Under the NHR regime in Portugal, royalty and interest income are taxed at a flat rate of 10%, making it an attractive destination for individuals with this type of income.
Under Portugal’s Non-Habitual Resident (NHR) regime, the tax rates for royalty and interest income are highly favorable. Here’s a detailed breakdown:
Royalty Income
Tax Rate: Under the NHR regime, royalty income derived from foreign sources is generally exempt from Portuguese taxation. This means that royalties earned from abroad are not subject to Portuguese income tax, provided certain conditions are met, such as the income being taxed in the source country under a tax treaty.
Domestic Royalty Income: If royalties are earned from sources within Portugal, they are subject to Portuguese tax at the standard rates, which can range from 14.5% to 48% depending on the amount of income.
Interest Income
Tax Rate: Interest income received from foreign sources is also typically exempt from Portuguese taxation under the NHR regime. This exemption applies to interest earned from deposits, bonds, and other financial instruments from outside Portugal, provided that this income is taxed in the country of origin according to a tax treaty.
Domestic Interest Income: Interest earned from Portuguese sources, such as bank deposits or bonds issued within Portugal, is subject to a flat tax rate of 28% for individuals.
Important Considerations
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Tax Treaties: The exemptions for foreign royalty and interest income under the NHR regime are often contingent upon the income being taxed in the source country according to a tax treaty between Portugal and that country. Ensure that there is a tax treaty in place and that the income is reported correctly.
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Documentation: Proper documentation is required to prove that the income is subject to tax in the source country, which may involve providing certificates of tax residency or other relevant documents.
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Changes in Legislation: Tax regulations can change, so it’s important to stay updated on any modifications to the NHR regime or related tax laws that might affect the treatment of royalty and interest income.
In summary, under the NHR regime, both foreign royalty and interest income are typically exempt from Portuguese tax, while domestic income is subject to standard Portuguese tax rates.