Under the NHR regime, only specific types of income are taxable, including employment, self-employment, pensions, rental income, capital gains, and dividends.
The Non-Habitual Resident (NHR) regime in Portugal offers favorable tax treatment for certain types of income, particularly for foreign-sourced income and income derived from high-value-added activities. Here’s a breakdown of how different types of income are taxed under the NHR regime:
1. Portuguese-Sourced Income
- Employment Income: If you earn income from employment in Portugal and your profession is considered a high-value-added activity (such as IT, engineering, medicine, etc.), it is taxed at a flat rate of 20%, which is lower than the standard progressive tax rates that can go up to 48%.
- Self-Employment Income: Similar to employment income, self-employment income from high-value-added activities is also taxed at the flat rate of 20% if it is sourced in Portugal.
2. Foreign-Sourced Income
- Pension Income: Foreign pension income is taxed at a flat rate of 10% under the NHR regime. This applies to pensions received from foreign sources and is particularly beneficial for retirees.
- Investment Income (Dividends, Interest, Royalties): Foreign-sourced investment income, including dividends, interest, and royalties, may be exempt from Portuguese taxation under the NHR regime if the income is taxed in the source country or could be taxed under the double taxation agreement (DTA) between Portugal and the source country.
- Rental Income: Foreign-sourced rental income can also benefit from tax exemptions under the NHR regime, provided it meets the conditions outlined in the relevant DTA.
3. Capital Gains
- Portuguese-Sourced Capital Gains: Capital gains from the sale of Portuguese assets (such as real estate) are subject to standard Portuguese tax rates, not the NHR flat rates. However, there may be exemptions or reductions available depending on the specific circumstances.
- Foreign-Sourced Capital Gains: Foreign-sourced capital gains may be exempt from Portuguese taxation if the income is taxed in the source country or is eligible for exemption under the relevant DTA.
4. Other Income
- Income from Royalties: If the royalties are foreign-sourced and subject to tax in the source country, they may be exempt from Portuguese taxation under the NHR regime. If the royalties are Portuguese-sourced and related to high-value-added activities, they may be taxed at the reduced 20% rate.
- Income from Freelance Work: Income from freelance work is treated similarly to self-employment income and may benefit from the 20% flat tax rate if it is derived from high-value-added activities and sourced in Portugal.
Summary
Under the NHR regime, Portuguese-sourced income from high-value-added activities is taxed at a reduced flat rate of 20%. Foreign-sourced income, such as pensions, dividends, interest, and royalties, may be taxed at a reduced rate or exempt from Portuguese taxation if certain conditions are met. Capital gains and other types of income may also benefit from favorable tax treatment, depending on the source and applicable double taxation agreements.