Portugal’s NHR Regime Combined with Malta’s Tax Law
Published on 18 January, 2019
Portugal has actively encouraged new arrivals by offering extremely favourable tax breaks through the ‘non-habitual residence’ (NHR) regime. Therefore If you qualify for NHR, you could enjoy tax-free foreign income for the first ten years living in Portugal, may the source be pensions,rental income, capital gains on real estate, interest, dividends and non-Portuguese employment.
Given that Portugal is a high-taxation country, it is very different from the typical tax havens on small secluded islands or in countries with very different cultures to those in the West. Unlike the majority of programs, which are designed for digital nomads selling abroad, residency in Portugal also has advantages for entrepreneurs with businesses that physically tie them down somewhere.
Portugal can be a tax haven for foreign nationals for many reasons:
- Residency in a European Union member state with a good reputation (it is not on any country’s tax office’s blacklist)
- Modern and liberal country with a high quality of life
- No minimum stay is required to maintain residency
- No minimum requirements for renting or owning property
- Easy to emigrate and apply for the NHR programme
- Possibility of obtaining a Portuguese passport after 6 years
- Possibility of tax exemption on dividends, interests, rental incomes, property returns, royalties and pensions (provided that there are not public) on income from abroad
- Possibility of tax exemption on foreign income for certain professions
- Possibility of a fixed tax rate of 20% on domestic income from the eligible professions
- Tax-free inheritances and gifts
Who can benefit from the NHR regime?
Basically anyone who can live on their returns and capital gains as a private investor or for pensioners (not valid for state pension, as a public servant), then the NHR regime to live in Portugal is a good option. However, active business owners or anyone with income from stock exchange investments must watch out for the tax avoidance prevention laws and the effective management regulations.
In order to make the most of being an NHR in Portugal and not pay taxes on the foreign company, the followings are essentials:
- First of all a company in the European Union
- The majority of managers (2) to be non-Portuguese
- Non-Portuguese clients
- The DTA must state that there is a possibility of taxation on dividends in the country of origin
- Additionally, in order to be able to enjoy the advantages of the regime is to belong to one of the eligible professions.
Since the NHR regime in Portugal is quite complicated, special attention must be paid to the following factors regarding foreign income, in order to be exempt from taxes:
- Possibility of taxation in other states under the double taxation agreement
- Income cannot come from tax havens with no DTA
If this is the case, a freelancer or entrepreneur will pay a tax rate of 20% + 3.5% on the domestic income. Moreover, under certain circumstances, he can remain free from tax on the foreign income.
NHR regime combined with the tax laws of Malta
Besides, it is also possible to receive income in the form of tax-free dividends. For instance, take a non-habitual-resident with a Maltese company. Since Malta is in the EU, the Portuguese CFC rules are not enabled. Furthermore, if the majority of managers (i.e. 2) are not residents of Portugal, consequently, the company will not have to pay taxes there.
Finally, taking everything into account, with proper structuring, the NHR regime combined with the advantageous tax laws of Malta could result in not having to pay tax at all. However, as interesting as it may sounds, in principle, an experienced tax advisor is essential to analyse the relevant double agreements in each individual case.