Can I avoid taxes simply by moving to Portugal?

Question

Looking at what counts as taxable income for NHR in Portugal, it is mentioned so-called "global income" that is supposedly not taxed in Portugal for eligible NHR.

Non-Habitual Resident (NHR) in Portugal is a special tax status for new residents. Its owners are exempt from paying taxes on global income.

But would that mean that all it takes for a remote worker to avoid tax is to move to Portugal? It seems unlikely. For example, assume that I have a freelance contract as a software engineer. I get paid from country A which is not Portugal, in the EU or outside the EU. Country A could be my country of residence but maybe some other country. If I move to Portugal, keep my employment in country A, or in country B (both outside Portugal), does that mean that my income is not taxed at all? that is hard to believe. Is it not the case that Portugal will tax income for work done in Portugal regardless of where the customer or the employer is, or where the payment originates?

To be more specific, assume that I am a citizen of a country in EU, say Denmark. I am employed in a company which is also in Denmark. I get paid salary from my own Danish company every month. I live in Denmark and the work in done in Denmark. The client company is somewhere else, neither in Denmark nor in Portugal, assume the client company is in Sweden or in the UK (does it matter if it is in the EU?) does that mean that all I need to do is move myself physically to an apartment in Portugal and I can avoid tax completely like that for 10 years? Is it true? Or will Portugal tax work done in Portugal and it is where the work is done that counts as "global income"? So if I have a residence in Portugal where I live, but if I work in Portugal then it will be taxed 20% or so, and there is still no way to avoid tax simply by moving to Portugal. Wouldn't it be taxed the same way as exporting a service?

Answer 1

Tax planning is a pretty complex topic. It requires understanding of your specific situation, the laws of the country(ies) involved, the tax treaties between them, and the income and wealth taxed.

I'd suggest talking to a Danish and a Portuguese tax advisers to come up with a plan specific to your situation.

Specific topics for discussion:

• Earned income (income for things that you do) is sourced to where it is earned. I.e.: where you physically are located. So if you earn income while in Portugal, it would be taxed by Portugal as Portuguese income, not global. Based on my quick google search, for NHR that would be 20% tax rate for 10 years, after which you are under the regular progressive tax scheme.

• Depending on your country of citizenship laws, you may still be taxed there. In fact, you may end up with a situation that both countries consider your income sourced to them. I don't know anything about Danish laws, but for the US citizens it is a real issue. Many countries have provisions in the law or tax treaties to avoid double taxation, but it only complicates the matters.

• Foreign-sourced income: Income not sourced to Portugal will be taxed under another set of rules. If it sourced to a specific list of countries with which Portugal has a tax treaty - then it wouldn't be taxed at all. But, alas, Denmark is not in that list.

See more details in this article.

Bottom line - there's a reason why there are many consultants and relocation firms making money advising on this: it's not as trivial as you make it sound. There are rules, guidelines, conditions, and you need to know and understand them all.

But yes, if you end up qualifying for everything and your country(ies) of citizenship(s) don't have any contrary provisions in their own tax laws to nullify these benefits - you can lower your taxes by living in Portugal. I don't think you can completely avoid them, given that you're not rich enough to only live from passive income.