Thought leadership from our experts

Portugal: Two highly competitive tax regimes to attract investment

We are referring to the regime for investment funds and the regime for foreigners to set-up their residence in Portugal.

Tax regime for investment funds

This regime has proved to be very competitive for foreign individuals and corporations that want to invest or incorporate a Portuguese investment fund in transferable securities or in immovable property.

In very broad terms it can be said that the new regime establishes reduced taxation at the investor level whilst the fund in principle is only taxed at a minor rate on its net asset value.

The net asset value (NAV) of the investment fund is subject to stamp duty at the rate of 0,0025% for those funds that invest solely in money market instruments and bank deposits and 0,0125% for the remaining investment funds. This tax is due quarterly.

The income obtained by non-resident individuals and corporate bodies that invest in investment funds in transferable securities is exempt from tax in Portugal.

The income obtained by non-resident individuals and corporate bodies that invest in investment funds in immovable property is taxed at the rate of 10%. The income obtained by non-resident beneficiaries is considered income from immovable property for the purposes of Article 6 of the applicable double tax treaty and the income derived from the sale, including redemption, of participation units or shares is considered capital gains for the purposes of Article 13 of the applicable double tax treaty. Depending on the double tax treaty Portugal has entered into with the investor residence state, the gains may even not be taxed in Portugal.

This advantageous tax regime for non-residents does not apply if the non-resident is located in a tax haven on the Portuguese blacklist of off-shore jurisdictions and if non-resident entities are held, directly or indirectly, in more than 25% by entities or individuals resident in Portugal.

The Non-Habitual Resident tax regime

The Portuguese Non-Habitual Resident Tax Regime was introduced to attract to Portugal both qualified expatriates engaged in high value added activities1 and high net-worth individuals. It may be used during 10 years. In a nutshell it can be said that the idea behind the regime is to exempt from Portuguese personal income tax the income from foreign sources (whether remitted or not to Portugal), but a careful analysis of the concrete situation should not be waived.

The Non-Habitual Resident Tax Regime has shown itself to be a competitive alternative to other European expatriate tax regimes, since individuals may register themselves on a voluntary basis as a non-habitual tax resident.

In order to be eligible for the application of this special tax regime the taxpayer must not have been taxed as a resident in Portugal in the five years prior to the application of the regime and has to become resident for tax purposes in Portugal. According to Portuguese tax law it shall be considered as tax resident in Portugal those who have remained in Portugal more than 183 days, consecutive or otherwise, in any 12 month period or those who have stayed for less time, but who have available in Portugal, in any day of the relevant year, accommodation in conditions that indicate an intention to keep and occupy it as an habitual residence.

The main features of the regime are:

a) Exemption of personal income tax on foreign source employment income provided that such income is effectively taxed in the source State;

b) Flat rate of 20% for Portuguese source employment income derived from high value added activities;

c) Exemption of personal income tax on foreign source business income from high value added activities provided that such income may be taxed in the source State

according to the Double Tax Treaty entered into between Portugal and such State or, where no Double Tax Treaty exists, provided that such income may be taxed in the source State according to the OECD Model Tax Convention interpreted with the reservations and observations made by Portugal and such source State is not a tax haven according to the Portuguese list of offshore jurisdictions;

d) Flat rate of 20% for Portuguese source business income derived from a high value added activities;

e) Exemption of personal income tax on foreign source intellectual and industrial property income as well as income from the transmission of know-how provided that such income may be taxed in the source State according to the Double Tax Treaty entered into between Portugal and such State or, where no Double Tax Treaty exists, provided that such income may be taxed in the source State according to the OECD Model Tax Convention interpreted with the reservations and observations made by Portugal and such source State is not a tax haven according to the Portuguese list of offshore jurisdictions;

f) Exemption of personal income tax on dividends, interests, capital gains and rents from immovable property provided that such income may be taxed in the source State according to the Double Tax Treaty entered into between Portugal and such State or, where no Double Tax Treaty exists, provided that such income may be taxed in the source State according to the OECD Model Tax Convention interpreted with the reservations and observations made by Portugal and such source State is not a tax haven according to the Portuguese list of offshore jurisdictions;

g) Exemption of personal income tax on pensions provided they are not from Portuguese sources.


  1. The following are considered high value added activities: architects, engineers, and geologists; artists (actors, musicians, painters, and sculptors); auditors and tax consultants; medical doctors and dentists; university professors; psychologists; learned professions, technicians, and related activities (archaeologists; biologists and experts in life science; computer programmers, consulting and computer programming, and activities related to information technology and computers; data processing activities, information hosting and related services, web portals, and other information activities; news agencies; scientific research and development; R&D in natural and physical sciences; R&D in biotechnology; and designers); investors, directors, and managers of companies that promote productive investment, provided that they are allocated to eligible projects and have tax relief agreements under the Investment Tax Code; companies' senior officials being understood as such the members of the board of directors with powers to bind the company.