The tax benefits of retiring in Portugal in 2021

This article was originally published on The South African

Portugal was recently declared the World's Best Place to Retire by popular expat website International Living. This was thanks to the low cost of living, the beautiful weather and the warm and welcoming Portuguese people.

What many don't realise, while fantasising about sipping cocktails overlooking the Praia da Marinha, is that moving to Portugal may also have some fantastic tax benefits.

Portugal's pension tax relief for foreigners

Residents in Portugal are generally taxed on their worldwide income, but in 2009 the government introduced the non-habitual resident (NHR) taxation regime to attract “high-value” residents and investors. It offers Portuguese tax residents exceptions and reduced rates on foreign income for a period of 10 years. For those registered for NHR, foreign pension income is taxed at only 10%.

The NHR uses a very loose definition of retirement, which means you don't have to stop working when you retire. You're welcome to maintain your business interests elsewhere in the world and Portuguese employment income may also be taxed at a reduced rate for those who fall under specific categories or professions.

As a result, the NHR also appeals to passive income earners and those in professions determined to be of “high-value.” This list is constantly updated, but currently includes executive managers of companies, physicians and dentists, lecturers, authors and journalists, and qualified industrial construction workers.

How to qualify for NHR

To qualify for NHR status, you need to have the right to live in Portugal and you need to be a new Portuguese tax resident (you cannot have been a Portuguese tax resident in the five years preceding your application).

Non-EU citizens who wish to retire to Portugal need to apply for a residence permit. This permit is granted for two years and can be renewed. After holding the residence permit for three years, you may apply for permanent residence.

To become a tax resident, you either have to have lived in Portugal for more than 183 days in the past 12 months, or you must be able to prove you have a home in Portugal that is considered your habitual abode.

Other tax benefits of retiring in Portugal

Unlike some other European retirement destinations, Portugal has no wealth tax.

In France, for example, you are taxed on all real estate and Spain charges a “Patrimonio” tax on net assets over a certain threshold. Portugal aims to attract wealthy investors, so it has no such tax.

Portugal also has no property inheritance tax to direct family members (spouses, descendants and ascendants) and has a flat 10% stamp duty to other beneficiaries.

Proper planning is essential to ensure you reap the benefits of Portugal's tax regimes and have the right structures in place to protect your wealth once the 10 years as part of the NHR have passed. For expert advice, get in touch with our Wealth team by calling us on +44 (0) 20 7759 7519 (UK) or +27 (0) 21 657 154 (SA) or emailing nhr@sableinternational.com.