In 2024, Portugal remains a magnet for expatriates from around the globe. You may think that they flock to the country attracted by its superb beaches and relaxed lifestyle. This is sure so but there is a lot more to the picture. Much of the jurisdiction’s appeal for these newcomers is in its favorable tax regime. This is especially true for those who care to become tax residents in the jurisdiction. Yet, what is there in this tax resident’s status for expats in Portugal and what are their reasons to obtain it?
Tax benefits under the Non-Habitual Resident (NHR) Program
The NHR program is probably a cornerstone of Portugal's appeal to expatriates. It offers a flat income tax rate of 20% on employment and self-employment income from high-value activities, which is significantly lower than the standard rates. Moreover, the NHR status provides exemption on almost all foreign-source income if taxed in the jurisdiction of origin. This includes pensions, dividends, royalties, and interest income.
Tax incentives to enjoy in 2024
A new tax incentive introduced in Portugal in 2024 is a substantial benefit for professionals moving to the country. It provides a 50% personal income tax exemption on employment and freelance income for five years, with an income cap of EUR 250, 000 per year. This opportunity is available to all professionals, regardless of their field of expertise, which makes Portugal an even more attractive destination for a diverse range of talents.
What is more, Portugal has come up with a specific tax perk for those involved in scientific research and innovation-related activities. This includes roles in higher education, certain high-value sectors, and startups. Eligible individuals will benefit from a 20% tax rate on their income from these activities for ten years, provided they have not been tax residents in Portugal for the past five years. This targeted approach aims to bolster Portugal's position as a hub for research and innovation.
The new tax incentive also extends to the autonomous regions of the Azores and Madeira, with specifics to be determined by a regional legislative decree. Thus, the government makes sure that the benefits of the tax perk are felt throughout Portugal, encouraging economic growth and development across all regions.
Avoidance of double taxation
As of early 2024, Portugal has signed more than 70 DTAs with other countries. These agreements ensure that as an expat, you don’t have to pay tax on the same income in two states, providing relief and simplifying tax affairs for those with international income sources. These agreements offer tax credits for foreign taxes paid on foreign-source income. This way, the treaty with the UK, which was first introduced in 1970, has been periodically revised to reflect changes in tax laws and regulations. It's effective in Portugal from January 1, 1970, and in the UK from April 1, 1970, for Corporation Tax, and from April 6, 1970, for Income Tax, Capital Gains Tax, and surtax.
Inheritance and gift tax advantages
Portugal is also attractive for its lack of inheritance or gift tax for direct family members, which includes spouses, children, and parents. The result is substantial savings for expats looking to pass on assets to their loved ones without the burden of hefty taxes.
Wealth tax exemptions
Expats in Portugal benefit from the absence of a wealth tax on high-value assets located outside of Portugal. This is particularly beneficial for high-net-worth individuals who hold significant assets abroad.
Access to quality healthcare and education
Tax residents in Portugal have access to the country's high-quality healthcare system and educational institutions. This opportunity often comes at a reduced cost, which is no doubt a significant advantage for families and individuals planning to reside in Portugal long-term.
Quality of life
Portugal offers a high standard of living, with its warm climate, rich cultural heritage, and friendly population. This Mediterranean climate is particularly appealing to those from colder countries, as it allows for an outdoor lifestyle throughout the year. In fact, expats often cite the quality of life as one of the primary reasons for their move to Portugal.
In addition to these factors, Portugal's cost of living is relatively low compared to many Western countries, allowing expats to enjoy a comfortable lifestyle with no excessive expenses. Forbes has even highlighted Portugal for its affordability, especially for those coming from abroad, who find that their purchasing power goes further here.
You might not know it but Portugal has a large and diverse expatriate community, providing a supportive network for newcomers. It is especially prominent in areas like the Algarve, Lisbon, and Porto, where expats can easily find others who share their language and culture.
Real estate opportunities
The real estate market in Portugal provides opportunities for investment with the potential for capital growth and rental yields. Combined with tax residency, the benefits of such property purchases are even greater, which makes them a not-to-be-missed option for property investors.
Family reunification
The D2 Visa, which leads to a residence permit in Portugal, facilitates family reunification, allowing expats to bring their dependents, including spouses, children, and parents, to join them. Moreover, children who are visa holders typically become eligible for permanent residency, entitling them to the same employment, education, healthcare, tax, and welfare benefits as Portuguese citizens.
Retirement benefits
For retirees, Portugal offers a peaceful and cost-effective lifestyle. The NHR program, in particular, provides a favorable tax regime for pension income, making it a popular retirement destination.
Simplified tax residency requirements
To become a tax resident, one must spend more than 183 days in Portugal during a fiscal year or maintain a permanent home there. The process is straightforward, and the benefits of tax residency are significant.
Cultural integration
Portugal is known for its ease of integration for expats. The welcoming nature of the Portuguese people and the supportive expat communities make it easy for newcomers to adapt and feel at home.
So, you would like to make Portugal your newfound home and are eager for more details? Book a free consultation with International Wealth experts now and leave no stone unturned!