New Portuguese Tax Regime For Non-Habitual Residents

Profession:Ricardo da Palma Borges & Associados - Sociedade de Advogados, R.L.

Article by Ricardo da Palma Borges and Pedro Ribeiro de Sousa Decree-Law nr. 249/2009, of September 23, has been published yesterday in the Diário da República, the Portuguese Official Journal.

It approves the Tax Code of Investment ("Código Fiscal do Investimento"), which, among other measures directed at improving Portuguese international competitiveness, creates a new Personal Income Tax ("Imposto sobre o Rendimento das Pessoas Singulares", hereinafter "IRS") regime for non-habitual resident individuals.

This status will be granted to individuals who become resident for tax purposes in Portugal starting from January 1, 2009 without having had this status in the five years preceding its acquisition.

Non-habitual resident individuals may enjoy such status for a ten year period, after which they will be taxed under the standard IRS regime.

Portuguese tax residence for IRS purposes, in a given fiscal year, may be acquired via a number of different ways, such as:

Staying for more than 183 days in the Portuguese territory, whether these days are consecutive or not; If staying for a shorter period, having in the Portuguese territory, on the 31st of December, a dwelling under circumstances that lead to the presumption of an intention to hold and occupy it as a place of habitual abode; Being, on the 31st of December, a crew member of a ship or aircraft at the service of an entity with residence, head office or effective management in Portugal; or Being a member of a household where one of the spouses is, on the 31st of December, a Portuguese tax resident. The new tax regime targets non-resident individuals who are likely to establish a permanent or a temporary residence in Portugal.

The regime includes two different sets of rules, one of them applicable to foreign-sourced passive income, similar to non-domiciled taxation regimes such as the ones of the United Kingdom and Switzerland, and the other to active income, in this case encompassing income derived both from foreign and domestic sources, following expatriate, rectius impatriate, taxation regimes such as the ones existing in Spain and France.

Under the first set of rules, passive income derived by non-habitual residents will be IRS exempt (with progression) in Portugal, provided that it may be taxed in the source State under the rules of a tax treaty entered into by Portugal or, if no treaty exists, that i) it may be taxed in the source State according to the rules of the OECD Model...

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