The FRESH Tax Blog

We help expats use the generous tax breaks in Portugal (new: also in Spain!)

As part of our commitment to providing comprehensive information for international relocation, we would like to share insights into the D7 and D8 Visas, which are relevant for those considering residency in Portugal. 

D7 VISA

The D7 visa is designed for individuals with a stable income who wish to reside in Portugal for a longer duration. Here are key points regarding the D7 Visa: 

  • Purpose: the D7 visa is suitable for retirees, individuals with investment income, or those with stable passive income sources.
  • Financial Requirement: applicants are required to provide evidence of a net regular passive income of at least €12,000.00 per year. Additional income percentages are considered for spouses (50%) and dependent children (30%).

 For your reference, examples of passive income: 

1. Dividends and Investments: 

  • Dividends from stocks and shares in publicly traded companies.
  • Returns from investment portfolios, including bonds, mutual funds, and exchange-traded funds (ETFs).
  • Profits from real estate investment trusts (REITs).

 2. Rental Income: 

  • Income generated from renting out residential properties.
  • Rental income from commercial real estate, such as office spaces or retail units.
  • Profits from vacation rentals or Airbnb properties.

 3. Pensions and Annuities: 

  • Regular pension payments from employer-sponsored pension plans.
  • Income from government or state pensions.
  • Annuity payments from financial products purchased during one's working years.

 4. Interest Income:                                

  • Interest earned from savings accounts or certificates of deposit (CDs).
  • Returns from lending money through peer-to-peer lending platforms.
  • Bond interest payments from government or corporate bonds.

 5. Royalties and Licensing Fees: 

  • Royalties from intellectual property, such as books, music, or patents.
  • Licensing fees for the use of trademarks or copyrighted material.
  • Income from franchise agreements.

 6. Passive Business Income: 

  • Profits from a business in which the individual has a passive ownership stake.
  • Income from investments in startups or small businesses.
  • Returns from a business partnership without active involvement.

 7. Digital Products and Online Businesses: 

  • Passive income from the sale of e-books, online courses, or digital products.
  • Affiliate marketing commissions from promoting products or services.
  • Revenue from automated online businesses, such as dropshipping or affiliate marketing.

  8. Real Estate Crowdfunding: 

  • Returns from participating in real estate crowdfunding platforms.
  • Profits from crowdfunding investments in residential or commercial properties.
  • Distributions from real estate investment groups.

 9. Retirement Savings Withdrawal:                    

  • Withdrawals from retirement savings accounts.
  • Income generated from annuitized retirement accounts.
  • Distributions from pension plans or retirement savings plans.

 10. Farming and Agriculture: 

  • Income from owning agricultural land and leasing it to farmers.
  • Returns from investments in agricultural ventures.
  • Profits from agribusiness without active involvement.

 11. Investments in Cryptocurrencies: 

  • Holding Bitcoin.
  • Ethereum.
  • Other cryptocurrencies and earning returns through price appreciation or dividends.

 12. Staking and DeFi (Decentralized Finance) Income: 

  • Staking Ethereum to earn staking rewards or participating in lending protocols to earn interest.

 13. Mining Income: 

  • Operating mining rigs for Bitcoin.
  • Oher proof-of-work cryptocurrencies and earning mining rewards.

D8 VISA

The D8 visa is designed for individuals involved in either subordinate work or independent professional activities, specifically those working remotely from Portugal. Key aspects of the D8 visa include: 

  • Purpose: tailored for individuals who are either engaged in subordinate employment or pursuing independent professional activities, particularly those working remotely while based in Portugal.
  • Subordinate Work: requires submission of a work contract or a declaration from the employer confirming the labor relation.
  • Independent Professional Activity: requires documentation such as a society contract, contract of services provision, or proof of services provided to entities. If work can be performed remotely, proof must be provided (e.g., work contract or employer declaration).

Regarding the preparation for your upcoming appointment at the Portuguese Consulate or VFS of the jurisdiction of the applicant for the D7 or D8 Visa application process, it is importante to carefully review the following list of required documents. The thorough preparation and timely submission of these documents will expedite the visa application process. 

General Requirements (Applicable to both D7 and D8 Visas): 

  • Passport: valid for at least 6 months beyond the visa expiry date (which will be valid for 4 months).
  • Two recent passport-size color photos.
  • Declaration of Intent for Residency: a standard declaration introducing yourself and explaining the reasons for intending to reside in Portugal. Ensure you mention sufficient funds to support your life, including accommodation, a Portuguese bank account, and valid health insurance.
  • Health Insurance: a health insurance policy valid in Portugal (e.g., "Medis" or "Medicare").
  • Travel Insurance: valid for a minimum of 4 months from the intended arrival in Portugal, providing medical coverage, including emergencies and repatriation.
  • Criminal Record Certificate: issued no more than 90 days before submission, duly legalized.
  • Accommodation Proof: property title deed or tenancy agreement as evidence of having accommodation in Portugal.
  • Authorization for Criminal Record Check in Portugal.
  • Financial Proof: documentary evidence of sufficient funds available for subsistence (e.g., bank statements from both abroad and in Portugal.)
  • Residency Form.

It is crucial to note that opening a bank account in Portugal is a prerequisite for applying for the D7 or D8 Visa. Additionally, obtaining a Portuguese Tax Identification Number (NIF) is mandatory for these purposes. 

Specific Requirements for D7 Visa/Residency:Income Documentation: 

  • Documentary evidence of a net regular passive income of at least €12,000.00 per year. Include 50% of this amount for the spouse and 30% for each dependent child (e.g., annual tax return copies for the last 3 years).

Specific Requirements for D8 Visa/Residency:Subordinate Work: 

  • Work contract.
  • Declaration by the employer confirming the labor connection.

 Independent Professional Activity: 

  • Society contract.
  • Contract of services provision.
  • Document attesting to services provided to one or more entities.
  • Proof that the work can be performed remotely, if applicable (work contract, declaration from the employer, etc.).
  • Proof of an average monthly income of the last three months equivalent to the Portuguese Minimum Wage multiplied by 4 (approximately €3,040).

Regarding D7 and D8 Visas, we have succinctly outlined a step-by-step guide for all procedures: 

Step 1 - Acquire the NIF Number: obtain the Portuguese Tax Identification Number (NIF) as the initial step. 

Step 2 - Open a PT Bank Account: 

  • Remote account opening takes approximately 1-2 months.
  • In-person account opening directly in Portugal requires approximately 2 working days for full activation.

Step 3 - Secure Long-Term Accommodation: arrange accommodation in accordance with the terms specified in this article. 

Step 4 - Schedule Consulate/VFS Appointment:  

  • Obtain an appointment at the Portuguese Consulate/VFS in the applicant's jurisdiction (appointment scheduling may take 1-2 months due to limited slots).
  • After the appointment, Portuguese Authorities have 60 days to issue the visa.
  • It is advisable to schedule the appointment after having a fully activated PT bank account.
  • On the appointment day, provide evidence of completing the first three steps, ideally including bank statements from the PT bank with available funds.

Step 5 - Apply for Residency in Portugal: once the visa is granted, it is valid for 120 days. During this period, applicants must come to Portugal to apply for residency by attending a new appointment at the Immigration Office (AIMA). 

Step 6 - Post AIMA Appointment:  

  • After scheduling an appointment with AIMA, it takes approximately 2 months to receive the residence permit.
  • The residence permit is initially valid for 2 years and can be renewed for an additional 3 years in subsequent cycles of 3 years.
  • After completing 5 years, it becomes possible to apply for permanent residency or Portuguese citizenship.

We trust that this article has been adequate in addressing inquiries pertaining to the requirements, procedures, and documentation related to the D7 and D8 Visas.

The tax filing season will shortly start. 

At Fresh Portugal, we file more tax returns for expats than any other company in Portugal. 

To help you understand the classification of income ahead of the tax season, we are holding a webinar and are also offering this guide.

As you will see below, the main issue with filing a tax return is not the form. The hard part is classifying the income. It is not always obvious or easy to understand what a certain type of income is and therefore we provide some guidance below. 

Those filing themselves or using neighborhood Portuguese accounting firms are welcome to use this guide to review how their income should be classified. Ready? Here we go! 


Principles

  • Apply for NHR!

The NHR scheme is not automatically granted for recent residents in Portugal, there is an administrative deadline to follow, which is March 31st of the following year in which you became a tax resident in Portugal. Note that unless you at least started your move to Portugal in 2023, you may no longer be able to apply.

  • Getting familiar with Modelo 3

You can go into the IRS form – Model 3. You can find the digital form on your Finances Portal. The important thing to know about how to fill the Mod 3 form is that the burden of classifying and matching the income with the existing types provided by Portuguese law is entirely yours

You can check the types of income provided by the Portuguese tax law on articles 2 to 11 of the IRS Code. 

You will see categories A to H income: 

A: employment income
B: self-employment income
E: capital income
F: income from property (rental)
G: capital gains
H: pension income 

After correctly classifying and matching your types of income to the Portuguese classification, you have to identify whether the income is Portuguese sourced or foreign-sourced. 

A lot of people make mistakes at this point, because the decisive criteria here for the most important income types – employment and self-employment income - is not where your clients are, but where you do the work from

And finally, to access the 20% flat rate for employment and self-employment income, you have to identify if you have a high value activity. Portugal have changed this list over the years according to the professions most needed in the country. We have the current list of high value activities at another post of our blog. 

  • Common pitfalls:

 Here are a few mistakes that we see frequently: 

  • You don’t have to hold a high value profession to be eligible to the NHR. The only criteria you have to meet is not being a tax resident in Portugal for the last 5 years and inform the country where you were a tax resident before coming to Portugal.

  • Also, if you have been a tax resident just for a portion of the first year, you don’t need to declare the income incurred in the entire year. Also, if you have to file a partial declaration for the year and want to file together with your partner, you have to make sure your tax residence dates match.

  • Portugal has an accrual tax accounting system, different from the American system, so for example, you don’t need to report bonuses when received if it was incurred in the past years (when you were not a tax resident in Portugal).

  • Another typical mistake has to do with profit from a US LLC. Such profits are normally classified as self-employment income in the US, but in Portugal, the only known decision on the matter deals with this income as capital income. However, this is extremely nuanced.

  • As mentioned before, is very common to misunderstand foreign-sourced income with Portuguese income when your client base is outside Portugal or the company you work for is a foreign entity. The place where the work is done from that defines where the income is sourced.

  • Along with the domestic laws and the NHR rules, you always have to analyse the Double Taxation Treaties between Portugal and the country you have business with. The double taxation treaty leads to different outcomes depending on what country the income comes from.

  • Finally, it is important to be consistent between jurisdictions, so that the information you submit on both returns match as much as possible.


Classifying income

The below tables show how we normally classify income and could give a good indication to you and/or your accountant.

Kindly note that we are not responsible to how you choose to classify your income when working with other firms!

 

Income typeManagement / work donePT/Foreign sourcedNormal tax treatment Modelo 3
LLC (not S-Corp)PortugalPortuguese sourced incomePT capital income (28%)Annex E (4)
LLC (not s-Corp)Outside PTForeign sourcedForeign sourced capital income (0%)Annex J (8) + Annex L (6)
S-Corp/LLC Scorp election – salaryWork done in PTPortuguese sourced income20% + SS in PortugalAnnex A (4) + Annex L (4) (6)
S-Corp/LLC Scorp election – salaryWork done outside PTForeign sourced income0%Annex J (4) + Annex L (5) (6)
S-Corp/LLC Scorp election – distributionsPortugalPortuguese sourced incomePT capital income (28%)Annex E (4)
S-Corp/LLC Scorp election – distributionsOutside PortugalForeign sourcedForeign sourced capital income (0%)Annex J (8) + Annex L (6)

   

  • Income from other companies (UK, EU, but not black-listed)
Income typeManagement / work donePT/Foreign sourcedNormal tax treatment Modelo 3
SalaryWork done in PTPortuguese sourced income20% + SSAnnex A (4) + Annex L (4) (6)
SalaryWork done outside PTForeign sourced0%Annex J (4) + Annex L (5) (6)
DividendManagement in PTPortuguese sourced incomePT capital income (28%)Annex E (4)
DividendManagement outside PTForeign sourced incomeForeign sourced capital income (0%)Annex J (8) + Annex L (6)
  • Employment income
Income typeWork donePT/Foreign sourcedNormal tax treatment Modelo 3
In Portugal, high valueWork done in PTPortuguese sourced income20% + SS in PortugalAnnex A (4) + Annex L (4) (6)
In Portugal, not high valueWork done in PTPortuguese sourced incomeStandard rates + SSAnnex A
From outside Portugal, high valueIn PortugalPortuguese sourced income20% + SS in PortugalAnnex A (4) + Annex L (4) (6)
From outside Portugal, not high valueIn PortugalPortuguese sourced incomeStandard rates + SSAnnex A
From outside Portugal + effective taxFrom fixed base + DTTForeign sourced income0%Annex J (4) + Annex L (4) (6)
  • Self-employment income
Income typeWork donePT/Foreign sourcedNormal tax treatment Modelo 3 
In Portugal, high valueWork done in PTPortuguese sourced income20% + SS in Portugal (subject to coefficient)Annex B + Annex (4) (6) + Annex SS
In Portugal, not high valueWork done in PTPortuguese sourced incomeStandard rates + SS (subject to coefficient)Annex B + Annex SS
From outside Portugal, high valueIn PortugalPortuguese sourced income20% + SS in PortugalAnnex B + Annex (4) (6) + Annex SS
From outside Portugal, not high valueIn PortugalPortuguese sourced incomeStandard rates + SSAnnex B + Annex SS
From outside Portugal + not high value + risk of tax under DTTFrom fixed baseForeign sourced incomeStandard rates + SSAnnex B + Annex SS
From outside Portugal + high value + risk of tax under DTTFrom fixed baseForeign sourced income0%Annex J (6) + Annex L (5) (6)





  • Capital income (dividend, interest)

Income typeSourcePT/Foreign sourcedNormal tax treatment Modelo 3
Capital incomePortugalPortuguese sourced income28%Annex E
Capital income, risk of tax under DTTFrom outside PortugalForeign sourced0%Annex J (8) + Annex L (6)
  • Property income

Income typeSourcePT/Foreign sourcedNormal tax treatment Modelo 3
Capital gainPortugalPortuguese sourced income28% * coefficientAnnex G
Capital gain, risk of taxationFrom outside PortugalForeign sourced0%Annex J (9) + Annex L (6)
ALPortugalPT sourced income28% * coefficientAnnex B (15)
RentPortugalPT sourced incomeSee special ratesAnnex F
Rent, risk of taxationOutside PortugalForeign sourcedNormally 0%Annex J (7) + Annex L (6)


  • Capital gains (securities - held more than a year)*

Income typeSourcePT/Foreign sourcedNormal tax treatment Modelo 3
Capital gainPortugalPortuguese sourced income28%Annex G
Capital gainFrom outside PortugalForeign sourced28%Annex J (9)
Capital gain, American citizens (risk of tax)From outside PortugalForeign sourced0%Annex J (9) + Annex L (6)

 

* note a recent change in legislation - from 2023, capital gains from securities held for less than a year is aggregated with your other income and is taxed at progressive rates.



  • Crypto currency gains


Crypto currency gains is exempt from taxation if the currency was held for over a year. If it was held for less than a year (converted to FIAT), it is subject to taxation of 28% or aggregated taxation, whichever you choose.


  • Pension (any retirement savings)

Income typeSourcePT/Foreign sourcedNormal tax treatment Modelo 3
Pension from PortugalPortugalPortuguese sourced incomeNormal ratesAnnex A (4)
Pension, NHR before 2020From outside PortugalForeign sourced0%Annex J (5) + Annex L (5) (6)
Pension, NHR before 2020From outside PortugalForeign sourced10%Annex J (5) + Annex L (5) (6)
Government pensionFrom outside PortugalForeign sourcedSee the DTTAnnex J (5) + Annex L (5) (6)


  • Using MyTaxes

Fresh Portugal created a tax calculator which we are still updating ahead of the tax season but can give you a pretty good idea how to report your income.


The Golden Visa is an investor visa program that offers opportunities for foreign citizens to obtain residency in Portugal through specific investments. One of the investment criteria some countries offer is cultural investment, involving the allocation of funds to activities related to culture, art, and heritage. Cultural investment through the Golden Visa typically requires the applicant to invest in cultural projects approved by the government of the respective country. These projects may include the restoration of historical heritage, support for cultural events, funding cultural institutions, or even direct investment in artistic sectors.

From a legal standpoint, Article 3 of the Foreigners Law nº 23/2007, in its subparagraph d,iv, defines cultural investment as the transfer of capital amounting to 250,000 EUR or more, applied to investment or support for artistic production, recovery or maintenance of national cultural heritage through services of central and peripheral direct administration, public institutes, entities that integrate the public corporate sector, public foundations, private foundations with public utility status, intermunicipal entities, entities that integrate the local corporate sector, municipal associative entities, and public cultural associations pursuing tasks in the field of artistic production, recovery, or maintenance of national cultural heritage.

Furthermore, Regulatory Decree nº 84/2007, which regulates the aforementioned Foreigners Law, in Article 65-D, subparagraph 8b), considers evidence for residence acquisition a statement issued by the Office of Strategy, Planning, and Cultural Evaluation (GEPAC), after consulting the cultural sector service with responsibilities in the field, attesting to the nature of the investment or support for artistic production, recovery, or maintenance of national cultural heritage. Additionally, for residence renewal on the same grounds, Article 65-E, subparagraph 14a), considers as evidence a statement issued by GEPAC, attesting that no supervening changes attributable to the applicant have compromised the investment or support provided.

From a temporaral perspective, Article 65-C of the aforementioned Regulatory Decree stipulates that the minimum stay in national territory is 7 consecutive or interpolated days in the first year and 14 consecutive or interpolated days in subsequent 2-year periods. Moreover, cultural investment must last a minimum of 5 years.

As for the characteristics of the investment, noteworthy aspects include:

•Restoration of Historical Heritage: A prominent feature of cultural investment is the opportunity to participate in the restoration of historical buildings and monuments, preserving Portugal's rich history and revitalizing spaces crucial to the country's cultural narrative.

•Sponsorship of Cultural Events: Investing in cultural events such as festivals, exhibitions, and artistic performances is another facet of the program. This not only fosters contemporary cultural expression but also contributes to the promotion of cultural tourism in Portugal.

•Support for Museums and Art Galleries: Investors have the opportunity to support cultural institutions like museums and art galleries. This type of investment strengthens these institutions, enabling them to expand their collections, promote exhibitions, and preserve the artistic legacy of the country.

•Artistic and Audiovisual Productions: Projects related to artistic production, cinema, and audiovisuals are also included. This boosts the creative industry, provides opportunities for local artists, and contributes to the global promotion of Portuguese culture.


Regarding the general documents required for the Residence Permit for Investment Activity, the following are listed:

•Passport or other valid travel document;•Proof of legal entry and stay in the National Territory;

•Proof of health coverage, either through the National Health Service (SNS) or internationally recognized health insurance for the requested residence period;

•Criminal record certificate from the country of origin or the country (or countries) of residence for more than a year, translated into Portuguese;

•Proof of tax identification number from the country of origin, residence, or fiscal residence;

•Completed application form (approved model) authorizing the consultation of the Portuguese Criminal Record;

•Declaration under oath committing to fulfill the quantitative and temporal requirements (5 years) of the investment activity in the National Territory;

•Proof of regularized tax situation through a negative debt statement issued by the Tax and Customs Authority and Social Security or, if not possible, a declaration of no record with these entities;

•Receipt of payment of the analysis fee for the ARI request on the online portal.

Moreover, the Applicant must demonstrate having made the minimum required investment, individually or through a sole shareholder company. In this regard, the following documents should be presented:

•Declaration from an authorized or registered credit institution in national territory, attesting to the effective transfer of an amount equal to or greater than the legally required;•Declaration issued by GEPAC, after consulting the cultural sector service with responsibilities in the field, attesting to the nature of the investment or support for artistic production, recovery, or maintenance of national cultural heritage, according to Dispatch No. 2360/2017, of March 20, approving the regulation for issuing the statement attesting to the effective transfer of capital for the purpose of residence authorization for investment activity in the cultural sector;

•If a shareholder of a sole proprietorship: commercial registry certificate, if the investment is made through a sole shareholder company, demonstrating the applicant as the shareholder, according to Article 65.ºA, paragraph 13 of Regulatory Decree 84/07, of 05/11, in its current wording.

It is important to note that the value of this investment can be reduced by 20% (200,000 euros) when made in low-density territory (NUTS III).

Generally, cultural investment under the Golden Visa does not aim for direct financial returns. The main benefit is obtaining residency or, subsequently, Portuguese citizenship. However, investors may enjoy indirect advantages, such as privileged access to cultural events and personal satisfaction from contributing to heritage preservation. While the risk of financial loss is minimized due to the non-profit nature of cultural investment, it is crucial to conduct a careful analysis of proposed projects, considering the strength of the involved institutions and compliance with legal requirements.

In the video an interview with Marilo Pardo, a Spanish tax lawyer:


What is the Beckham Law? 

This is a special tax regime applicable to individuals moving to Spain under which they may be taxed as non-residents. 

What are the main advantages of the special tax regime? 

Flat rate of 24% up to €600,000 on the income obtained in Spain (in contrast to the regular Personal Income Tax with a progressive tax (19%-48%). 

Which income is taxed in Spain? 

Spanish source income

Employment income obtained abroad is also taxed in Spain. 

Which income is not taxed in Spain?

Generally speaking, all foreign-sourced income that is not employment income is not taxed in Spain.

Who can benefit from the Beckham Law? 

In general, individuals who have not been tax resident in Spain in the 5 years prior to the tax year corresponding to the date of arrival in Spain and any of the following circumstances apply: 

  • Employees - Labor contract (company managers, employees, artists…) or statutory relationship (public servants)
  • Relocations / secondments - Employees who move to Spain to work under the same employment contract as in their country of origin.
    Requirements: 
    • Employer letter ordering the transfer to the Spanish territory
    • Registration of the employer at the Spanish tax office

 

  • Digital nomads / remote workers - 
    Requirements
    • The work must be remote and telematic
    • Labor contract between the teleworker and the foreign entity
    • Social Security (Spain or abroad)

  • Director of an entity
    Requirements
    • Sole director or board of director

  • Entrepreneurial Activity 
    Requirements
    • Activity of an innovative nature with special economic interest for Spain.
    • Positive report issued by the “Oficina Económica y Comercial” of by the “Dirección General de Comercio Internacional e Inversiones”

  • Highly qualified professional freelancers
    Requirements
    • Working as a freelancer 
    • Providing services to newly created entities or 5 years old (7 for biotechnology, energy or industrial sectors).
    • Not listed Graduate or postgraduate from universities and prestigious business schools

  • Freelancers developing training, research, development and innovation activities
    Requirements:
    • Services of R&D+I
    • The income derived from the activity has to represent more than 40% of the total business, professional and employment income


How to apply for the especial tax regime? 

  • In general terms, within the 6 months since the date of the registration at the social security.
  • Until the 16th June 2024, through the tax form 149.
  •  For those that already have applied for the Beckham Law regime, they should send the documentation to the tax office until the 16th June 2024


To book a consultation on expat taxes in Spain, go to our services page, choose "Spain" and proceed to book.


As we previously anticipated, other countries are quick to take notice of Portugal's well-advertised decision to close the NHR program to new applicants. 

Whilst things in Portugal are not so bad at all and it continues to be an attractive destination, other countries are trying to jump on the "let's bring well-educated high-earning expats by offering tax benefits" bandwagon.

Spain's equivalent of the NHR program is nicknamed "the Beckham law" after one of the first beneficiaries. It is generally a less lucrative program (see separate article) but with one major benefit over NHR - no reporting requirements of foreign sourced income. 

The Beckham law is not new, but in the past, it only applied to employees working in Spain for a Spanish company or branch. Not anymore. At the end of 2022 / beginning of 2023, the law has been amended to also apply to digital nomads, but until now, digital nomads have not in fact been given a technical way to apply to the program. 

The Spanish government has just announced that Entrepreneurs / digital nomads and family arrived into Spain in 2022 or 2023 that have acquired the status of the Spanish tax residents in 2023 will all be grandfathered into the program so long as they apply to join it by 16th of June 2024. The government has also introduced the form (tax form 149) that now allows to apply to join the Beckham law as a digital nomad. 

The Beckham law offers an exciting alternative to those who want to live in Spain.

To book a consultation on expat taxes in Spain, go to our services page, choose "Spain" and proceed to book.

The approval of the budget in Portugal confirms that the NHR scheme will end for new applicants. The final version of the law is yet to be published. The budget also introduced a transitional scheme allowing people who started moving to Portugal in 2023 to apply for NHR in 2024. 

People with NHR status obtained in the past or until the end of this year

People with existing NHR status obtained until the end of 2023 - there will be no change for people with existing NHR status. There is still a little under a month to try and obtain tax residency in Portugal for 2023 if you don't have it yet. Anyone who became a tax resident in 2023 can still apply for NHR until March 2024.

There has been much confusion around some transitional arrangements (e.g. rental agreement signed before October 10 etc). It is important to understand that none of the limitations of the transitional arrangement apply to people who become tax residents in 2023.


Transitional arrangement - people who started a process of moving to Portugal in 2023 and move in 2024.

The transitional regime proposed by the government has been approved. This means that people who started moving in 2023 can still apply for NHR in 2024.

Transitional categories

There are 7 categories of people subject to the transitional arrangement: 

1. Promise of an employment contract signed until December 31, 2023, whose duties must take place within Portugal.

2. Lease in Portugal concluded until October 10, 2023;

3. Reservation contract or promissory contract for the acquisition of real estate concluded by October 10, 2023;

4. Enrolment or registration for dependents, at a school in Portugal, completed by October 10, 2023;

5. Residence visa or residence permit valid until December 31, 2023; 

6. Procedure, initiated by December 31, 2023, of granting a residence visa or residence permit, with the competent entities, in accordance with the current legislation applicable to immigration matters, namely through the request for an appointment or actual appointment for submission of the request for the granting of a residence visa or residence permit or, also, by submitting the request for the granting of a residence visa or residence permit.

7. Members of the households of people who meet the criteria above.


What about family of Portuguese tax residents who don't need a residence permit (like Portuguese or EU citizens)?

Oddly, whilst family members of people who applied for a residence VISA are included in the transitional program, family members of people who live in Portugal as a matter of right are not. We were hoping that this would be clarified but so far, this is not the case and therefore, we recommend people in this position to try to obtain tax residency this year.  


What if there are no meetings in the consulates?

We don't know. We hope that an email would be enough, but we cannot tell for sure.


How would the transition work?

It is reasonable to assume that the regulations supporting the transitional period will be late and confusing and will be applied inconsistently and unequally. We suggest packing a lot of patience. 


New scheme mimicking the NHR benefits 

The budget introduces a new tax benefits scheme that also includes a 20% flat rate of tax for income earned from work in Portugal and an exemption on foreign sourced income.

Based on what we know today (ahead of the publication of the new law), there are a few notable differences. The main two are that all pension benefits are out and pensions are to be taxed at progressive rates. Another difference is that the new scheme no longer examines the right to tax in the other jurisdiction. This means that it seems that foreign sourced capital gains are also covered by the new scheme.

Whilst the benefits are pretty similar, the conditions to fit into the scheme are different. A few small groups (Ph.D. research workers, certain people in the financial industry, university professors) continue to be eligible but otherwise the vast majority of people are not automatically eligible. 

At the same time, two new categories open up: 

(1) Startup workers or board members. 

(2) Categories of people working in Madeira/Azores to be defined by the respective local governments. 

Startups are subject to certain certification and will not cover merely people creating their own companies but we are excited by this opening - we believe that people making angel investments in startup companies and taking a board seat will qualify and we intend to support such people in the process of identifying and investing in such companies through a newly created wealth department at FRESH.


Working with FRESH's immigration department on a VISA to Portugal and trying to qualify for NHR

Our immigration and tax departments designed a service together that is meant to help those intending to move to Portugal in 2024 to secure a D7/D8 VISA and maximise chances to qualify for NHR. The service starts, like everything at FRESH, with tax advice, is followed by trying to book an appointment with the consulate before the end of the year, and follows up with the submission of a residency VISA, accompanying you to AIMA, enjoying a month-long concierge service when arriving to Portugal and applying for NHR.

To book the NHR gateway package with us, press here. 

There has been an assumption that an incentive for "Portuguese returning home" (or legally accurately, people who lived before in Portugal returning to Portugal after more than 5 years) that provides a 50% discount on income taxes from work for 5 years will be offered to people who never lived in Portugal before.


During the budget deliberation, an amendment reinstating the condition of having lived in Portugal before has been approved. 


Therefore, the "programma regressar" (50% for 5 years) will not be available for new tax residents.

The transitional regime proposed by the government has been approved. The final text of the approved budget has still not been published but we don't know of any changes in the transitional regime. The underlying idea is that people who were "planning their move to Portugal" in 2023 will still be able to move in 2024 and obtain NHR status.

Below is about what this proposal has and doesn't have. Once the budget passes, we will update this article to present more up-to-date information. 


The proposal lists 6 options as evidence of "planning the move":

1. Promise of an employment contract signed until December 31, 2023, whose duties must take place within national territory;

2. Lease contract or other contract granting the use or possession of property in Portuguese territory concluded until October 10, 2023;

3. Reservation contract or promissory contract for the acquisition of real rights over property in Portuguese territory concluded by October 10, 2023;

4. Enrolment or registration for dependents, at an educational establishment domiciled in Portuguese territory, completed by October 10, 2023;

5. Residence visa or residence permit valid until December 31, 2023; 

6. Procedure, initiated by December 31, 2023, of granting a residence visa or residence permit, with the competent entities, in accordance with the current legislation applicable to immigration matters, namely through the request for an appointment or actual appointment for submission of the request for the granting of a residence visa or residence permit or, also, by submitting the request for the granting of a residence visa or residence permit.

7. Members of the households of people who meet the criteria above.


What about spouses of EU citizens?

Oddly, the list above protects the spouses and children of 3rd country citizens who obtain residency in Portugal during 2023, but misses the family members of European Citizens. Since European citizens do not strictly require a residence permit or a VISA and therefore do not request one (but merely register), their non-EU spouses do not, literally, meet the criteria. Coupled with the fact that the new immigration agency AIMA does not currently have any availability for family reunification meetings, EU citizens are in flux.

We do believe, however, that this anomaly will be corrected. Hopefully, in time for the budget.

 

Yet another odd thing in this proposal is that some categories require creating a connection to Portugal until October 2023, a past date, whilst others are still open. Particularly, the broad inclusion of "request for an appointment" seemingly allows anyone to still fit in. It is unclear whether "request for an appointment" must be done via the online systems of Portugal or whether a mere email will suffice. And, if a meeting should be booked via the online system, what if meetings are not available and how can people from jurisdictions with busier consulates be treated differently to people in areas where meetings are available?


Indeed, the frantic way in which the NHR issue is being handled leads to more questions than answers. We will continue to follow up and keep you posted.

We strongly recommend joining our webinar which will take place after the budget and will hopefully answer some of the questions!

[Update]

The government has now announced its intention to introduce a transition scheme whereby people who indicated their intention to move to Portugal during 2023 in one of 6 ways will be allowed to apply for NHR in 2024. The proposed amendment is full of holes and excludes many people who clearly has such an intention whilst potentially opening the door for people with very little link to Portugal to still apply.

At Fresh Portugal, we intend to hold a Webinar immediately shortly the budget passes, on the 4th of December, when it becomes clear what is ACTUALLY the outcome of the budget.

Sign up here

[/Update]

In an interview with CNN Portugal, the prime minister of Portugal, Antonio Costa,  announced that the NHR scheme "no longer makes sense" and will "end in 2024". The budget proposal of October 10, 2023 confirmed that it is the government’s intention to end the regime at the end of 2023. The government has an absolute majority and the end of NHR is not a particularly disputed subject in Portugal, and, therefore, it is expected that the legislation will pass with the proposed language or very similar language. This raises many questions for people who are in Portugal, are planning to move to Portugal or are already in the process of moving.


What does the end of NHR mean?

NHR, the Portuguese Non-Habitual Resident tax regime is one of the best-kept “not so much of a secret” secrets of Europe. It is an incredibly beneficial tax regime that has been making Portugal, an otherwise a high tax country, an attractive choice for people who earn income from a fairly long list of activities that Portugal considered desirable or for people with holdings and investments and other types of income from sources outside of Portugal.

A small group of very high qualified expats (R&D roles with a Ph.D. and equivalents and a few other extremely qualified groups) will continue to benefit from NHR-like benefits (we are still studying the details). 

In addition, the proposed budget law includes an amendment of a regime that previously applied to Portuguese citizens returning home but is now amended to include anyone who had not been a tax resident in Portugal in the last 5 years. Under the amended regime, those moving between 2024-2026, will be offered a 50% reduction of the sliding scale normal tax rates for employment and self-employment (but no reductions on foreign income or pension) for a period of 5 years.

We advise treating this new "candy" with a pinch of salt. It is possible that the amendment was designed to attract Portuguese living overseas who have never lived in Portugal and if this is the case, the proposal could be amended before the budget is approved and reinstate the condition of past tax residency (it would be illegal under EU law to limit a benefit only to Portuguese nationals).

The normal Portuguese tax rate to income related to work is a sliding scale of 14% to 48%. Portugal also has solidarity tax for people with higher incomes, up to 5%. Finally, income from work is subject to social security at a rate of 21% for self-employed and a total of 34.75% for employees (11% paid by the employee and 23.75% by the employer).

Other types of income, such as rental from overseas properties, dividends and interest are taxed at lower rates, typically between 25-28%. Right now, under NHR, they are not taxed in Portugal at all.

The overall tax in Portugal will therefore be considerably higher for people who earn high incomes and are no longer allowed to enter the NHR scheme.


What about double taxation treaties? Am I not protected under the treaty?

Most people moving to Portugal come from countries that signed a double taxation treaty with Portugal. Many people believe that such a treaty means that they will only be taxed in one country even without NHR. Unfortunately, double taxation treaties do not prevent taxation in both countries. Double taxation treaties have two purposes: first, to allocate taxation rights between the countries and second, to create a tax credit mechanism, whereby tax paid in one country will be credited in the other country.

This means that a person moving to Portugal will not need to pay the maximum tax in Portugal in addition to the maximum tax in the other country. Instead, for nearly all types of income, the person will pay first to the country that is given the first right of taxation by the treaty but then pay the remainder to the other country if its tax rates is higher. In practical terms, this means that if a person is subject to tax in Portugal and another country, that person will pay the higher of the two taxes (which is nearly always the tax in Portugal). Under NHR, many of these types of income were exempt from tax in Portugal altogether.


When is it coming to force?

According to the budget proposal, NHR ends on 31/12/2023. The proposal is likely to pass as-is or with some changes.

People who met the conditions at that date should still be able to apply before 31/03/2024. There is ambiguity as to whether someone holding a residence VISA will also need to meet the other NHR conditions in order to apply or whether such people will be grandfathered.

In view of the ambiguity, we recommend anyone who wants to be part of the NHR scheme to apply before the end of the year.


EU Citizens

EU residents can still make it to NHR on time. First the EU citizen should associate a Portuguese address with their NIF. To do that, the EU citizen should first obtain a CRUE certificate, which is the European confirmation of residency in Portugal. CRUE normally takes a few days to obtain and a 15 Euro fee.

However, the address requirement for a CRUE varies between municipalities. Some require a long term rental contract, whilst others (notably Lisbon and Cascais) will accept a declaration from the person that they live at a specific address.


People who completed an immigration process and have a residency card

An address can be changed based on the address on the residency card. That address should match the one from the rental contract / purchase deed. After changing the address, it is possible to apply for NHR.


People who started an immigration process and have a SEF meeting booked

According to the Finançes instructions, a SEF meeting that has been been booked should be sufficient for changing the address. These instructions are not always followed, but normally a booking confirmation of a SEF meeting + rental contract is sufficient for changing the address and applying for NHR.


People with a VISA but not a SEF meeting or residence card

While our reading of the current proposed language suggests that having a VISA issued on or before the end date should be sufficient to create a right to apply for NHR once the other conditions for applying are met, there is significant ambiguity as to how Finanças may ultimately interpret this requirement and, practically, how it will implement procedures for applying for NHR that comply with the law.  Further, the current language is not final and may well change before the budget is approved.


People with a Golden Visa

There is some ambiguity in the proposed law as to whether a golden VISA will be sufficient. We recommend trying to become a tax resident based on the golden VISA and moving to plan B failing that.


“Plan B” - People who do not yet have a VISA, but have a Portuguese rental contract and NIF 

For people willing to come personally to Portugal, it is possible to utilise a specific immigration route to obtain tax residency even without a SEF meeting. This requires making an appropriate application, a considerable amount of work, and also requires a rental contract in Portugal and a NIF number.

It is important to remember that this VISA is meant for people with a tie to Portugal in the form of a business or a work contract. Whilst is is possible to base the application on a business that is being started, this process should not be abused and it should be used by people genuinely intending to live in Portugal and operate a business (a local business or freelancer activity). 


Is it worth it to rush?

For most people earning an annual income of over 30,000 Euros from a high value activity and primarily those with foreign sourced income,  NHR can save you tens and sometimes hundreds of thousands of Euros over 10 years.

For people who are not in high value activities and do not have any foreign sourced income, the new regime could in fact be more beneficial than NHR. 


What if you change your mind after becoming a tax resident and decide to go back to your country of origin? 

NHR status is not lost. It will be reserved for you for 10 years from the first year of NHR application. However, it is important to remember that all requests need to be made in good faith. It is okay to become a tax resident and go back to your country, but it would be problematic to artificially become a tax resident only in order to revert to one's country shortly after that. 


Impact on other immigration routes

We cannot anticipate with full certainty how the expression interest process impact other immigration processes, but we are prepared to support you in your immigration process going forward and deal with issues if and when they arise.


How does Fresh Portugal help?

We have designed an accelerated tax residency package. 

We charge a relatively small fee to analyse your documents, give you tax advice and consider your options. We now charge 550 Euros for that. 

If you decide to apply for accelerated tax residency, we will prepare and file the application on a full “no success no fee” basis. We charge 3,200 Euros for an individual or a couple if we successfully obtain NHR status (1,600 Euro if we succeed for 1 person out of a couple), payable upon receipt of the confirmation of NHR status. 


Book here:
https://freshportugal.com/book_service/accelerated_tax_residency 

In an interview with CNN Portugal, the prime minister of Portugal Antonio Costa had announced that the NHR scheme "no longer makes sense" and will "end in 2024". 

This raises many questions to people who are in Portugal, are planning to move to Portugal or are already in the process of moving. We decided to write this post to tell you what we know and what we don't know about this anticipated change. We will update it as we find out more. 

We will also discuss it in our upcoming webinar on October 12, 2023.


Is it actually going to happen? 

We cannot know for sure until the end of the legislative process, but probably yes. The socialist government has a majority and making a vague announcement followed by a change of legislation has been the typical way in which this prime minister operated in the past. 


When will NHR go away? 

The PM said "2024". This does not mean that on 1 Jan 2024, the NHR program will be gone. It is actually more likely that the program will persist through the entire 2024, since legislative changes take time. However, there is a possibility that the legislation will be rushed as part of the budget and the program will indeed by cancelled on Jan 1, 2024, but it will be hard for the government to achieve and open to legal attacks. We estimate that the program will end sometime in the middle of 2024, but we could be wrong.


Will it fully go away?

That is the biggest enigma. When the prime minister announced the end to the golden VISA program, public pressure eventually made him go back on his word and keep some of the golden visas routes alive. With the NHR, the prime minister mainly complained about the reduced tax on pension income. It is fairly likely that the anticipated loss of skilled labor will lead to some walking back and keeping parts of it. It is unfortunately impossible to tell.


What about people who already have NHR status?

People who already have the status are unlikely to be affected. This would be a violation of a constitutional principle in Portugal and the prime minister himself noted that "whoever has the status will keep it". 


I'm already in Portugal and am a legal resident. Should I apply for NHR as soon as possible?

Yes. Considering the risk, that would be the safest and smartest thing to do.


I'm in Portugal but not yet a legal resident. What should I do?

To the extent possible, you should try to rush in view of the uncertainty. 


I wanted to move to Portugal but haven't yet started the process. Should I continue?

It is likely that if you start the process now, you will still make it to Portugal and be part of the NHR regime. However, there is no certainty. If you tend to procrastinate, we advise against waiting. If you don't abandon your plan, you should rush.


What if I'm going to miss the deadline? Should I still move to Portugal?

We will be here to advise on the best strategy in a world with or without NHR. 


Need individual advice? Book here:

https://www.fresh-portugal.com/services/tax-consultation-if-you-want-an-understanding-of-how-expat-taxes-work


 


Tax residency is a crucial consideration for individuals who move to a new country, as it determines which country has the right to tax their worldwide income. Portugal has become an increasingly popular destination for expatriates. Yet, the question of "when does a tax residency start actually start?" remains nuanced and elusive.

  • First, we should understand what tax residency actually is.
  • Second, we need to understand the legal definition pertaining to obtaining tax residency. 
  • Third, we need to understand the Portuguese self-declaration system, when it applies and when it does not.
  • Forth, we will discuss what happens if someone is a tax resident in more than one place. 
  • And Fifth, we will discuss losing tax residency.


1. What is tax residency?

Tax residency is the legal status that determines where an individual or entity is subject to taxation. It is not solely determined by the number of days spent in a country; various factors, including ties to the country, economic interests, and intentions to reside, can also play a role. Different countries have different criteria for establishing tax residency and in many cases, it could be unclear where a person is tax resident.

Importantly, tax residency is different to legal residency. A person can be a legal resident but not yet a tax resident. A person can also be a tax resident, but not a legal one (such as in the case of illegal migrants - they may not have the right to live and work in Portugal, but they are still obliged to pay taxes). However, legal residency and tax residency interact as will be explained below.


2. Portugal's legal criteria for becoming a tax resident

In Portugal, the legal criteria for becoming a tax resident is based primarily on meeting one of the following tests:

1. The 183-Day Rule: if an individual spends 183 days or more in Portugal during a calendar year, they are generally considered tax residents for that year. 

2. Having a home (or "habitual residence") - even people who don't meet the 183-day threshold can still be considered a tax residents if they have a "habitual residence" in Portugal. This means having a permanent home available in Portugal and the intention to maintain and occupy it as their main residence. This criterion can be subjective and depends on various factors such as family ties, professional activities, and social connections in Portugal.

Residents who meet said criteria for a particular year should be considered tax residents for the entire year based on the law. Alas, the legal criteria does not reflect the practical treatment.

3. The self-reporting system 

The criteria described above is, as a matter of fact, not practical. 

The first option (183 days) cannot be determined because Portugal is part of the Schengen borderless travel area and people can leave and return to Portugal without any passport control. It is therefore impossible to know if a person has been in Portugal for 183 days in a given year.

The second option requires knowing the psychological state and mental intentions of people, since the criteria requires knowing if people intend to maintain a home.

Due to the difficulty to determine presence and intentions and also for practical reasons, Portugal in fact rarely relies on the legal criteria for tax residency. Instead, if relies on people's own declaration. People coming to Portugal are required to register as tax residents with the tax authorities within 2 months of obtaining their permanent home. The registration is done by associating a Portuguese address with their NIF number

In practice, the authorities treat the date that the NIF has been associated with a Portuguese address as the date of tax residency in the vast majority of the cases. So, although that date is hardly ever consistent with the legal definition, it prevails in practice. Furthermore, Portugal allows people to report a partial tax year that starts from that day and only declare the income from that date in a given year. This could create both anomalies and tax planning opportunities. 

So is the legal definition meaningless in practice? Unfortunately not. At times, the Portuguese tax authorities will backdate the tax residency dates and apply what it believes to be the legal definition. This is known to happen primarily in the following situations:

  • When people buy a home in Portugal and pay primary residency tax rates. We assume that this is because paying such taxes is seen as an admission of an intention to occupy as a primary home.
  • To the date of the SEF appointment. We assume that this is because obtaining legal residency normally requires staying in the country for 183 days so people are assumed to do so.
  • To a date reported by a Portuguese employer as a day that a person took a job in Portugal. This happens even when people have not been legal residents when they took a job, so it is very important that employers use non-resident codes, but employers often do not.  


As you can see, the important date is normally the date of the NIF with the Portuguese address but not always, and taxpayers are better off being careful trigger a backdating action.


4. What happens if a person is a tax resident in more than one place?

The criteria in different countries differ and it is possible that someone is considered a tax resident in Portugal based on Portuguese law and in another country based on the law of that country. 

Portugal has a network of double taxation treaties with various countries to prevent individuals from being taxed twice on the same income. These treaties often contain provisions that can override the domestic tax rules of either country, affecting how tax residency is determined. In the event of a clash, the tax treaty should be consulted and there would normally be "tie breaker" rules helping to identify where a person is a tax resident.

5. Losing tax residency

Many people are worried that if they do not spend 183 days each year in Portugal, they will lose their tax residency and thus their access to NHR benefits. 

This is a common misconception. The 183 days and habitual residence rule are meant to determine when a person becomes a tax resident. Once a person becomes a tax resident, tax resident is not normally lost even when a person travels extensively. Tax residency is lost if a person both does not meet the criteria in Portugal and meets the criteria in another country. In other words, a digital nomad based in Portugal who became a tax resident by self-registering (and normally, meeting the criteria in a given year) will normally continue to enjoy NHR benefits unless he settles in a new country and meets the criteria there. 

Needless to say, that residency rights can be impacted by extensive travel, but these are a separate issue to tax residency.

 

In Conclusion

Most people become tax residents in Portugal from a practical perspective when they associate a Portuguese address with their NIF. 

In some specific cases, the authorities will seek to overrule the date of the NIF and apply a different date based on a number of known (and perhaps unknown triggers).  

The legal definition of 183 days / habitual residence is vague and it may not apply if it is overcome by a double taxation treaty with another country. 

And finally, tax residency is not normally lost unless a person moves to a new country. 

It is important to remember that each individual's situation is unique, and seeking professional advice is recommended to ensure a smooth transition.


Tutorial on How to Request IRS Installment Payments

As the tax payment deadline approaches, it's essential to explore the available payment methods. Instead of paying the full amount upfront, you can opt to request an installment plan from the Tax Administration. Your request will be reviewed and decided upon.
This online request can be initiated through your Finances Portal. If your IRS debt is under €5,000, follow these steps:


Log in to the Finance Portal using your NIF number and password. Search for "Prestações" (installments) and select "Planos prestacionais" (installment plan). Choose "Simular/Registar Pedido" (simulate/make request) and select the IRS assessment you wish to pay in installments. Then click "Simular". Choose the condition "Sem apresentação de garantia" (without presenting collateral) and click "Confirmar" (confirm). Select the number of installments.Under "Razão Económica" (economic reason), state the reason for the request. In the field "Justificação do motivo indicado anteriormente" (justification for the reason indicated above), provide a brief explanation in Portuguese. 

Finally, click "Registar o pedido" (submit the request). If your debt exceeds €5,000 but can still be paid within 12 months, no collateral is required. Alternatively, you can make partial payments to reduce the debt to €5,000 and then proceed with the installment plan, which can extend up to 36 months.


If you can't adhere to these terms, and need an extended time to pay, you must present collateral along with your installment plan request. This collateral can be in the form of a bank guarantee, real estate, mortgage, or shares:
a)bank guarantee or guarantee from an institution legally authorized to provide it.

b) Surety bond or collateral issued by legally authorized insurance institutions

c) Mortgage. The guarantee should be provided for the amount of the debt and default interest, counting up to the date of the application, plus 25% of the sum of those amounts.


To proceed with this request, follow the same steps in the Portal. After selecting "Simular/Registar Pedido," indicate the type of collateral you intend to present, and then specify the number of installments.


After submitting the request, send a copy of the collateral to the Tax Office through e-balcão. You have 15 days to provide the original guarantee document to the Tax Office where you are registered.


To find out your competent Tax Office, log in to your Finances Portal, select the "Posição Integrada" (integrated position) option under My Area, and click "Dados Gerais de Identificação" (General Identification Data). There, you will find your competent Finance Service code.


Lastly, note that even if your debt is under €5,000 and no collateral is required, your request will be accepted only if you've met two additional requirements: timely submission of the declaration and absence of any other tax debt with the Portuguese Tax Authority.

FRESH Portugal is the leading Expat tax consultancy. We advise expats from all over the world who are moving to Portugal how to protect and enhance their wealth, utilise the tax benefits in Portugal and move to Portugal in the best way possible.

Full information about our firm and access to our services are available in our website.

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