The non-resident regime in Portugal versus Spain, and especially what the differences are, is an increasingly common query. And this is because there are more and more professionals who, when starting their activity, and given the freedom they have nowadays to exercise it, consider doing it in Portugal. Likewise, many foreign residents with the intention of moving to Spain doubt whether to move to Portugal to start their activity.
Let us explain the characteristics.
Non-resident regime in Portugal versus Spain
These doubts arise because once the tax residence in Portugal is acquired, the Código do Imposto sobre o Rendimento das Pessoas Singulares (CIRS) allows to apply for the status of Non-Habitual Residents (RNH) for the following 10 years.
Main requirements to obtain the RNH
Mainly the requirements would be:
- Not to have been considered a tax resident in Portugal in the last 5 years.
- Acquiring tax residence in Portugal. This requirement is fulfilled by owning or renting a property in Portugal.
- To carry out an activity of “high added value ” from the list of “activities of high added value”.
Workers in the above-mentioned professional activities must have at least one of these options:
- the level of qualification of the European Qualifications Framework level 4
- or the International Classification of Education Types level 35
- or five years of duly justified professional experience.
In summary, the Portuguese Non-Habitual Residents regime would allow taxation of all such income earned on high value-added activities at the flat rate of 20%. And this could be done either as a freelance, or as a director of the company incorporated in Portugal.
Advantages and disadvantages
Although this Portuguese regime can be very favorable fiscally, it is worth weighing all the pros and cons. For example, it must be taken into account additional costs that may involve the rental or purchase of a property in Portugal to meet the condition of residence. This situation can be avoided in Spain if the person already owns a property.
Therefore, it is essential to know and evaluate the possibilities and tax benefits that the Spanish legislation also recognizes. And to make an estimate comparing the taxation in both countries. In Spain some people could benefit from one or more of these tax benefits. For example, the reduction for starting a business, of 20% on the net income obtained, in the first year in which the result is positive and in the following year. It is also possible the application of some tax deductions contemplated in the regulations.
The best an example of the Non-resident regime in Portugal versus Spain
- For a turnover in the first year of activity of 170.000€ gross, and assuming activity expenses of 5.000€.
In Spain, the annual taxation would be estimated at around 47,000 Euros once the 20% reduction for starting a business has been applied. And also applied other interesting tax deductions contemplated in the current regulations. Once the first two years have passed, the 20% reduction for starting up a business would no longer apply, so the difference with the Portuguese regime would be more unfavorable. - In Portugal, the taxation, at the fixed rate of 20%, would be €33,000. However, to this tax cost would have to be added expenses necessary to comply with the requirements of the RNH Regime. For example, the cost of a monthly rent or the purchase of a home. Or the purchase of a vehicle to circulate without problems in Portugal. According to Portuguese legislation, the “temporary admission” of vehicles in Portugal allows vehicles registered in another EU member state to circulate in Portuguese territory for a maximum of 183 days in a one-year period. These additional costs can often raise the total cost above the cost to be borne in Spain. Therefore, it is necessary to carry out a detailed analysis of each case and circumstances.
In conclusion
It is essential to analyze all aspects, professional and personal, when considering starting a new economic activity, either in Portugal or in Spain. And, above all, during the always difficult start-up in the first two years of the new activity it could be more interesting to maintain the residence in Spain, depending on the circumstances of each case.
