Digital Nomads' tax payments in Portugal: how do digital nomads pay taxes in Portugal?
The fact that the number of digital nomads in Portugal is increasing exponentially has already been reported in several Portuguese news reports[1].
With this increase in digital nomads in Portugal, there has been an increase in applications for digital nomad visas. With this visa, the nomad can have a residence permit, not just for themselves, but for their entire family for a period of up to 5 years.
However, regardless of the length of stay in Portugal, very few people take into account the tax issue, which can have significant consequences.
Before going into the topic of paying taxes, it's worth commenting briefly on tax residency for a better understanding of the subject.
What is Fiscal Residence?
Tax residence is nothing more than the place where an individual carries out their vital economic activities. This place can be their fixed residence or their habitual residence.
Digital nomads do not have a fixed residence, but they do have a habitual residence. Therefore, the belief that you don't have to declare your taxes to any country because you don't have a fixed abode is debunked.
It doesn't matter if you travel every 3 months, every month or every week, anyone in the world will have a tax residence somewhere.
If you declare taxes for two countries at the same time, you will have double tax residency, which in itself is not a problem, but can become one if there is no prior tax planning.
What are the implications of having dual tax residency?
Individuals who have dual tax residency need to declare their taxes simultaneously for both countries.
However, what few people know is that when you are a tax resident, the principle of universal declaration of income prevails. In other words, taxpayers must declare all their income, regardless of where it comes from.
What most people do is declare income from their countries only in their countries, and income from Portugal only in Portugal. However, by failing to comply with the duty to declare assets universally, the taxpayer commits a crime called tax evasion.
In addition to the risk of being held criminally liable for tax evasion, the amounts evaded can be collected from the taxpayer, with interest and monetary correction.
Exemple: Brazil and Portugal exchange information on tax matters, given the Convention they signed to avoid double taxation and the long-standing "friendship" between the two countries. This exchange of information is carried out using artificial intelligence, which searches for and cross-references taxpayer data in order to detect fraud.
If you are interested in hiring professional legal services to avoid double tax residency, we are a law firm specializing in the subject and we can help you, just get in touch via email: thyanipuppio@gmail.com, or via WhatsApp.
Digital nomad visa in Portugal: what is it and what are the advantages?
The digital nomad visa in Portugal was included in the Aliens Act in 2022, following the trend in several European countries, and due to the fact that an increasing number of digital nomads are seeking a visa to obtain a residence permit.
One of the advantages of obtaining any visa - whether as a digital nomad or any other - is the granting of a residence permit. This permit allows the individual to move freely throughout the countries of the European Union (Schengen area).
However, to obtain a digital nomad visa in Portugal - officially called: "residence visa for the exercise of professional activity provided remotely outside national territory" - there are a number of requirements, such as:
a) Proof of average monthly income earned in the last three months of at least the equivalent of 4 minimum wages (Portuguese minimum wage);
b) Proof of means of subsistence;
c) Presentation of employment contract - if you are an employee;
d) Presentation of the company contract or service contract - if you are self-employed.
Payment of taxes will depend on the digital nomad's tax residence, whether in their countries, Portugal or both.
How do you pay taxes after obtaining a digital nomad visa?
Once you have obtained your digital nomad visa, you need to know where your tax residence is.
The general rule under Portuguese law is that anyone who stays in Portuguese territory for more than 183 days is considered a tax resident in Portugal.
If the digital nomad remains tax resident in their country of origin, they will have double tax residence.
Double tax residency means that you have to declare taxes - universally - at two countries at the same time, which can inevitably lead to double taxation.
However, in Portugal, there is the figure of the Non-Habitual Resident, which we will come to next.
Non-Habitual Resident (NHR): what is it and what are the advantages?
The tax regime for Non-Habitual Residents was established by the Investment Tax Code (Decree-Law no. 249/2009) with the aim of attracting skilled labor to Portugal.
This tax regime can be enjoyed by residents considered to be "qualified professionals in high value-added activities or intellectual property, industrial or know-how".
Portuguese law has drawn up a list of activities considered to have high added value, some of which are: doctors, architects, engineers, university professors, among others.
This list is exhaustive, meaning that only those who practice the activities described in the list can opt for this tax regime, in addition to other legal requirements.
However, the Portuguese Parliament is currently voting on the State Budget for 2024, which will abolish the Non-Habitual Resident regime and introduce another regime called "Fiscal Incentive for Scientific Research and Innovation".
It will have some points in common with the Non-Habitual Resident, but the list of professions has become more restricted. I talked more about it in this article.
Why would someone opt for this regime?
Anyone who meets the legal requirements and is involved in some of the activities on the list will be considered a species of non-tax resident in Portugal.
They will therefore only pay tax on income earned in Portugal, at a flat rate of 20%. In other words, they will not be subject to progressive tax rates, as is the case for taxpayers in Portugal.
It is important to remember that this article is for information purposes only. In order to consider whether this tax regime will be beneficial or not and whether it fits your profile, it is essential that you consult a lawyer so that they can draw up a tax plan.
If you are interested in hiring professional legal services related to this topic, we are a law firm specializing in the subject and we can help you, just get in touch via email: thyanipuppio@gmail.com, or via WhatsApp.
