Published 30 November 2012

Opportunities for Low Tax Residence in Portugal

On August 9th 2012 the Portuguese authorities approved the new Regime for Investment Activities whereby nationals of a Non European Union country can obtain a residence permit linked to an investment activity in Portugal.

Criteria
Non-EU nationals need to meet the following criteria: Hold any valid Schengen visa when entering Portugal Formalise their stay in Portugal within 90 days, starting from the date of arrival, by applying for the investment visa Carry out an investment activity The Law defines as an Investment activity any activity carried out by a Non-EU national, personally or through a company, that leads to at least one of the following criteria being fulfilled in Portuguese territory: 1. A capital transfer of at least 1M; OR 2. The creation of, at least, 30 jobs; OR 3. The acquisition of real estate with a value of at least 500k The investment activity must last for at least 5 years.

Means of Proof
Applicants/investors must provide evidence that they have met at least one of the above requirements as follows: 1. Capital Transfer the provision of a confirmation issued by an institution licensed to undertake financial activity in Portugal confirming that the applicant is the owner of such funds (valued 1 M) held at that bank or institution. It is therefore not mandatory that the funds are held in a Portuguese bank, although the funds must be located in Portugal. In the case of funds invested through a company, a certificate of registration of the company must also be submitted showing that the applicant holds the investment in the company. 2. Creation of (at least) 30 jobs Portuguese Social Security statements showing that at least 30 workers are employed either personally or through a company operated by the applicant. These individuals must be registered with the Portuguese Social Security Authorities. 3. Real Estate this can be the acquisition of one single real estate investment of 500k or by the acquisition of several properties with a combined value of 500k. Applicants must present real estate certificates of registration showing that they are the sole owners of such properties (either personally or through a company) and that the properties are not subject to any charges and/or liens, including mortgages.

Renewal of the Residence Permit - Minimum Stay Requirements

For the purposes of renewing a residence permit the applicant/investor must prove to have met the following minimum periods of stay in Portugal: - 30 days in the first year - 60 days in the subsequent two years

Possible Use of the Portuguese Non-Habitual Residents (NHR) Regime AND the Regime for Investment Activities
Another attractive Portuguese residence scheme exists: the Portuguese Non-Habitual Residents Regime. This scheme and the Regime for Investment Activities are legally compatible. A Non-EU national can therefore simultaneously make an application to the NHR and to the Investment Regime.

Details of the Non-Habitual Residents Regime

Key elements of the NHR Regime are as follows: NHR status can be granted to individuals who become resident for tax purposes in Portugal, provided that they have not been resident in Portugal for the previous five years. Under the NHR regime, income deriving from employment or independent personal services of a domestic source or from a foreign source, if not exempt, will be taxed at a special 20% flat rate, provided that it derives from high value-added activities of a scientific, artistic or technical nature. A lengthy list of activities are considered as high value-added and include occupations such as: architects, artists, auditors, company administrators, managers and directors, computer programmers, designers, fiscal advisers, investors, scientific researchers and university teachers; amongst many others. NHR individuals can enjoy NHR status for ten years, after which they will be taxed under the standard personal income tax rules in Portugal. Employment income not originating from a Portuguese territory will be exempt from personal income tax in Portugal if the source country taxes the relevant income under the terms of a Tax Treaty with Portugal. Should there be no tax treaty in place the employment income will remain exempt from personal income tax in Portugal if the income is taxed in the other country and the income is not considered to have originated from Portugal.

Pensions
Pensions enjoy a ten-year exemption if they are taxed by the source state under the provisions of a tax treaty, or, where there is no treaty between the source country and Portugal, the pension income is not derived from a Portuguese territory.

Passive Income
Passive income received by NHRs is exempt from personal income tax in Portugal, although it may be taxed in the source state under the rules of a tax treaty entered into by Portugal. There are various rules for a situation where no tax treaty exists. Please contact us for further details. The passive income included in this regime comprises interest, dividends, capital gains, other income from capital and income from immovable property and pensions.

An Example
An individual granted residency under the NHR regime in Portugal and receiving interest from a bank in London will be subject to the following tax treatment: Interest will not be taxed in the UK as the individual is a (non-habitual) resident of Portugal A Tax Treaty is in place between the UK and Portugal and therefore the interest income will be tax exempt in Portugal. Another option for the taxpayer would be to choose to subject all of his relevant worldwide income to Portuguese personal income tax and claim a foreign tax credit.

Obtaining a Portuguese Passport Portuguese Citizenship

After a period of 6 years of legal residence in Portugal it is possible for individuals to apply for Portuguese citizenship and a Portuguese passport. There is a requirement to have a working knowledge of the Portuguese language.

Further Information: Dra. Nyrop Leila & DR Cluckers +351-91-401.5.401