Understanding the Non-Habitual Residency (NHR) Program
The Portuguese NHR program, introduced in 2009, offers tax incentives for foreign residents who haven’t been a resident in Portugal for the previous five years. The program lasts for ten years, after which participants become regular Portuguese residents and pay normal tax rates.
Advantages of the NHR Program
The NHR program, along with the Golden Visa and other programs, has attracted entrepreneurs and investors to Portugal, making it a vibrant and dynamic place for business and innovation.
Employment Income Taxation Under NHR
High value-added professions, such as managers, executives, and IT professionals, can benefit from a reduced 20% tax rate on their employment income under the NHR program.
Pensioners and the NHR Program
Pensioners can receive their pensions at a reduced 10% tax rate under the NHR program, provided their pensions come from countries with qualifying tax treaties.
Navigating the NHR Program for Business Owners
Running an online business and benefiting from the NHR program can be more complicated. Key players in a company who are physically present in Portugal need to be cautious about the tax implications of their presence.
Avoiding Permanent Establishment Issues
To avoid permanent establishment issues, business owners should ensure their foreign companies don’t become residents of Portugal and that their roles don’t constitute a permanent establishment in Portugal.
Utilizing Tax Treaties and Avoiding Blacklisted Countries
To receive tax-free dividends under the NHR program, a company should come from a country with a qualifying tax treaty and not be on Portugal’s blacklist. However, Portugal has an extensive blacklist, including all zero-tax countries and several others like Hong Kong and Labuan.
US LLCs and UK LLPs: Potential Risks
Using US LLCs or UK LLPs can be risky due to a lack of clarity on how their income would be taxed in Portugal. The safest approach is to establish a legitimate and fully compliant tax structure in line with the NHR rules.
Summary of Tax Rates under the NHR Program
- High value-added professions: 20% tax rate on employment income
- Pensioners: 10% tax rate on pensions
- Investment situations (dividends, royalties, capital gains, and foreign-sourced interest): potentially 0% tax
The Portuguese NHR program can be a great opportunity for individuals and entrepreneurs to benefit from reduced tax rates. However, it’s essential to understand the complexities involved and establish a fully compliant tax structure. Consult with a professional to ensure you’re navigating the NHR program correctly and maximizing its benefits.