Non habitual residents
Portugal has become a popular destination for both tourists and expatriates due to its favourable climate, rich history, and vibrant culture. However, many are unaware that Portugal offers a tax-friendly program for non-residents known as the Non-Habitual Resident (NHR) scheme. This article provides a detailed guide to the NHR scheme, outlining its requirements and how eligible individuals can benefit from it.
The Non-Habitual Resident scheme is a tax regime introduced by the Portuguese government in 2009 to attract foreign investors, entrepreneurs, and retirees who wish to live and work in Portugal while enjoying favourable tax rates. Under this program, qualifying individuals can benefit from a flat tax rate of 20% on their Portuguese-sourced income and exemptions or reductions on certain types of foreign income for up to ten years.
- Be a non-resident for tax purposes in Portugal for the previous five years;
- Register as a tax resident in Portugal;
- Not have been considered a tax resident in Portugal in any of the previous five years;
- Engage in a high-value-added activity, such as science, technology, or culture;
- Possess a valid Portuguese tax identification number.
- A flat tax rate of 20% on Portuguese-sourced income, such as salaries, self-employment income, and business profits;
- Exemptions or reductions on foreign-sourced income, such as pensions, dividends, interest, and royalties;
- No wealth tax or inheritance tax in Portugal;
- Access to the Portuguese social security system;
- Double taxation relief under Portugal’s network of tax treaties with other countries.
To apply for the NHR scheme, an individual must first register as a tax resident in Portugal and obtain a Portuguese tax identification number. This can be done by visiting a tax office in Portugal or appointing a fiscal representative to act on their behalf. Once the tax identification number is obtained, an application for the NHR scheme can be submitted online or by mail.
The application will be reviewed by the Portuguese tax authorities, who will verify the eligibility of the individual and process the request. If approved, the individual will be issued a certificate of residence for tax purposes, which can be used to claim the benefits of the NHR scheme.
For an indication of the monthly cost of the required mortgage, please consult our mortgage calculator.
The only additional cost will be the building insurance premium. Building insurance is required by all lenders and cover for fire and flood is mandatory.
Some lenders also require life insurance cover. We will advise of such a requirement when providing you with the initial simulations.
For a detailed list of the required documentation please click here.
Most banks offer a maximum mortgage term of 50 years for Portuguese residents and 30 years for non-residents.
The maximum age upon maturity of the mortgage is generally 80 for residents and 75 for non-residents.
Mortgages can be repaid early at any time during the loan term.
The early redemption penalty for a variable acquisition mortgage is 0.50% (as per the rule of the Bank of Portugal) and 2% for a fixed rate mortgage.
The interest rates of a Portuguese variable rate mortgages is linked to either the 3 or 6 month Euribor rate and increased by the margin (spread) that the bank applies.
This Euribor rate is set by a panel of European banks on a daily basis and is generally an indicator as to what rate European banks will lend to each other at (in the UK they use the London inter bank offer rate (LIBOR). Euribor rates can be accessed on the following site www.euribor-rates.eu/
In the case of the three month Euribor rate, your mortgage repayments will be fixed for three months at the prevailing rate at the day you sign the mortgage deed, thereafter, every three months later the bank will apply the average rate of the three month Euribor rate to your mortgage from the previous month.
The interest rate margin (spread) will be confirmed on the day the mortgage is approved and will be fixed for the term of the loan.
The bank will lend up to 80% of the lower of the valuation price or the purchase price of your chosen property. The mortgage approval will be based on various affordability ratios that the banks apply.
The bank will require proof of your income as per your latest tax return / P60 and a credit report for confirmation of existing liabilities. As a rule of thumb, 30% of your net income can be attributed to mortgage repayments (including the new mortgage in Portugal).
Building insurance is a mandatory requirement when taking out a Portuguese mortgage. The minimum cover required is generally against fire and floods. The insurance premium will be based on the re-construction value of the property.
Some banks require life insurance cover for either the main applicant or both mortgage applicants. We will advise you of such a mandatory requirement when providing you with the mortgage proposal document.
If life insurance is not required by the chosen lender you may wish to arrange such cover in your home country.
Content insurance is not mandatory when obtaining a mortgage but should be arranged when taking possession of your property.
Public liability cover
Public liability cover should be considered when intending to rent out the property. Public liability cover is an optional cover under the content insurance.