Published: November 2022 & Last Updated: November 2022
Portugal has long been a popular destination for digital nomads and with the introduction of Portugal’s digital nomad visa, it’s expected that the country’s popularity will continue to grow. Good weather, a large digital nomad community, and the ability to apply for Portuguese citizenship after just 5 years are some of the reasons why nomads are flocking to this corner of Europe. But another reason is Portugal’s non-habitual residency (NHR) tax regime.
The NHR regime is a special tax regime aimed at newcomers (and in some cases, those returning) to Portugal, which offers special tax rates for the first 10 years. In the case of digital nomads, freelancers, remote workers, and employees, this typically means a flat rate of 20% on qualifying income (often referred to as high-value activities). Social security at 21% (on the remaining 80%) also needs to be taken into account.
For many digital nomads, particularly high earners, paying a flat rate of 20% could be a very inviting deal. However, Paula Santos from Tax Team Consulting points out that NHR isn’t the only tax regime in Portugal and it isn’t always the right choice for people.
“NHR is one option, but it’s not the only option. Another option for service providers with turnover of less than €200,000 is the Simplified Regime, which uses (progressive) standard Portuguese tax rates but means that only 75% or 35% of your income is taxed, depending on the services provided. Unlike the NHR regime, this route also allows you to take advantage of claiming tax credits. It’s also possible to have some income taxed under the NHR regime and some under another regime. An accountant can help you decide what works best for you.”
However, even though NHR might not be the best option for some people, Santos still encourages people to apply. “You only get one option to apply for NHR, which is in the first year of tax residency in Portugal. Depending on your income, NHR may not be the best choice for you that year but that doesn’t mean that it won’t be the right choice sometime over the next 10 years. The flexibility of the NHR system means that you may want to be taxed under it in future years, which is why you should always register for it so you have that option.”
In short, this means that NHR is one option when it comes to taxes in Portugal, but it’s not the only option. Depending on your income, you may qualify but even if you do, there may be a better way of having your income taxed. There are lots of articles about NHR and Portuguese taxes online, but the best way of working out what your tax burden is likely to be is by speaking to a Portuguese accountant.
The list of income types that are considered high-value activities changes every few years. According to Newco, as of January 1st 2020, the following high-value activities qualify for NHR:
112 – The general director or executive manager of a company
12 – Directors of administrative and commercial services
13 – Directors of production and specialised services
14 – Directors of hotels, restaurants, commercial, or other services
21 – Specialists working in physical sciences, mathematics, engineering, and similar technical fields
221 – Physicians
2261 – Dentists and stomatologists
231 – Teachers at universities and higher learning establishments
25 – Specialists in information and communication technologies (ICT)
264 – Authors, journalists, and linguists
265 – Creative artists and performing artists
31 – Intermediate level science and engineering technicians and professionals
35 – Information and communication technologies technicians
61 – Market-oriented farmers and qualified agricultural and livestock workers
62 – Market-oriented qualified forestry, fisheries and hunting workers
7 – Qualified industrial, construction workers and craftsmen, including qualified workers in the fields of metallurgy, metalworking, food processing, wood manufacturing, clothing production, handicrafts, printing, manufacture of precision instruments, jewellers, artisans, electricity and electronics workers
8 – Operators of installations and machines and assembly workers, namely fixed installations and machine operators