHR Program in Preparation for Your Move to Portugal
Moving to Portugal and navigating the NHR program can be an exciting but complex process. This is why partnering with a reputable tax advisory firm like Expat Taxes can provide invaluable assistance in making this process easier.
As the go-to tax advisory service in Ireland for expats, we offer guidance on tax residency requirements, help optimise your tax position, and ensure compliance with tax laws (including countries such as Portugal).
With our specialised knowledge and experience, we can provide personalised advice and solutions based on your unique circumstances — giving you the best start to your new life in Portugal.
To make the most of the NHR program or clarify your Irish tax position in other areas, book a consultation with a member of our team today. Alternatively drop us a line to info@expattaxes.ie – we can connect with a Portuguese tax adviser who can step you through how the NHR regime may apply in your case.
DISCLAIMER The material in this article is for general information purposes only and does not constitute legal or taxation advice. Specific legal and taxation advice should be sought before acting or refraining to act. All information and taxation rules are subject to change without notice. No liability whatsoever is accepted by Expats Taxes for any action taken in reliance on the information in this article or any of the articles in our blog series.
