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DSG – in the pipeline

Tag Archives: nhr

“NHR” under pressure in France and Portugal

20 Monday Jul 2020

Posted by Ursula in Articles

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france, nhr, portugal, pressure, tax

Beneficiaries of retirement pensions from French sources (excluding public sector retirees) who settled in Portugal before 01 April 2020 may benefit from the Non-Habitual Resident scheme, an attractive tax-free regime for a period of 10 years. This favourable assessment results from a combined application of the double tax treaty concluded between France and Portugal and the  “Non-Habitual Resident” tax regime (“NHR”), established by the Portuguese legislator in 2009.

  • The Franco-Portuguese tax convention provides that Portugal alone has the right to tax French retirement pensions (excluding public pensions) received by a Portuguese resident.
  • Under the “NHR” rules, Portugal grants a total exemption for ten years from taxation of pensions to taxpayers settling in Portugal.

Other Tax Authorities in the European Union are concerned by this situation which they consider to be the subject of aggressive tax competition on the part of Portugal. These criticisms have led to regime changes recently introduced by the 2020 State Budget.

In France, the Tax Authority has expressed its intention to monitor these taxpayers closely. In particular, it considers that a taxpayer who pays no tax in Portugal cannot be classified as a Portuguese fiscal resident within the context of the bilateral tax treaty and therefore cannot benefit from the protection of this agreement. The French Tax Authority intends to rule out the application of the tax treaty and regain its right to tax retirement pensions from French sources.

  • French pension beneficiaries who have declared tax residency in Portugal must indicate that they do not benefit from the protection of the tax treaty. These French nationals must declare their retirement pension in France in addition to other sources of income;
  • or by sending a rectification proposal leading to a tax adjustment in France.

French courts have not yet ruled on the treatment of such “NHR” taxpayers. There is little doubt that the outcome will be controversial between the position of the French tax administration and that of taxpayers. In all in cases, any letters received from the tax authorities should not be left unanswered. The response to be made and the arguments to be put forward (scope of the agreement tax, existence of taxable income provided that it is not fictitious, the effectiveness of the Portuguese residence) must be adapted to each particular situation.

The 2020 Portuguese State Budget entered into force as of 01 April 1 2020. It reformed the tax system of NHR beneficiaries, by introducing, instead of a total exemption, a flat rate assessment at the rate of 10% for a period of 10 years on pensions from foreign sources. More specifically, the 10% rate applies not only to pension income paid as a result of retirement but also to other types of pensions such as income allocated in the event of early retirement, as well as other benefits granted under compulsory social security pension schemes, including amounts paid by the employer on life insurance contracts as well as contributions to pension funds, retirement savings schemes or any complementary Social Security plan. If retirement is also taxable in the source country, Portugal will grant a tax credit which may be deducted from the tax due abroad.

With regard to other types of income (dividends, rental income, etc.), no amendment was introduced in the State Budget. In practice, these changes also concern taxpayers who already benefit from the scheme. “NHR” taxpayers who are resident in Portugal and who have already applied for but who have not yet received a response can choose the application of the new regime to their 2020 income tax return.

Tax exemptions for non-habitual residents amount to €548 million in 2018

09 Thursday Jan 2020

Posted by Ursula in Posts

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2018, exemptions, IMI, imt, irs, nhr, non habitual, portugal, residency, tax, vat

The value of tax benefits to non-habitual residents keeps growing according to the “Tribunal de Contas” (National Audit Office). In 2018, there were €548 million in NHR exemptions granted to foreign pensioners. Nevertheless, this apparent tax giveaway would have never existed if the NHR regime had not attracted these foreigners to Portugal in the first place. For example, these pensioners paid almost €80 million to the state in Individual Income Tax (“IRS “) on non-exempt income. In addition, there are IMT, IMI and VAT levies which the Government collects above and beyond the scope of the Non-Habitual Residency scheme.

High-value business activities given streamlined application

31 Thursday Oct 2019

Posted by Ursula in Posts

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activities, approval, high value, nhr, simplex, streamlined

Foreign residents applying for Non-Habitual Resident status with high-value-added business activities (“VTA”) may now receive prompt approval for a flat-rate tax of 20% on earned income in income categories A or B (salaries and sole trader income). Under previous practice, “VTA” approval was individualised and could take a year or more for consideration. Nevertheless, taxpayers must still be prepared to provide proof of their qualifications and effective exercise of the business activity upon request from the tax authorities (“AT”) at any time during the “NHR” 10-year period. These new procedures came into effect for applications made after 26 June 2019. This streamlined application follows other “Simplex” actions launched earlier this year. For example, the Portuguese Tax Authority (“AT”) overhauled the list of qualifying Non-Habitual Residency professions (“VTA”) eligible for the 20% flat-rate tax that were initially put in place in 2009.

NHR: Changes in value-added professions

14 Monday Oct 2019

Posted by Ursula in Articles, Posts

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2020, at, cae, changes, nhr, non habitual residency, value-added

Beginning in January of 2020, a modified catalogue of business activities comes into force, benefiting a favourable tax regime aimed at attracting professionals with diverse skills to Portugal. These occupational profiles are now extended in light of the difficulties experienced by employers in various sectors in hiring workers since the inception of the Non-Habitual Residency Regime 10 years ago. Continue reading →

Non-habitual residents register 26% increase in 6 months

27 Thursday Jun 2019

Posted by Ursula in Posts

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brazil, eu, increase, nhr, non habitual, pensioners, portugal, refugees, residency, sweden

Despite an inauspicious start in 2009, the “NHR” programme has gained relevance, attracting thousands EU “tax refugees” to Portugal. Since 2014, new applicants have increased by 1400%. Between September of 2018 and March of this year, the number of new non-habitual residents rose by over 26%. Brazilians recorded the most significant jump with a gain of 52%, surpassing the Swedes. Citizens who qualify for “NHR” status pay “IRS” at a flat rate of 20% when they are linked to high added-value activities in Portugal. However, this group of targeted professionals accounted for just 7% of total applicants. Most are pensioners, seeking a 10-year tax holiday on their retirement benefits. In 2017, new “NHR” retirees numbered almost 10,000.

French “Great Debate” website attacks Portuguese “NHR”

03 Monday Jun 2019

Posted by Ursula in Posts

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competition, french, great debate, macron, nhr, portugal, tax exile, unfair

Opinions and proposals, shared on the “Great Debate” website (https://granddebat.fr/) – an initiative by French President Emmanuel Macron to respond to the protests of the “yellow vests” – refer to migrating French nationals who enjoy Portuguese Non-Habitual Residency (“NHR”) as “tax exiles” and to Portugal as “a fiscal eldorado” within Europe. Some participants contend that this double relief (tax exemption for pensions both at source in France and for 10 years in Portugal with “NHR” status) is intrinsically unjust, depriving both states of much-needed tax revenues and increasing the burden on paying taxpayers. The scheme is seen as promoting unfair tax competition among the Member States of the European Union.

NHR beneficiaries: only 8% have a “value-added” profession

11 Saturday May 2019

Posted by Ursula in Articles, Posts

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beneficiaries, nhr, pensioners, portugal, value-added

The tax-holiday regime for Non-Habitual Residents (NHR), launched in 2009 to entice wealthy foreigners to participate to Portugal’s economic development in exchange for low or no taxation, reveals a very asymmetrical distribution between the two NHR target groups: “value-added” professionals and pensioners. Amongst the 27,367 beneficiaries of the NHR statute allowing for a partial or complete 10-year tax holiday in Portugal, there are only 2,140 “value-added” professionals (8%). Of these, almost half are senior executives of multinational companies. Continue reading →

French “Great Debate” website attacks Portuguese “NHR”

08 Monday Apr 2019

Posted by Ursula in Posts

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competition, double relief, french, great debate, macron, nhr, portugal, president, tax, yellow vests

Opinions and proposals, shared on the “Great Debate” website (https://granddebat.fr/) – an initiative by French President Emmanuel Macron to respond to the protests of the “yellow vests” – refer to migrating French nationals who enjoy Portuguese Non-Habitual Residency (“NHR”) as “tax exiles” and to Portugal as “a fiscal eldorado” within Europe. Some participants contend that this double relief (tax exemption for pensions both at source in France and for 10 years in Portugal with “NHR” status) is intrinsically unjust, depriving both states of much-needed tax revenues and increasing the burden on paying taxpayers. The scheme is seen as promoting unfair tax competition among the Member States of the European Union.

NHR and taxation of foreign income

13 Wednesday Mar 2019

Posted by Ursula in Posts

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category, exemption, foreign, irs, nhr, non habitual, portugal, taxation

The guidelines of the Doctrine Declaration (“Ficha Doutrinária”) dated 04 December 2017 clarify tax liabilities based on nº 5 of article 81º of the IRS Code. Assessment of income from foreign sources classified under categories E (capital), F (long-term rent) and G (capital gains) earned by taxable persons considered to be Non-Habitual Residents follows the exemption method where the source country has the power to tax this income under the applicable Double Taxation Agreement. This rule infers that the tax exclusion does not hold for jurisdictions without such an agreement in place. Tax-exempt income must still be reported annually in Portugal to determine the final tax rate to be applied to total aggregate income subject to assessment.

S153 – only 8% of NHRs have valued-added profession

25 Monday Feb 2019

Posted by Ursula in Shorts

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nhr, profession, value-added

Read it here:

https://www.eurofinesco.com/en/our-publications/nhr/511-s153-nhr-value-added-professions-feb-2019

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