Portugal is an all time favourite amongst digital nomads. However, Portuguese taxes aren’t as attractive as the country itself. Luckily, you can become a non-habitual resident in Portugal as a digital nomad. The non-habitual resident or NHR-program comes with some tax benefits. Therefore, I took the time to dedicate an article to becoming a non-habitual resident in Portugal as a digital nomad.
Living in Portugal
The first step to becoming a non-habitual resident in Portugal is of course to make sure you are able to live in Portugal.
If you are a citizen of a country that is part of the Schengen Area you can live in Portugal based on the free movement of people. We put a full list of all the countries of the Schengen Area in this article.
If you are not a citizen of the Schengen Area, you will need a visa in order to live in Portugal long term.
You can find more information about the different visa options in another article we wrote about taxes in Portugal.
Conditions to become a non-habitual resident in Portugal
In order to qualify for the status of non-habitual resident in Portugal you need to meet certain requirements.
The first condition is that you need to become a tax resident in Portugal. You are a tax resident in Portugal if you spend more than 183 days in the country in a twelve month period. Another way to become a Portuguese tax resident is by having your habitual place of residence there.
The second condition is that you shouldn’t have been a (regular) tax resident of Portugal in any of the previous five years.
To be considered a non-habitual resident in Portugal you will first need a tax identification number.
Furthermore, you will need to apply for non-habitual resident status by 31st March of the year following the first year you became a tax resident. Let’s say you move to Portugal in 2023, this will also be your first tax year. Consequently, you will need to apply at the latest by 31 March 2024. It goes without saying that it is best to apply as soon as possible to make sure you qualify.
Once you have the status of non-habitual resident in Portugal, this is valid for ten consecutive tax years. After ten years, you will become subject to the normal tax rules.
Taxes when you are a non-habitual resident in Portugal
Income earned in Portugal
As a Portuguese tax resident you will in principle be liable to income on your worldwide income. However, some income is exempt from tax if it originates from abroad (cfr. infra). The tax rate for your professional income will be a 20% flat tax rate. Nevertheless, you could opt for the normal progressive rates if this would be more beneficial.
The flat tax rate is only applicable if you perform professional activities of high added value. In addition, they need to be of a scientific, artistic or technical nature. You should also be able to prove that your income stems from such activities. The normal tax rates apply for any other professional income.
Income earned abroad
If you earn professional income abroad, the foreign country can tax this income. Therefore, Portugal will exempt this income.
Passive income like dividends, interests and capital gains on financial assets are exempt from income tax if they are from foreign source.
In this respect, you should know that if you receive income from a country that is on Portugal’s blacklist (e.g. Cayman Islands) the exemption does not apply.
If you receive pension income as a non-habitual resident in Portugal from abroad this is taxed at a 10% flat tax rate. Again, you can opt for the progressive tax rates if this is more beneficial.
At the moment, Portugal does not levy any wealth tax. This is a nice add on if you already accumulated some wealth over the years.
Inheritance and gift tax
Are you at a point of your life where you are already thinking about your estate planning? Then, it is good to know that you won’t be subject to inheritance or gift tax in Portugal. Maybe an interesting fact to also share with your (grand)parents.
Social contributions as non-habitual resident in Portugal
You will also need to pay social contributions on the income you earn as a non-habitual resident in Portugal. These social contributions vary over the years you are a non-habitual resident in Portugal.
The first year you don’t pay any social contributions. So far, so good.
As from the second year, though, you will pay social contributions on 75% of your income and the rate is 21,4%. So, for every €100 you earn, you will pay €16,05 in social contributions or an actual rate of 16,05%. Solo-entrepreneurs could even benefit from an additional 25% discount. This will result in a more limited coverage though.
You could get an exemption if you already pay social security contributions in another country.
Non-habitual resident in Portugal as digital nomad: conclusion
Many people look at becoming a non-habitual resident in Portugal as a digital nomad. If you qualify for the regime, it definitely comes with some nice tax benefits.
However, you will still pay a considerable amount in taxes. In addition, you should also account for social contributions. You have an exemption for the first year, but from the second year on you will have to contribute.
Overall, the tax burden on your professional income will amount to 20-35%. This is better than compared to the usual Portuguese tax rates. Yet, there are definitely other countries where you could lower your tax burden more. Reach out to me if you want to know if you should set up your tax residency in Portugal or what other options are available.