Non-regular Residents

The non-regular residents tax regime can be considered as a more favorable tax regime, and its main objective is to attract foreign investments and to draw qualified professionals, individuals with high net worth and pensioners to Portugal, therefore, it is relevant to analyze the requirements and rules regarding this tax regime.

INTRODUCTION

The non-regular residents tax regime can be considered as a more favorable tax regime, and its main objective is to attract foreign investments and to draw qualified professionals, individuals with high net worth and pensioners to Portugal.

In fact, this regime can provide advantages to its beneficiaries such as a reduced tax rate for the income obtained from high value added activities, the exemption of taxation in Portugal for income obtained abroad and the double non-taxation of pensions.

A citizen deemed non-regular resident has the right to be taxed as such during a period of 10 consecutive years, from the year of the registration as a resident on Portuguese territory, as long as continues to be deemed resident in each of those 10 years.

LEGAL REQUIREMENTS

i. The taxpayer ha to be deemed resident in Portuguese territory for tax purposes; and,

ii. The taxpayer cannot been deemed resident in Portuguese territory during the five years prior to the year pretended to be taxed as a non-regular resident.

As a rule, are deemed residents the people who stay more than 183 days in Portugal, whether consecutive or not, in any period of 12 months, or having stayed for a shorter period, that keep a dwelling in Portugal in conditions that suggest the intention to maintain it as the habitual residence (usually by through the conclusion of a lease agreement or the purchase of a real estate property).

The registration as non-regular resident must be submitted, electronically, after the registration as a resident in Portuguese territory and until March 31, inclusive, of the year following the one in which he became a resident in the Portuguese territory.

Therefore, with the registration as non-regular resident the taxpayer acquires the right to be taxed in accordance with the non-regular residents tax regime.

TAXATION OF PORTUGUESE SOURCED INCOME

The income generated from employment and self-employment activities considered to be obtained from “high value added activities” is subject to a special tax rate of 20%.

The remaining income generated from employment and self-employment activities, is subject to taxation in accordance with the rules established in the Portuguese legislation.

HIGH VALUE ADDED ACTIVITIES

The new legislation resulting from the Decree n.º 230/2019, July 23rd, has changed the pattern concerning the high value added activities. In fact, nowadays, the criteria is based on the Portuguese Classification of Jobs.

Please note that in order to benefit from taxation under this tax regime, no prior recognition by the Tax Authorities of the exercise of high value-added activity is required. However, the taxpayer must retain and be ready to provide evidence of the effective exercise of the high value added activity, as well as to provide evidence regarding the other legal requirements that entitle him/her the status of non-regular resident, in order to be able to present it to the Tax Authorities whenever requested.

Among others, currently are considered high value added activities:

i. CEO and executive manager of companies;

ii. Directors of administrative and commercial services, as well as directors of production and specialized services;

iii. Directors of hotels, restaurants, trade and other services;

iv. Specialists in the physical sciences, mathematics, engineering and related techniques;

v. Doctors, dentists and stomatologists;

vi. Specialists in information and communication technologies; and,

vii. Intermediate science and engineering technicians and jobs, as well as information and communication technology technicians.

Please note that the new legislation regarding the high value added activities is not applicable to:

i. The taxpayers registered as non-regular residents in January 2020, even if they have their registration suspended; and,

ii. The taxpayers who have a pending request regarding the registration as non-regular residents on January 1st 2020, or that request their registration until March 31st 2020.

TAXATION OF FOREIGN SOURCED INCOME

Employment – the exemption method is applied, if one of the following conditions is met:

i. The taxpayer is taxed in the source country, according to the Double Taxation Treaty concluded between Portugal and such country; or

ii. In case of absence of a Double Taxation Treaty, the taxpayer can be taxed in another country, as long as such income is not considered to have been obtained in Portuguese territory.

Self-employment income resulting from high value added activities – are exempted if:

i. The taxpayer is taxed in the source country, according to the Double Taxation Treaty concluded between Portugal and such country; or

ii. In case of absence of a Double Taxation Treaty, they can be taxed in another country according to the OECD Tax Model Convention, as long as it is not included on the Portuguese “black list”, and such income is not considered to have been obtained in Portuguese territory.

Dividends, Interest, Real Estate Income and Capital Gains – are exempted if:

i. The taxpayer is taxed in the source country, according to the Double Taxation Treaty concluded between Portugal and such country; or

ii. In case of absence of a Double Taxation Treaty, they can be taxed in another country according to the OECD Tax Model Convention, as long as it is not included on the Portuguese “black list”, as long as the corresponding income, cannot be considered to have been obtained on Portuguese territory

Pensions – the exemption method is applied, if one of the following conditions is met:

i. The taxpayer is taxed in the source country, according to the Double Taxation Treaty concluded between Portugal and such country; or

ii. They cannot be considered to have been obtained on Portuguese territory, as per the criteria established in the Portuguese legislation.