Portugal’s Golden Visa program and the special tax regime

4 Nov 2021

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Launched in 2012, Portugal’s Golden Visa residency program offers investors and their immediate families the right to live and work in Portugal and to travel freely across the EU in exchange for a qualifying investment in the country.

Following Brexit, UK citizens have been searching for alternative ways to maintain their travel rights across Europe, and Portugal’s Golden Visa has proved a popular method to assure access to the EU, obtain Portuguese citizenship or even relocate and live in Portugal.

Portugal – a favourable tax regime

There is no income tax liability for Golden Visa applicants unless they decide to move to Portugal and register the country as their main place of residency. Those who do decide to become tax residents in Portugal, can apply for the Non-Habitual Residents (NHR) regime, which offers several exemptions and other income tax benefits during the first ten years of residence.

The NHR regime provides a tax exemption for almost all foreign source income, and a 20% flat rate of income tax on qualifying employment and self-employment income. In the case of pension income, users of the NHR may benefit from a flat tax rate of 10%.

For those planning to apply for a Golden Visa, it is important to note that significant changes to eligible investments are being implemented from January 2022, with minimum investment levels increasing for each of the Golden Visa routes (see below).

Portugual’s Golden Visa rules

What are the main advantages of the Portuguese Golden Visa?

  • Visa-free entry to Portugal and/or travel through Europe (Schengen Area).
  • Potential to live and work in Portugal, even with residency in a different country.
  • Family members can gain Portuguese residency.
  • Compared to other residency/citizenship programs, there are extremely low minimum stay periods.
  • Permanent residency can be obtained after five years.
  • Portuguese citizenship can be obtained after six years.

What types of investments are allowed under the Portuguese Golden Visa?

The most popular types of investments that qualify are:

  • Purchase of real estate with a minimum value of €500,000.
  • Purchase of real estate with a minimum value of €350,000 (where the property is over 30 years old and needs renovation).
  • Investment of a minimum of €350,000 in a Portuguese venture capital fund (compliant with Golden Visa rules).
  • A capital transfer of €1 million to Portugal.

What are the general requirements for the Portuguese Golden Visa?

Investors are required to comply with the following:

  • Maintain their investment for a minimum period of five years.
  • Ensure that funds for the investment come from abroad.
  • They must gain entry into Portugal with a valid Schengen visa.
  • No conviction for a serious crime, either in Portugal or their native country.
  • Complete a minimum stay in Portugal of seven days during the first year and 14 days during each subsequent period of two years.

What will change after 1 January 2022?

Investors will be prevented from buying residential properties in high-density areas such as Lisbon, Porto and the Algarve, as well as in coastal areas such as Setubal and the Silver Coast. Individuals specifically interested in purchasing a property in one of these areas should consider taking action before the changes come into effect. The restrictions will not be applicable to commercial properties.

Investment in any one of the non-real estate routes will be required at increased levels, as detailed below:

  • Investment by capital transfer will increase from €1 million to €1.5 million.
  • Investment in Portuguese venture capital funds will increase from €350,000 to €500,000.

Main features of the special tax regime for new non-habitual residents

Who qualifies for the regime?

NHR status can be obtained by individuals who become tax resident in Portugal, provided they have not been resident there during the previous five years. NHR status is valid for 10 years, after which the individual will be taxed in the same way as a permanent resident.

British citizens holding a Golden Visa may relocate to Portugal and benefit from the special conditions of the NHR for a period of 10 years.

NHR benefits

The NHR regime offers tax exemption for most types of non-Portuguese income, together with tax planning opportunities in relation to wealth, gifts and inheritance taxes. For new NHR applicants, pension income is now taxed at a flat rate of 10%.

Foreign source income

Dividends, interest, royalties, property capital gains and rents arising abroad are broadly exempt from Portuguese income tax provided that the income is not sourced in blacklisted territories. Foreign employment income may also be exempt from Portuguese income tax.

10% flat rate for foreign pension income

In January 2020, the Portuguese government introduced a major change to the NHR tax regime whereby the exemption applicable to foreign-sourced retirement pensions was eliminated. It has been replaced by a 10% flat tax rate.

The 10% rate is applicable to all types of pensions – including life insurance and retirement savings plans.

The same rule is now also applicable to early retirement income paid by the foreign country’s social security authorities and pension funds, as well as employment income related to benefits attributed to the employee from life insurance premiums, pension funds, or other contributions paid by the employer, when not previously taxed.

The 10% flat rate is also applicable to pension income earned in the form of lump-sum payments.

Portuguese source income

  • Employment and self-employment income can be liable to a special 20% flat rate if derived from high value-added activities of scientific, artistic or technical character performed in Portugal, as listed in a Ministerial Order.
  • Other types of domestic income received by NHRs are liable to Portuguese income tax at the same rates as ordinary tax residents.

Other features of the Portuguese tax regime

  • Portugal does not have wealth taxes. Only local taxes on Portuguese real estate apply.
  • The acquisition of Portuguese residential property is subject to property transfer tax at rates that vary between 0% and 6%.
  • Gifts or inheritances to spouses and certain other close family members are tax exempt.
  • Inheritances or gifts to other individuals will be either not taxable due to the territoriality rules, or subject to a flat 10% stamp tax rate.

Pedro Tardão Alves, NEXIA, CPLA & Associados, SROC, Lda.

For more information email: [email protected]