By Howard Bilton – Howard is a barrister called to the Bars of England/Wales and Gibraltar, visiting Professor at The Faculty of Law of Texas A&M University and Chairman and Founder of The Sovereign Group Limited which was founded in Gibraltar in 1987. He now lives and works in Hong Kong and makes wine in Portugal.
Changes to both the Non-Habitual Resident (NHR) and Golden Visa
(GV) regimes are on their way. Anybody considering either of these
schemes would be well advised to take urgent action.
The appeal of Portugal as a place to live and invest has increased dramatically over the last few years enhanced by the substantial benefits which can be gained through the GV and the NHR immigration schemes. These are quite distinct but can be combined.
For EU citizens the GV is less important because they already have a right to live in Portugal without formal immigration and without investment. For them the driver is NHR status, which has attracted many new residents from UK, Scandinavia and France in particular. For UK passport holders this status is readily and easily available until the end of this year as they are still considered EU nationals for these purposes. When Britain leaves the EU at the end of the year, so will the UK, and that will be the end of this easy route to residency and the 10 year tax holiday that comes with it.
Non EU citizens can obtain easy residency, eventually leading to citizenship by investing in Portugal. This is the GV scheme.
Portugal has one of the more enviable European climates, 800 kms of coastline, excellent food and wine, captivating culture, intriguing art and architecture, fascinating history, welcoming people, good health care, low crime and affordability. Add this to Portugal's favourable investment and residency landscape and it becomes clear why Lisbon is currently THE hottest city on the planet and Portugal is the number one destination for so many.
And, of course, Portugal is a full member of the EU so legal residents of Portugal can travel freely and visa-free throughout the EU under the Schengen arrangements. UK nationals may no longer be able to do this from the end of the year.
Previously, with careful structuring, NHRs were not taxable on anything other than their Portuguese-source income for the 10-year designated term. Recently an amendment was introduced which means that all new NHRs will be taxed on their pension income at 10%. Further amendments are expected soon which will charge all new NHRs to 10% tax on all their worldwide income. It looks likely that this change will be made at the end of the year but will not be retrospective and will not affect anyone who is already an NHR. They will continue to benefit according to the rules and taxes applicable at the time their application was granted.
To apply for NHR status it is necessary to appoint a fiscal representative and have a place to live in Portugal. This doesn't have to be a place of your own. It can just be a room in somebody else's house which they make available to you. Rent need not be paid. It is sufficient to get a contract that provides that accommodation is available to you in return for paying overheads or something similar. Or those without friends in Portugal may rent a modest flat for a low rent.
There are a few other formalities required. At the end of your first tax year, for example, a return must be completed. If by then you have not actually taken up residence it will be sufficient to file a zero return. Otherwise a return will need to be filed for any income that is taxable in Portugal. Under NHR status this will include any income from local employment or Portuguese-source income (as well as any foreign income that has been incorrectly structured). For most NHRs, a zero return will be all that is required.
Portugal is already under pressure from the rest of the EU to limit the tax advantages under the NHR scheme. No tax advantageous scheme lasts forever and neither will this one. At some stage it will be closed to new applicants. With these two factors in mind, we believe that anyone who thinks they may move to Portugal, or who might spend sufficient time there to be considered tax resident, any time within the next 10 years would be well advised to apply for NHR status now and lock in the 10 year tax benefits.
Until the end of this year UK citizens can still apply for resident status in Portugal as EU residents with little formality or cost. When the Brexit transition period finishes on 31st December it seems certain that UK nationals will then have to go through the normal immigration channels applicable to any non-EU citizen. Certainly the process will not be as straightforward as it is now.
If they find they are no longer fulfilling the residency requirement of NHR, their NHR status will remain in place but that one year of the 10-year special status will have been wasted. It would normally make sense to wait to apply and not run down the 10 year period but we are fairly sure the 10 year tax deal will be changing to a 10% deal very soon and all tax advantage may disappear altogether some time after that. So why wait?
The GV scheme is completely different but can be combined with NHR. The GV is designed to attract foreigner investors who want a fast and easy way to obtain the legal right to reside in Portugal. By investing €500,000 in property, €350,000 in a redeveloped property (both reduced by 20% if in a low density area), €350,000 in a qualifying Portuguese regulated investment fund or a similar sum in an employment generating business, it is possible to obtain residency immediately, with permanent residency following after five years and they can apply for nationality shortly thereafter.
For those who wish to live in Portugal this status can be combined with NHR to provide the same 10-year tax advantageous residency. The GV status means that the successful applicant is a legal resident of Portugal but not necessarily a tax resident. Those who live in Portugal will be tax resident, those who do not will not.
Many apply for GV status as an insurance policy so they have somewhere they can live in case of difficulty, so they get visa free travel within the EU and so they can start qualifying for nationality. Many do not want to move to Portugal. However even for them we recommend applying for NHR just in case. For a small additional cost they lock in the 10 year tax benefit while it is still available in case plans change and they do decide to live in Portugal. Again we recommend applying for NHR now even if it is not currently needed as it will certainly be less advantageous in the future and at some stage will not be available at all.
The most popular form of GV investment has been residential property in Lisbon and Porto in particular. The (justifiable) complaint from locals is that they are being priced out of these markets. It now seems certain that the law will soon be changed to disallow real estate investments in Lisbon, Porto and coastal sectors as a basis for GV. All other investment options seem set to remain.
After five years of legal residency in Portugal, it is possible to apply for Portuguese citizenship. In most countries it is necessary to actually live in the country to obtain nationality; it is not sufficient just to have maintained the legal right to live there. Indeed for every other form of residency in Portugal there is no chance of obtaining nationality without having lived in the country for the majority of the five-year qualifying period. GV holders, however, can qualify for nationality without having been physically present in Portugal.
There is also pressure from other EU member states to change this but at the moment only seven days presence in Portugal per year is required in order to maintain GV immigrant status and be eligible for Portuguese nationality. This is highly exceptional and it unlikely that Portugal will be permitted to continue with this arrangement in the long term. To take advantage of this special EU entry possibility speed may be of the essence.
So there it is. Two exceptionally attractive schemes that will shortly become a little less attractive. Hence the urgency to apply.
We think anybody who might wish to move to Portugal at any time in the future should act now to lock in the 10-year tax break and/or make an unrestricted investment in property, before it is too late. And if they are UK/UK nationals they should definitely act before the Brexit transition period when their right to Portuguese residency with little to no formality comes to an end.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.