Portugal offers a lot of wonderful things - great weather, beaches, food, safety, golf, friendly culture, relaxed pace of life. Portugal has always been high on the list of choices of places to retire to, but in recent years, Portugal also became one of the trendiest place for many groups - digital nomads, remote workers, surfers, young families. Most recently, it was discovered by Americans who are moving to Portugal in masses.
Despite all of Portugal's many virtues, Portugal probably would not have had such success attracting expats if not for taxes. Two major issues woo money-savvy expats to come to Portugal - no tax on crypto gains, which is likely to change soon, and the NHR program.
A google search of the NHR program will surface many articles. There is no shortage of information but even savvy readers will end up more confused after reading some of it. The information on the NHR system is inconsistent and often wrong.
Things do not get better when seeking advice. Expats trying to understand how taxation truly works are often puzzled by the fact that different tax advisor tell them different things and some who have ventures into the tax authority offices to try and ask the officials were equally confused - even the tax authorities don't know how NHR really works.
So is Portugal a low tax country for expats? Yes, no and definitely maybe.
Why Yes?
The NHR framework differentiates between different streams of income. Generally, most types of foreign-sourced income are exempt from taxation so long as the income comes from a "legit" country (not black-listed) and so long as it is exposed to potential taxation in that country (even if no tax is charged).
Many people who come to Portugal own foreign companies or create them before coming to Portugal. The fact that "foreign-sourced" income is usually exempt from taxation in Portugal allows them to claim the exemption on their tax return. Theoretically, the tax authorities could challenge many of these tax returns but in reality, they do not. Most tax returns are accepted and so, income from foreign companies (including US LLCs) flows to their owners without taxation in Portugal. This could lead and often leads to a very tax-friendly environment.
Why not?
Whilst some of the income that expats are generating and are paying themselves from companies is indeed genuine passive income, much of it is not and the foreign companies are in fact a channel to pay people money that they earned from work. Such income is not exempt from taxation under the NHR.
There are multiple ways that the tax authorities could use to attack company structures, leading to taxation that is not particularly low. The fact that the Portuguese authorities are not conducting many audits and are not aggressively using the options afforded to them by the law is not a fact of nature. There is little enforcement now but this could change tomorrow, leading to huge potential exposure.
Definitely maybe
Perhaps the best way to answer the question above is by highlighting the uncertainty. Portugal's tax regime is complex, includes multiple grey areas, is applied inconsistently and is rarely enforced. Even the very few decisions implementing the NHR law are not binding on future courts or tax inspectors so "anything can happen" is the most correct answer.
Navigating uncertainty
People who come from jurisdictions with relatively clear rules and binary answers find it rather overwhelming to try to navigate the uncertainty.
Unfortunately, the local community of accountants and tax lawyers are completely overwhelmed by the amount, complexity and intensity of the new expat migration. The Portuguese legal and financial services industry is still mostly made primarily of generalists. Neighbourhood lawyers who deal with property, commercial matters and occasionally a tax issue are suddenly asked to understand what is an LLC or an S-Corp and suggest how it would be taxed. Accountants who have dealt primarily with domestic clients discover an influx of clients just because they can communicate well in English, but their questions are complex and nuanced and are truly, hard work.
The outcome is that many expats end up never receiving good advice, never having clarity and essentially, move to Portugal and assume considerable tax risks.
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The author is an international tax lawyer who advises expats on their move to Portugal. He is the creator of the Joana tax bot and offers a dedicated tax filing service designed specifically for expats.