Much has happened in the EU since the last statistics were published about Portugal and we are delighted, although not surprised, to say that, for the fourth consecutive year, Portugal has been voted as Europe’s best tourist destination at the 2020 World Travel Awards. Despite Covid and the ramifications of the recent travel rules, we continue to see our clients from all over the World planning the move to Portugal.
Portugal is a full member of the EU, so legal residents of Portugal can travel freely and visa-free throughout the EU under the Schengen arrangements. The country has had a stable political climate for many years and the Portuguese government is keen to attract investors to the country through their Golden Visa and Non Habitual Residency (NHR) programmes which have brought in income in excess of. €5 billion to boost Portugal’s economy.
Non-EU residents can apply for residency through the Golden Visa program or the D7 residency visa and the increased interest in both these programs only solidifies the fact that Portugal continues to offer one of the most tax efficient schemes in Europe.
These programmes are quite different. The Golden Visa is a function of Schengen travel and freedom of travel in the EU and the D7 is a function of taking up residency in Portugal. With the Golden Visa you are not applying for that right, although you can convert the scheme to residency should you wish to do so at any time during the life of the visa.
The Golden visa is obtained by investing €500,000 in property, €350,000 in a redeveloped property (both reduced by 20% if in a low-density area), €350,000 in a qualifying Portuguese regulated investment fund or a similar sum in an employment generating business. These levels of investment are tabled to change in January 2022 and areas in which one can buy property will be to restricted zones with coastal areas to be removed from the approved list. Whilst it is widely believed certain touristic developments will continue to be part of the Golden Visa scheme these will be limited and of course pricier than the other open market options.
Applications for the Golden Visa in the current areas still qualify if submitted in 2021 and it is recommended that the process be started no later than August 2021 to ensure that due to the covid backlog there is plenty of time to process and finalise the visa, which does entail a visit to the country.
For many British Nationals the Golden Visa is being widely discussed as a flexible solution for those that wish to come and go freely as they did prior to Brexit. As we know the UK left the EU in December 2020 so British Nationals are now limited to spending 90 days in any 180 days in the Schengen area. This has led to Sovereign RCBI division receiving record numbers of enquiries to discuss the options available to the British Community to satisfy personal planning around the nature of spending the time they wish in Portugal.
For those wishing to reside permanently in Portugal, the route is via the application known as the D7 Visa. This provides applicants the right to live and work in Portugal, retired or otherwise on the basis the applicant can prove their income in the form of pensions, investments, dividends, rental income and in summary the ability to support oneself and family with parameters of fund levels that are in line with the Portugal minimum wage. Applicants also need to have medical insurance provision, a permanent abode to live in, either rental or owned, and such factors that are typical of immigration programs in any jurisdiction.
It must be noted that once individuals are resident in Portugal, they must also be tax resident and declare their worldwide income via submission of a yearly tax return. As we repeat so often, each part of the process of either of these two options should be clearly investigated and decisions around which route is best for one’s personal circumstances and tax life is paramount to prepare before proceeding.
For EU Citizens these rules do not apply. A simple visit to the local town hall in the area in which they reside in Portugal is sufficient to change one’s address and deregister in home country. Again, careful planning around one’s tax situation is advised.
Once an individual has their residency certificate / card, the registration at the Portuguese tax department commences and should be done within 60 days. This alteration to the status which will in effect change the applicant from non-resident to tax resident of Portugal is then concluded and subsequently following this registration the NHR is applied for by our team here at Sovereign.
The NHR scheme commenced in 2009 and was designed to attract investors and professionals of high cultural and economic worth who would benefit from the NHR status for 10 consecutive years if they qualify as a tax resident in Portugal and have not been taxed as a Portuguese tax resident in any of the five years preceding the year in which residence is established.
Under the NHR tax regime, non-Portuguese income of most categories including self-employed income (sourced outside of Portugal), real estate income (rentals), capital income (interest & dividends) and capital gains on property, will be exempt from Portuguese personal income tax if the source country has the right to tax and does tax that income under the terms of a Double Tax Treaty (DTT). This also applies if the income is taxed in the other country and is not considered as obtained in Portugal, or the income is taxable in any other country following the OECD Model of Taxation.
Foreign pension income is taxed at the extremely attractive flat rate of 10% whilst Portuguese source salary or self-employed income derived from one of the high-level eligible professions, could be subject to a final flat rate tax of 20%. The attractions of the NHR are easy to see in comparison to non NHR residents who are taxed on their worldwide income at Portugal’s standard rates of between 14.5% and 48%.
The Sovereign Group has an end to end concierge service for Golden Visa, D7 visa and NHR applications and provides ongoing fiscal support for resident clients as well as non-resident clients that require ongoing tax guidance and fiscal representation. The team are highly experienced in dealing with International Expatriates and providing full-service accounting solutions for personal returns and all aspects of tax filing in country.
Sovereign’s new Head of Business Development for Portugal, Shelley Wren, works with our global client network who are researching the move to Portugal, and if a move is not on the horizon, how best the Golden Visa can work for the personal situation. The consultation service ensures a greater understanding of the Visa Schemes and how an individual could be taxed here with a preliminary guide on how best to structure one’s existing assets to ensure tax efficiency under the regime of NHR.
The Sovereign Group assists their clients from a global perspective to maximise tax planning while maintaining full international compliance and providing cross border solutions across the remit of services that the 26 offices around the World offer to our international client bank.