The portuguese NHR status to live tax free in Portugal. Is it a scam?

[anotherone]

Hi,
I have contacted a Portuguese man on Fiverr (so, he could understand the documents of the Non-Habitual Resident in Portugal)) to ask him if non-portuguese citizens who live in Portugal under the NHR rule can be tax exempt if they get their income from a foreign source. I have understood that every application should be manually accepted by the Portuguese authorities. It is not an automated process. I know that retirees hire lawyers to get their NHR status approved.

He told me that a flat tax of 20% should be paid. However, I read on other websites that dividends and salaries from foreign companies are tax-free. I have found a page about the NHR in portuguese on the Portugal government portal and they didn't mention a tax exemption.

Among all the NHR status holders today, 93% of them are pensioners and 7% of them are "workers". Why is it so low? I don't understand. Many people who work in IT could work remotely from Portugal. I don't get it.

To this day, I have no reliable information about a person who would have moved to Portugal and pay no tax. It is quite strange. For you information, I know a French retiree in Portugal who showed me his annual NHR tax report where it is mentioned that he has nothing to pay.

When I look for information about NHR on youtube (which was created 10 years ago), I only get marketing videos and no testimonies of digital nomads. I knew one woman who allegedly moved to Portugal to pay no tax, and she told me she left portugal.

YouTube

I am really suspicious about this status. Thanks to zoom, skype, it is possible for managers (especially IT managers) from London, Paris, Roma to work from Lisbon. Why don't they rush to Portugal to be exempt from tax?

 

[khinkali]

I think that there is now a 10% tax on offshore pensions for people moving to PT from 2020-04-01.

Many people who work in IT could work remotely from Portugal.

They can, but that doesn't mean zero tax.

The low (or zero) tax rates for foreign source income include offshore property rental, real estate capital gains, interest, dividends and offshore employment. Working from Portugal does not make the work offshore employment, because you're doing the work in Portugal.

If you live in Portugal but go overseas every third month to do some highly paid work, then that would be foreign source income. In many cases, you would pay tax in the country where you perform the work and I'm not sure that the NHR tax exemption even applies to untaxed offshore employment.

If you have an offshore business that pays you a taxable salary for your work in Portugal and also tax free dividends for your offshore profits, then I recommend good tax lawyers to help when the tax inspector thinks you manipulated your work income to look like capital appreciation.

< added > NHR folk can get 20% flat tax on local source income (e.g. working locally via Zoom for offshore clients as you suggest), which can be very good value compared to much of the EU. < / >

 

[Perry8]

No, it is not a scam. I have seen and talked to people who has this status. BUT, it does not make a lot of sense for people that has "active income", and that is not the type of people they target either.

If you have "passive income from abroad" it makes a lot of sense, but then you also have other options such as Spain, UK, Cyprus, and many more if you care to relocate outside of the EU.

 

[anotherone]

I have found the official paper from the Portuguese government and it is very shady.

They say that we have to look into the Double Taxation Agreement (DTA). If there is no Double taxation agreement, the 20% flat rate applies. The paper in portuguese can be translated using Google Translate after downloading the PDF.

https://www.portaldascomunidades.mne.pt/images/GADG/IRS__Regime_Fiscal_Residente_Não_Habitual.pdf

So, American citizens should look into the DTA to know what they should pay.
https://www.irs.gov/pub/irs-trty/portugal.pdf

So to me, if there is a tax exemption, this is just because of a wide legal hole in the DTA's.

So if someone can read the dta and find something interesting. All the DTA's are the same because they come out from a OCDE template.

I understand why many people don't try it. If they get investigated by the Portuguese government and if they fail at getting in compliance with the law, they have to pay a 20% flat tax on what they already earned. 20% is huge compared to progressive income tax (like in the UK for instance).

 

[anotherone]

here is the translated part of the Portuguese law:


B - FOREIGN SOURCE INCOME
Elimination of international double taxation by the exemption method
1 - Revenue Category A (dependent work) - 4 of Article 81 d the
CIRS (salary)
To non-habitual residents in Portuguese territory who obtain, abroad,
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category A income, the exemption method applies ,
check any of the conditions provided for in the following paragraphs:
(a) are taxed in the other Contracting State, in accordance with an agreement
to eliminate double taxation entered into by Portugal with that State; or
b) Are taxed in the other country, territory or region, in cases where
there is a convention to eliminate double taxation celebrated by Portugal, since
that income, according to the criteria provided for in paragraph 1 of article 18 of the CIRS , does not
to be considered obtained in Portuguese territory.


2- Income from categories B (self-employment), E (income from
capitals), F (property income) and G (income derived from capital gains)
- paragraph 5 of article 81 of the CIRS


To non-habitual residents in Portuguese territory who obtain, abroad,
category B income earned on said high value activities
added or from intellectual or industrial property, or
providing information regarding an experience acquired in the sector
industrial, commercial or scientific, as well as categories E, F and G, the
exemption method , if any of the conditions provided for
in the following points:
a) May be taxed in the other Contracting State, in accordance with
convention to eliminate double taxation entered into by Portugal with this
State; or
b) May be taxed in the other country, territory or region, in accordance with
with the OECD model tax convention on income and assets,
interpreted in accordance with the observations and reservations made by Portugal,
in cases where there is no convention to eliminate double taxation entered into
Portugal, provided that they do not appear on the list approved by the Minister of
State and Finance (Ordinance No. 292/2011, of 8 November) regarding
of privileged taxation, clearly more favorable and, well, provided that the
income, according to the criteria provided for in paragraph 1 of article 18 of the CIRS, are not
considered obtained in Portuguese territory.

3 - Income from category H (pensions) - 6 of article 81 of the CIRS
To non-habitual residents in Portuguese territory who obtain, abroad,
category H income, to the extent that they, when they originate
contributions, have not generated a deduction for the purposes of paragraph 2 of art. º
25 of the CIRS, the exemption method is applied ,
conditions provided for in the following points:

a) are taxed in the other Contracting State, in accordance with
convention to eliminate double taxation entered into by Portugal with this
State; or
b) According to the criteria provided for in paragraph 1 of article 18 of the CIRS, it is not to be considered
obtained in Portuguese territory.
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4 - Other income obtained abroad
When we are in the presence of any other income obtained in the
abroad, such as professional and business income included
in category B, who do not benefit from this tax regime for non-resident residents
usual, they will be taxed in Portuguese territory in compliance with the
principle established in article 15 no. 1 of the CIRS :
• In accordance with the provisions of the agreement to eliminate double taxation
celebrated by Portugal with that State, existing; or
• In the absence of such a convention, the unilateral rule for
elimination of international double taxation.

 

[JustAnotherNomad]

It is not a scam, but there are several complex criteria that must be fulfilled and it’s limited to 10 years.
As others have mentioned, it is not their intent to offer 0% tax to people with active income.

 

[anotherone]

This reminds me of Hong Kong. It is exactly the same story. There is no 0% tax in the law. Every year you submit your papers and if it goes wrong you must pay income tax on your earnings of the year.

 

[jackfrost]

Its not really a roulette system. It is very clear cut but well very clear cut to be passive income only. People just dont get the active vs passive income part and always think remote work is passive income although the client location has no bearing at all for this or they dont get that the old nominee / fake substance director remote company crap is neither legal, nor hard to dismantle nor a 2020 solution in the EU.