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Non-Habitual Residents (NHR) – The end of Pensions’ Tax Exemption

The current framework of tax benefits granted to non-habitual residents includes, among others, the full exemption of income tax on pensions (category H) earned abroad, for a period of 10 years, provided that one of the following conditions is met:

1. they are effectively taxed in the respective State of origin; or

2. they are considered not to be obtained in Portuguese territory.

Considering both the Conventions to avoid Double Taxation (CDT) that Portugal has signed with about 90 countries and this particular rule, it is possible for an NHR to benefit from a double non-taxation on foreign-sourced pensions.

In the wake of both internal and external pressures (from certain countries whose CDT did not attribute necessary taxing rights), an amendment to this regime was put together in the proposal for the State Budget Law for 2020: a fixed rate of 10% on foreign-sourced pensions is introduced (with income aggregation option).

Hence, the aforementioned tax exemption in place will be eliminated – even though this amendment was approved, the State Budget Law is yet to be passed and published.

Regarding the transitional period: we inform that, in any case, the introduction of this tax rate i) will not apply to non-habitual residents already registered as such, and ii) nor to those who fix residence in Portugal before the State Budget Law for 2020 is published and enters into force (being able to submit the NHR application until March 31st 2021).

The important thing to ensure is that the person interested in benefiting from the regime about to be revoked (which includes the exemption) registers as a tax resident in Portugal before the date of entry into force of the State Budget Law for 2020.

Categories
Flash news

Non-Habitual Residents (NHR) – The end of Pensions’ Tax Exemption

The current framework of tax benefits granted to non-habitual residents includes, among others, the full exemption of income tax on pensions (category H) earned abroad, for a period of 10 years, provided that one of the following conditions is met:

1. they are effectively taxed in the respective State of origin; or

2. they are considered not to be obtained in Portuguese territory.

Considering both the Conventions to avoid Double Taxation (CDT) that Portugal has signed with about 90 countries and this particular rule, it is possible for an NHR to benefit from a double non-taxation on foreign-sourced pensions.

In the wake of both internal and external pressures (from certain countries whose CDT did not attribute necessary taxing rights), an amendment to this regime was put together in the proposal for the State Budget Law for 2020: a fixed rate of 10% on foreign-sourced pensions is introduced (with income aggregation option).

Hence, the aforementioned tax exemption in place will be eliminated – even though this amendment was approved, the State Budget Law is yet to be passed and published.

Regarding the transitional period: we inform that, in any case, the introduction of this tax rate i) will not apply to non-habitual residents already registered as such, and ii) nor to those who fix residence in Portugal before the State Budget Law for 2020 is published and enters into force (being able to submit the NHR application until March 31st 2021).

The important thing to ensure is that the person interested in benefiting from the regime about to be revoked (which includes the exemption) registers as a tax resident in Portugal before the date of entry into force of the State Budget Law for 2020.