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NHR The Algarve calling

How moving to Portugal can save tax for pensioners and professionals

The non-habitual residency tax regime is earmarking the Algarve as a retirement hotspot. Here, we take a closer look at the regime, find out how it works and for whom, and what impact it has had on the Algarve real estate market.

Imagine spending your retirement, as a foreigner, in Portugal, and not having to pay any taxes on the pension you receive (provided that its origin is outside Portugal) for 10 years. Or coming to work in Portugal, in a profession of “added value”, of a scientific, artistic or technical nature, for which you would only have to pay an income tax rate of 20%. In the broadest of terms, this is what the non-habitual residency tax regime (NHR) entails.

At the time of press, the Ministry of Finance had received 7921 applications for NHR status, of which 5653 had been granted and 1754 were being examined. The figures, given by the Portuguese ministry to the Diário de Notícias/Dinheiro Vivo, also reveal that 514 requests have been rejected.

The regime

The tax concept of non-habitual resident was created in September, 2009, and updated in 2013, with the previously ambiguous issue of retirement cleared up. Once it was made clear that income derived from pensions was exempted from taxation – both in Portugal, and abroad – the number of requests rose: between 2009 and 2012 only 100 foreigners wanted NHR status, while in 2013 some one thousand applications were made. Last year was higher still, with 3474 applications, 74% of the total thus far.

The NHR regime is aimed primarily at two groups: retirees, receiving pensions from abroad, and employed and self-employed workers, in professions of high added value. Such professions include: architects, engineers, artists, auditors, doctors, university teachers and company managers, among others. But, while retirees are exempt from taxation on pensions obtained abroad, workers in high added value professions pay a tax rate of 20% on earnings in Portugal. In both cases, the regime is effective for 10 consecutive years, a period, which, currently, cannot be extended. In addition, applicants must not have been resident in Portugal during the last five years. A declaration attesting to this fact must be supplied, alongside any additional information the Portuguese tax authorities may request.

Other considerations

Wealth taxes :

Portugal does not have wealth taxes. Only local taxes on Portuguese real estate apply (as described below).

Acquisition of property Portugal levies a municipal tax on the acquisition of Portuguese properties at rates up to 6%.

Stamp tax duty at 0.8% is also due on the same amount Annual property tax Portugal levies an annual municipal tax based on the registered value of Portuguese real estate at rates between 0.3 and 0.5% (depending on the municipality and the type of real estate). Stamp Duty will also be levied at a 1% rate on properties with a registered tax value equal or higher than € 1,000,000.

Inheritance tax Stamp Duty is levied at a 10% rate on Portuguese assets only except for spouses, descendants and ascendants, who are exempt.

Gift tax Stamp Duty is levied on gifts located in Portugal at a 10% rate except for spouses, descendants and ascendants, who are exempt. An additional rate of 0.8% is due on gifts of real estate.

 

Buying costs

When buying a property in Portugal, you have to pay tax and other expenses to complete the purchase. 

Below an overview of these one-off purchase costs: 

 

  • IMT - "Imposto Municipal sobre Transmissões"  = Municipal Property Transfer Tax 
    IMT is payable on the transfer of immovable assets located in Portugal, like the purchase of a property. IMT is payable at the tax department before the property transfer. The buyer or his lawyer (when having the power of attorney to purchase) is liable to correctly pay the IMT before the final deed. The IMT rates varies with the nature and value of the property; your lawyer can provide a specific breakdown of the IMT payable on the property of your choice.

    This tax is not applicable to off-shore owned properties.

  • Stamp Duty - Imposto de Selo
    The "Imposto de Selo" (Stamp Duty) is 0,8% from the purchase price. When buying with a mortgage another 0,8% has to be paid over the value of the mortgage. 

  • Lawyer's fee
    Most lawyers will charge between 1% and 1,5% (+ VAT) on the purchase price. They will carry out all the necessary searches and prepare the documentation needed for both the promissory contract for purchase and sale as the Final Deed.
     
  • Notary and registration fees
    These will have to be paid by the purchaser after signing the final deed of conveyance, costs are around
    € 750. When buying with a mortgage or requesting extra services from the notary these costs will go up. 
     
  • Agency's fee
    The seller pays the agency involved.  

The total costs associated with the purchase of a property  are from 6% up to 10%, depending on the value of the purchase price:

  • 1% to 1,5% lawyers
  • 1% to 3% notary, registration and stamp duty.
  • 0% to 8% (IMT) - property purchase tax.  

 

ANNUAL COSTS: 

If you own property in Portugal you have a council tax to pay each year. 

  • IMI - Imposto Municipal sobre Imóveis  = council tax on Properties
    This tax is paid to the "Câmra Municipal" (Town Hall) of the area where the property is located and the rate is calculated based on a percentage of the fiscal value of the property. This value may not coincide with the current market value as this register in the past was only updated when a public deed had taken place but currently Portugal is re-evaluating the properties fiscal value to have this value more in line with the actual market value.

 

Please note: This information is for guidance only and we cannot accept responsibility for any mistakes or misinformation. We strongly recommend Legal and Fiscal Consultations at all times prior to any transaction as the laws are constantly changing.

 

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