Portuguese (Tax) Paradise

09 May 2017
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A leading destination for all ages

Portugal is asserting itself as a major start-up destination in Europe, and with that hundreds of techies are willing to relocate to Europe's oldest country. But it is not just the Web Summit's new capital, Lisbon, who's attracting new residents, the Algarve and Madeira are also getting their share. The southern Portuguese most richest regions have an agreement with Saint Peter (all-year-round good weather) and therefore are attracting freshly retired residents from Central and Northern Europe every year.

Smart Tax Incentives for New Residents

The Portuguese Government is not relying on the country's "good looks" to attract investment, in fact, it has resorted to an interesting tax policy aimed at luring and securing foreign investment in the long term. The tax policy? Portugal's Non-Habitual Resident (NHR) Regime.

The NHR Regime is a special tax residency status, applicable to all those who fall under the following conditions, regardless of nationality or age:

  • Be a tax resident under Portuguese domestic legislation; and
  • Not have been taxed as a Portuguese resident in the five years prior to taking up residence in Portugal.

Provided you check the previous requirements, you can benefit from a total tax exemption on foreign source employment, professional, pension, dividends, interest, capital gains and rental incomes. All you need to do is to make sure that those incomes are either taxed at source, in accordance with the applicable tax treaty or that are not deemed as derived from Portugal nor from a tax haven (in the case of dividends, interests, capital gains and rents).

In case you work in Portugal and earn either employment or professional income from a Portuguese source, then those incomes will only be liable to a 20% flat tax rate, provided the job performed is deemed as a high-added value profession by law.

Investing in Portugal, from a tax standpoint, has never been easier!

Reduced Tax Costs for International Investors and Start-Ups

Apart from the NHR Regime applicable to any Start-up employee or investor that complies with the regime's conditions, investors can reduce their tax-related operational costs through the International Business Center of Madeira. This preferential and highly efficient tax regime grants significant advantages to companies structured in Madeira Island, of which I highlight the following:

  • 5% corporate tax (against mainland's 21%), in all international operations;
  • Total exemption from withholding tax on dividend remittances from the Madeira companies, for non-resident shareholders;
  • Exemption on capital gains payments, for non-resident shareholders.

Professional tax consultancy is required

Regardless of the tax benefits that someone may benefit from in Portugal, one thing is for sure: applying correctly for them is not a straightforward thing. Despite all the advantages there is a somewhat considerable amount of red tape and formalities that require an experience professional to swiftly apply and benefit from the existing tax incentives.

Nevertheless, the next time you think Portugal as a paradise, just remember that the country is much more than pleasant weather and tasty food.