Wednesday, 04 December 2019

Non-habitual tax residency in Portugal – high added value activities and pension funds

VolverThe non-habitual residents’ regime is applicable to non-residents in Portugal that intend to establish in this country their permanent or temporarily residence and that did not qualify as tax residents in Portugal in the previous 5 years.

To be considered resident for tax purposes, in Portugal, it is necessary to remain for at least 183 days in a 12 month period in Portugal, or alternatively, if the presence criteria is not completed, to have the permanent residence in Portugal, which may be bought or leased while living in Portugal.

The status is valid for 10 years since the moment the individual becomes tax resident in Portugal and has been specially designed to expats, assignees, leadership management positions, directors of foreign entities and pensioners.

To the employees and directors that become tax residents in Portugal and that are qualified as non-habitual tax residents, it is established a reduced tax rate of 20% applicable to their employment income. In case of assignment it is even possible to keep the social security contributions in the home country.

On the other hand, for pensioners, this status may grant them significant savings, since under certain specific conditions, it may be possible for them to benefit from tax exemption in the source state and also in Portugal (residence country).

Besides the retirement pension paid by the Social Security, pensioners assets frequently include pension funds to which they contributed during their employment life. The taxation of these funds, that are recovered when retirement age is reached, is an important matter, that influences the decision to change the tax residence to Portugal.

Considering that foreign funds, were constituted in a specific country and that the funds will be received or that withdrawal will take place while their beneficiaries will be tax residents in Portugal, it is essential that a previous analysis is performed to determine the legal tax frame applicable to the income.

In what concerns the withdrawal of private pension funds, composed by contributions performed by the individual, the law foresees a tax exemption under this regime, submitting to tax only the income generated by the fund as an investment income.

The Portuguese Tax Authorities still have not published their formal decision regarding the withdrawal of pension funds composed by contributions from the employer or the employee and the employer.

Thus, to determine the tax frame applicable to these funds it is important to clarify if the contributions performed by the employer entity granted acquired and individualized rights to the employee in the moment they were performed.

Particularly, pension income may benefit from tax exemption in Portugal if they may be taxed in the source State, according to the Double Tax Treaty between Portugal and the source State or if they are not considered as obtained in the Portuguese territory, under the criterion foreseen in the national legislation.

Investment income obtained abroad by a non-habitual resident in Portugal are tax exempted in Portugal whenever they may be taxed in the source State.

The withdrawal of pension funds is not specifically foreseen as an income in the Double Tax Treaties. For such reason, it is essential to qualify the income from these funds since the taxation will depend on the concept of income.

According to our experience, the withdrawal from pension funds should be subject to a previous analysis, so that the retiree that becomes non-habitual tax resident in Portugal may anticipate the taxation that will be applicable.

Belzuz Law Firm has a team of experts in tax questions with a wide experience with the non-habitual residence regime to support you since the moment you start considering the plan of changing the tax residence to Portugal until the filling of the annual tax returns in Portugal.

 Rafaela Beire Cardoso Rafaela Beire Cardoso 

Fiscal and Tax Law department | Porto (Portugal)

 

Belzuz Abogados SLP

This publication contains general information not constitute a professional opinion or legal advice. © Belzuz SLP, all rights are reserved. Exploitation, reproduction, distribution, public communication and transformation all or part of this work, without written permission is prohibited Belzuz, SLP.

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