All this is possible thanks to the incentives that the Portuguese tax system grants to foreigners who want to settle in Portugal. One of them is the regime for non-habitual residents, which has several advantages for those who intend to live the dream in Portugal while saving a lot of money.
Pedro Hilário is a lawyer who works for Quinta de Faro. He is Portuguese, but speaks fluent French and English, which makes him an ideal person to help French and English speaking clients to come and live in this beautiful country which can be very attractive, not only for the place itself, but from a tax saving point of view.
Non-habitual resident scheme
"From 2010, Portugal has used a very clever technique to attract foreigners and their incomes - the non-habitual resident tax regime - which is in huge demand. Furthermore, from 2012 onwards, many French people started coming to Portugal," he told The Portugal News.
The Non-Habitual Residents (NHR) is a regime under Portuguese tax law that allows foreigners to enjoy a special tax status with certain privileges. "They used to pay high taxes in France and started to pay very low rates in Portugal," he explained.
"Non-habitual residents are people, who are looking to get their residence permit in Portugal and thus obtain tax benefits, because by becoming resident here, they become taxpayers in Portugal. Liberal professionals, such as lawyers or architects, highly skilled people can benefit from that”, he said.
Living the dream
For example, "a 40-year-old lawyer, who already earns a good living and wants to start working from home, can buy a house for €800,000 and enjoy a very good income tax rate and save a fortune by living in Portugal. He has a home by the beach, lives with his children, his children go to school, he works from home and saves a fortune in taxes, enough to pay for the house," Pedro Hilário said.
In addition, Faro is a safe, less expensive and high quality city. It is the capital of the Algarve and an authentic place to be.
High skilled workers
Although this tax scheme initially started to be 'sold' to pensioners, this was not the objective of the original scheme - highly skilled workers were. Quinta de Faro's tax advisor, André Pinto, who like Pedro Hilário is fluent in English and French, explains why.
The non-habitual resident regime was created with a certain target population, but then it was advertised for another one: to pensioners. "The experts analysed the law and realised that by combining the NRH with the double taxation agreements, pensioners didn’t have to pay taxes on their income at all”.
“This has created some discomfort in some countries that have seen their pensioners come to Portugal, stop paying taxes in their countries, having no income taxes at all. However, from March 2020, this changed and pensioners have started paying 10 percent of their pension, which is still excellent compared to what they pay in their own countries", he pointed out.
However, as André Pinto explained, the non-habitual tax resident was indeed created for high value-added jobs, such as digital nomads. "A digital nomad who settles in Portugal pays a maximum of 20 percent tax on their income".
Moreover, what may seem unfair to the Portuguese who ended up paying more taxes than foreigners is actually good for the country. From a Portuguese point of view, it is excellent because not only do foreigners start paying their taxes here but they also start spending their money "as these people are young and they like to go out at night and they go to restaurants. They like to know the country and travel. What happens is that they bring their children, put them in private schools in Portugal and then their children grow up here”.
Portuguese can apply
All in all, there’s one thing that many people ignore. Portuguese people living abroad and intending to return to their country can still apply for this regime and enjoy the same benefits as a foreigner.
"For example, an emigrant who has lived in France for many years can apply for the non-habitual resident regime, which will allow him or her to pay only 10 percent tax on his or her pension for 10 years", as the condition is not that they must be a foreigner, but that they must not have lived in Portugal during the last five years.
"Our taxes are very high, the first €7,000 pay 14 percent, but the non-habitual resident regime is available to all those who, regardless of their nationality, decide to settle in Portugal and who have not lived here for more than five years, including Portuguese people who live abroad," he concluded.