From sunshine to stunning landscapes, rich culture, fantastic food, and a low cost of living, there are many reasons to move to Portugal or spend a part of your year there. Portugal’s NHR, or non-habitual resident tax regime, opens the door to operating in the beautiful country.
The non-habitual resident tax regime in Portugal is hugely successful for a good reason: you’ll get reduced income tax on international income for the first 10 years you’re there. As an LLC owner, you can gain residence in Portugal and earn income from the LLC at a low tax rate. Read on to understand Portugal NHR for US LLCs.
What Is the Portugal Non-Habitual Residency (NHR) Program?
The Portugal NHR program allows individuals to establish tax residency in Portugal while benefitting from reduced income tax rates for the first 10 years. With the NHR program, you’re not required to meet any minimum or maximum days in Portugal to qualify for residency.
The purpose of the NHR program is to attract investors, professionals, and high-net-worth individuals to contribute to Portugal’s economy and culture.
How Does a US LLC Benefit from the Portugal NHR Program?
A US LLC is a pass-through entity, which means the LLC owners or members generally report all income on their individual income tax returns. For that reason, as an LLC owner, you can benefit from Portugal’s NHR program and save on taxes while living in a beautiful country.
Discussed below are some of the benefits that a US LLC enjoys from Portugal’s NHR program.
Flat Income Tax Rate
By becoming a Non-Habitual Resident (NHR) under the Portugal NHR Program, a US LLC can benefit from a flat income tax rate of 20% on qualifying income for 10 years instead of paying higher taxes in their home country. This flat income tax rate is less than standard Portugal tax rates and is also substantially less than US tax rates, in cases of high earners.
Exemption on Foreign Income
Under the NHR Program, a US LLC can enjoy tax exemption on certain types of foreign income, including passive income like dividends, interest, and rental income, which can significantly reduce the overall tax burden. Every small amount adds up, and being able to save or re-invest dividends, interest, and even rental income can help you build wealth faster.
No Wealth or Estate Tax
More importantly for high-net-worth individuals, Portugal does not levy wealth or estate tax. This contrasts with many European nations and creates a favorable environment for US LLCs to protect and preserve their assets for future generations.
The NHR Program provides US LLC owners and their families with the opportunity to obtain a residence permit, allowing them to live, work, and travel freely within the Schengen Area, which comprises 26 European countries.
With the NHR program, you aren’t required to stay in Portugal for at least 183 days a year to qualify for residency. This allows you to live and work in Portugal for part of the year or the whole year.
Access to the EU Market
By establishing a presence in Portugal, a US LLC gains access to the European Union (EU) market and can benefit from the favorable trade conditions and opportunities within the EU member states. With appropriate registration, you can expand your US business into Europe and access larger markets and new potential growth opportunities.
The NHR Program opens doors to a vibrant and growing business environment in Portugal, providing US LLCs with opportunities to expand their operations, establish partnerships, and access a skilled workforce, contributing to their overall growth and success.
Portugal is increasingly becoming known as a startup incubator and tech center for Europe. The favorable business clients and taxation can open new business opportunities and networking connections.
How Does Tax Treatment for US LLCs Work Under the NHR Program?
While LLCs are usually considered pass-through entities in the US, in Portugal LLCs are considered opaque unless they are professional societies or companies for simple administration of assets. In those cases, you will qualify for the NHR program with the LLC simply passing-through income.
However, the treatment of LLCs in Portugal varies. In case the income from the LLC is classified as “other income,” the taxpayer would be charged a 28% tax rate and would not benefit from the NHR program. In many cases, the LLC is taxed as a company in Portugal.
However, partnerships may be more defensible than single-person-disregarded entities to qualify for the NHR program. Properly documented overseas management can help establish that you meet NHR criteria. Finally, an office in Portugal or a manager in the country increases the chances of a permanent establishment.
However, if the LLC qualifies as a company under Portuguese tax laws, it must pay a flat corporate tax rate of 21%, plus local surtaxes ranging from 0% to 1.5%. In the long term, having a business entity subject to corporate tax rates will cost you more than the NHR program if you plan to reside in Portugal for more than 10 years.
It can be valuable to speak with a qualified tax professional who understands both US LLC treatment and Portugal NHR for LLCs to understand how the tax laws apply to your company and can offer tax advice and filing support. You can also get support for filing your LLC taxes for the first time and understand US tax filing requirements.
Who Can Apply for the Portuguese NHR?
Many professionals can apply for the Portuguese NHR program. Portugal has now clearly defined high-value-added activities and the allowed professionals who can apply for the NHR. In addition, retirees, digital nomads, and remote workers can benefit from NHR. Desired professionals under NHR include:
- Medical doctors
- Dentists and stomatologists
- University and higher education teachers
- Information and communication technology (ICT) specialists
- Authors, journalists, and linguists
- Specialists in mathematics, engineering, sciences, and related fields
- General managers
- Company directors
- Directors of administrative and commercial services
- Directors of production and specialized services
- Directors of hospitality, restaurants, commerce, and other service-based businesses
- Visual and performing arts artists
- Technicians in scientific and technical occupations
- Technicians in information and communication technologies
- Qualified workers in agriculture and animal production
- Qualified workers in forestry, fishing, and hunting
- Qualified workers in industry, construction, and handicrafts
- Specialists in metallurgy, metal processing, food, wood, clothing, handicrafts, printing, precision instruments manufacturing, jewelry, electricity, and electronics
- Operators of facilities and machines and assembly line workers
How to Become an NHR in Portugal?
To become an NHR in Portugal, you need to take two simple steps, which are discussed below:
Obtain Tax Residence Status
The first step is to move and establish your tax residence in Portugal. To do this, You don’t have to stay in the country for 183 days. You can apply for tax resident status as soon as you move. Portugal doesn’t have this obligatory criterion that you must spend the first 183 days for them to consider you a tax resident.
To obtain a tax residence status, you will need to have accommodation that you intend to occupy as your habitual residence. Or, you can spend 183 days. Then, you will update your Portugal NIF with a Portuguese address.
Apply for the NHR Regime
Once approved with the tax resident status, you can now apply for the NHR regime. Submit the necessary documentation and application forms to obtain NHR status. This includes providing proof of income, employment, or pension. You can formally apply for NHR status online through the “Portal das Finanças.”
You must demonstrate that you are involved in one of the qualified activities mentioned above to benefit from the reduced income tax rate. While it’s not required, applicants are expected to spend a minimum of 183 days per year in Portugal or have a residence indicating their intention to reside permanently in the country.
Should You Get Portugal NHR?
Portugal NHR can open the door to a new lifestyle in a country with a rich culture while helping you save on taxes. Creating an LLC while living in Portugal offers many of the benefits of an LLC, including privacy protection and simplified administration. It can also be a smart long-term business plan, even if the LLC doesn’t qualify for NHR. Get doola’s help for fast, professional LLC formation in all 50 states, or start your US business from Portugal with doola.
How long does the Portugal NHR status last?
Portugal’s NHR status lasts for a duration of 10 consecutive years. However, there is some possibility Portugal may close this program for new applicants as early as 2024.
Do I need to physically reside in Portugal to benefit from NHR?
You need a permanent place of residence in Portugal, and/or spend at least 183 days a year in the country.
Are there any limitations on the types of income eligible for tax benefits?
Yes, Portugal defines the types of income or work eligible for tax benefits. Consult the list above to see if your profession qualifies.
Can I still benefit from NHR if I have income from Portuguese sources?
Yes, you can benefit from NHR if you have income from qualified Portuguese sources. NHR allows for exemptions on some foreign-sourced income and reduced tax rates on income generated in Portugal for qualified activities.
Can I use Portugal NHR to avoid taxes in my home country?
You cannot use the Portugal NHR to avoid taxes in your home country. However, if your home country has a tax treaty with Portugal (for example, the USA), you might qualify for a lower tax rate through the NHR. However, you’re still required to make tax filing in both countries.