The NHR regime in Portugal offers a 10% tax rate on foreign pension income, attracting retirees and high-net-worth individuals.
Under the Non-Habitual Resident (NHR) regime in Portugal, foreign pension income is generally subject to a flat tax rate of 10%. Here’s how it works:
1. Flat 10% Tax Rate
- Foreign Pension Income: For individuals who qualify for NHR status, foreign pension income is taxed at a flat rate of 10%. This rate applies to pensions received from foreign sources, which is often more favorable compared to the higher tax rates in many other countries.
- Recent Changes: The 10% tax rate on foreign pensions was introduced in 2020. Before this change, foreign pension income was often exempt from Portuguese taxation under the NHR regime, but this exemption has been replaced with the 10% rate.
2. Double Taxation Agreements (DTAs)
- Tax Treaties: The actual tax treatment of your foreign pension may also depend on the double taxation agreement (DTA) between Portugal and the country where the pension originates. In some cases, the DTA may allow for the pension to be taxed only in Portugal at the 10% rate, or it may allow the home country to tax the pension with Portugal providing relief to avoid double taxation.
- Tax Planning: It’s important to consult with a tax advisor to understand how your specific pension income will be treated under the DTA between Portugal and your home country.
3. Application and Reporting
- Reporting Pension Income: Even though the tax rate is favorable, it is still necessary to report your foreign pension income on your Portuguese tax return. Proper reporting ensures compliance with Portuguese tax laws and maintains your NHR status.
Summary
Under the NHR regime in Portugal, foreign pension income is typically taxed at a flat rate of 10%. This is a favorable rate compared to many other countries and applies to most foreign pensions. The specific tax treatment may also depend on the relevant double taxation agreement between Portugal and the country where the pension is sourced.