On February 20, 2024 on the website of the Dutch tax authorities a position paper of the Knowledge Group International Tax Law, individual income tax not being profits wage taxes or social security contributions, of the Dutch tax authorities was published (KG:041:2024:7). In this position paper the Knowledge Group takes a position on the impact of the Portuguese Non-Habitual Resident (NHR) regime for the residency under the Dutch-Portuguese tax treaty.

Facts

The taxpayer lives in Portugal where he is regarded as a so-called resident não habitual or non-habitual resident. The taxpayer is the sole shareholder of A BV. A BV is established in the Netherlands. A BV made a dividend payment in 2023 with the withholding of 15% dividend withholding tax. The taxpayer is of the opinion that he is to be be regarded as a resident of Portugal within the meaning of Article 4, Paragraph 1 of the Dutch-Portuguese Tax Treaty (hereinafter: NL - PRT Treaty), as a result of which he can request application of the reduced withholding tax rate of 10% for dividends as referred to in Article 10, Paragraph 2 of the NL - PRT Treaty.

Question

Does a non-habitual resident qualify as a resident of Portugal within the meaning of Article 4, Paragraph 1 of the NL – PRT Treaty?

Answer

Yes.

Remarks ITP

The NHR regime was a tax regime that was created in 2009 with the aim of attracting qualified professionals, high net worth individuals and foreign pensioners to Portugal. The NHR regime ended on January 1, 2024. As of that date foreigners are no longer able to apply for the NHR regime unless they meet the relevant conditions and hold a valid Portuguese residence visa as of December 31, 2023.

Individuals covered by the NHR regime can benefit from a special Portuguese personal income tax (“PIT”) regime for a ten year period.

Portuguese source income

Employment and self-employment income can be liable to a special 20% flat rate if derived from high value added activities of scientific, artistic or technical character performed in Portugal, as listed in a Ministerial Order. Other types of domestic income received by non-habitual residents are liable to PIT according to the rules applicable to ordinary tax residents.

Foreign source income

Employment income

Employment income can be exempt from PIT provided that:

• It is taxed in the source State according to the applicable Tax Treaty; or
• If no Treaty is applicable, the income is effectively taxed in the source State and it is not deemed as derived in Portugal.

Other income

Foreign source dividends, interest, capital gains and rental income, together with self-employment and professional income (in this case, only if derived from high value added activities), can be exempt from PIT if:

• The income can be liable to tax in the country of source, according to the applicable Tax Treaty or to the OECD Model Tax Convention; and
• It is not deemed derived in Portugal; and
• It is not deemed obtained in a tax haven.

From the assessment of the tax authorities

Portugal has the so-called NHR regime. In the underlying case, the taxpayer qualifies as a tax resident of Portugal under national Portuguese tax law. One of the conditions for treaty residency under the NL - PRT Treaty is that the tax resident of Portugal is not solely subjected for its Portuguese income to the taxation provided for in Article 4, Paragraph 1 of the NL - PRT Treaty. This is not the case for the NHR regime. Since treaty residency exists, the taxpayer has access to the Nl - PRT Treaty and can request application of the reduced withholding tax rate of 10% for dividends if he also meets the other conditions as laid down in Article 10 of the NL - PRT Tax treaty. In the underlying case, Part II, Paragraphs 3 and 4 of the Protocol on Article 4 of the NL - PRT Treaty do not apply.

Copyright – internationaltaxplaza.info

Follow International Tax Plaza on Twitter (@IntTaxPlaza)