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By Mike Abbott*
For many South African retirees, the plan is to head to the coast away from the bustle of the big cities. However, there is a tax-busting alternative in one of Europe’s top lifestyle destinations: Portugal. The Non-Habitual Residence (NHR) Programme offers the sunny climate and stable economy that makes for a happy retirement.
What is the Non-Habitual Residence programme?
In 2009, the Portuguese government introduced the NHR programme to attract wealthy non-EU residents and their families to the country. Under the NHR programme, certain types of income – including income from a pension, interest, dividends and royalties – are exempt from any tax in Portugal for a period of 10 years. This means that you can effectively live tax-free off the proceeds of your invested assets for a decade, all while also enjoying the sunny cosmopolitan lifestyle Portugal offers.
Eligibility for the NHR programme
You can apply for NHR status if you have not been a resident in Portugal in the previous five tax years. You will also need to meet the following requirements:
- You must be physically resident in Portugal
- You must also be a resident in Portugal
- You must be a tax resident in Portugal
- You must own or rent a property in Portugal
How to become resident in Portugal
To be able to retire and live in Portugal, you will need to obtain a Type 1 Resident Visa, also known as a Passive Income Visa. Thereafter, you will need to apply for a residence permit within six months of arriving in Portugal. The permit is renewable every two years, and after five years, it can be converted to a permanent residency permit.
Why choose the NHR programme?
Say hello to flexibility and a tax-free income
Our team of specialist cross border advisors at Sable International will assist you to structure your South African retirement, as well as South African or international discretionary funds, into a compliant offshore pension or corporate structure to ensure your income qualifies as tax-free under the programme. Once you’ve done this, you’ll have full flexibility and enjoy a tax-free income in Portugal during the 10-year NHR tax-free period. Options also exist to extend the tax-free treatment of investment income beyond 10 years with the use of specific EU-regulated financial products.
While the benefits are numerous, the process of setting all of this up can be complex. If you are interested in pursuing such an option, we recommend seeking advice from a financial advisor with experience in this specific field. Their knowledge in this area is vital to ensure you go through the financial and tax planning process correctly.
A route to EU nationality for you and your partner
Once you and your partner have been resident in Portugal for six years, you will be able to apply for Portuguese nationality and a passport. Once granted, this passport lets you and your family travel freely anywhere in Schengen Europe.
No inheritance tax
Portugal has a succession-based tax system for inherited wealth. Gifts or inheritances received by spouses and direct ascendants and descendants are exempt from estate duty.
Read also: Retire to sunny Portugal and pay less tax
Inheritance law in Portugal recognises foreign wills, even if they don’t relate to assets and property in Portugal. But, it’s still worth considering drawing up a Portuguese will as well to ensure that your assets are protected.
Operate your business from abroad
To be eligible for the NHR programme, you just need to ensure that you’re not employed in Portugal. If you have business interests in another country, from which you receive income, our Sable Wealth team can advise you on restructuring options for that income.
If you would like to hear more about the NHR programme, or have any questions about Portugal, you can contact us on +44 (0) 207 759 7519 (UK), +27 (0) 21 657 1540 (SA), or send us an email on firstname.lastname@example.org. Our wealth advisors will then advise you further.
- Mike Abbot is the Director of Wealth at Sable International
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