Portugal

The most significant modification in wealth and tax planning was the end of the Non-Habitual Resident (NHR) regime in 2023. It is important to note that, although the Budget State Law for 2024 established the end of the NHR regime, it introduced a new tax incentive regime which, even though more restrictive scope-wise than the NHR, can be more advantageous in several situations.

The scientific research and innovation regime corresponds to a tax incentive for individuals that derive employment and self-employment income in the areas/activities defined as relevant. Despite being named a tax incentive for scientific research and innovation, its scope is broader than the name seems to imply, being directed to individuals who were not considered tax resident in Portugal during the last five years and who carry out activities that fall within:

• Teaching in higher education and scientific research, including scientific employment in entities, structures and networks dedicated to the production, dissemination and transmission of knowledge, integrated into the national science and technology system, as well as jobs and members of governing bodies in entities recognised as technology and innovation centres under the Tech and Innovation Centres Legal Regime.
• Qualified jobs (including members of governing bodies) within the scope of contractual benefits to productive investment, under the terms of Chapter II of the Investment Tax Code.
• Job positions or other activities carried out by tax residents in the Autonomous Regions of Madeira and Azores under terms to be defined by Regional Legislative Decree.
• Research and development of personnel whose costs are eligible for the purposes of the tax incentive system in research and business development in accordance with Article 37(1)(b) of the Investment Tax Code.
• Job positions (including members of governing bodies) in certified startup companies, under the terms of the Startup and Scaleup Law.
• Qualified job positions (including members of governing bodies) in entities that carry out economic activities recognised by the Agency for Investment and Foreign Trade of Portugal, E.P.E. or by the Agency for Competitiveness and Innovation, I.P. (IAPMEI) as relevant to the national economy, particularly in the context of attracting productive investment, as well as reducing regional asymmetries.
• Highly qualified professions (to be defined by Ministerial Ordinance) carried out:
  • in companies with relevant applications, in the year in which the corresponding duties started or in the five previous years, which benefit or have benefitted from the Investment Support Tax Regime, under the terms of Chapter III of the Investment Tax Code; or
  • in industrial and service companies, whose main activity corresponds to one of the Classificação Portuguesa de Atividades Económicas (CAE) Codes defined in a Ministerial Ordinance and which export at least 50% of their turnover, in the year in which the corresponding duties started or in any of the two previous years.

This new regime subjects the net income from employment and self-employment (Categories A and B), earned within the scope of the specific activities detailed in the regime, to a 20% flat tax rate. This benefit is granted for a 10-year period (from the year of registration as a resident in Portuguese territory, without prejudice to the option for the aggregation of income to the general and progressive rates).

The right to be taxed under the terms of this regime, in each year of the mentioned period, depends on the taxpayer being deemed a tax resident in Portuguese territory at any time during that year and continuing to earn, each year, income derived from the exercise of one of the specific activities listed. It is deemed that the taxpayer continues to earn income included in one of the activities listed, whenever the beginning of the exercise of the new activity occurs within a maximum period of six months after the end of the activity previously carried out.

The access to this regime implies previous registration and, in situations where the registration is carried out outside of the period defined in the Ministerial Ordinance, the special 20% flat tax rate takes effect from the year in which the registration is concluded and is in force for the remaining legal period provided for.

Despite having no implications regarding pension income (NHR established a 10% flat rate), this new regime can potentially be more advantageous than the NHR regime for the people that can benefit from it (by carrying out one of the listed activities) since non-Portuguese income is tax-exempt (with progression) for several categories of income including employment income, self-employment income, capital income, rental income, and capital gains (Category G).

As an exception, the new regime states that taxpayers who qualify, who derive income from a non-resident entity without a permanent establishment in Portugal, located in a blacklisted jurisdiction, are liable to specific tax rules (for capital income and capital gains) that envisage an aggravated taxation via a 35% rate.

Portugal is not a federal state; its legislation applies over the national territory.

There have been important case law rulings in Portugal in the Private Client field, in particular with reiterated rulings from both the judicial courts and the arbitration court, regarding the possibility of the taxpayer being able to demonstrate that he/she has not been a tax resident in a given year is not legally limited, and can resort to any means that can support, with a high degree of certainty, the conviction that none of the legally established residence criteria have been met.

Concerning the NHR regime, it should be noted that the Supreme Administrative Court, in Ruling 0842/23.9BESNT, considered that registration as an NHR has merely declarative and not constitutive effects. Therefore, as long as the substantive conditions for the special tax regime are met — namely, tax residence in Portugal and non-residence for the previous five years — the benefit can be granted, even if the legal deadline for registration (31 March of the following year) is exceeded. The ruling reaffirms that the act of registration only serves to monitor the legal requirements, without preventing access to the regime, and that the tax effect of the NHR only applies after registration. This judgment is in line with arbitration case law and could settle the controversy over the registration deadline, clarifying that this deadline does not preclude the right to access the scheme.

Other recent case laws have, in similar circumstances, been sentenced by courts (judicial and arbitrational) with the same decision.

Portugal is not a federal state; its legislation applies over the national territory.

The Portuguese PIT Code now includes a tax regime for income derived from cryptoassets by individuals, which was mostly untaxed before 2023. Given the increasing role of cryptoassets in the global economy, this regime will have significant effects on the development of Portugal’s digital economy.

Income from activities such as cryptocurrency mining or validating transactions via consensus mechanisms is classified as business income from an independent professional activity. This income is taxed similarly to other professional income, subject to progressive tax rates. Under the simplified method (applicable if gross income does not exceed EUR 200,000 annually), 15% of non-mining income and 95% of mining income will be taxable. For those using organised accounting, taxable income is determined as the gross income minus related expenses.

The income from the sale of cryptoassets qualifies as capital gains for PIT purposes. The capital gain or loss is calculated as the difference between the acquisition price (including relevant costs such as trading platform commissions) and the sale proceeds. After offsetting capital losses, the net capital gains are subject to a flat tax rate of 28%. However, if the cryptoassets have been held for more than 365 days, any gains or losses from their disposal are not considered for PIT purposes, meaning they are tax-exempt. Capital losses from transactions with entities domiciled in blacklisted jurisdictions are also excluded from the calculation of taxable capital gains.

If the overall balance of capital gains and losses from cryptoasset transactions is negative, the losses can be carried forward for up to five years to offset future gains. However, this only applies if the taxpayer opts for the general progressive tax rates instead of the flat 28% rate.

Cryptoassets exchanged for other cryptoassets do not generate immediate capital income for PIT purposes. Tax is only applied when the new cryptoassets are sold, using the original acquisition price of the exchanged assets to determine the future taxable gain.

In addition to capital gains from cryptoasset sales, the PIT Code includes provisions for other income derived from holding cryptoassets, such as interest from cryptocurrency deposits. This type of income is treated similarly to dividends and interest income, subject to a 28% flat tax rate unless the taxpayer opts for progressive tax rates.

It is also important to add that Portugal is a no inheritance tax (for direct family) and no wealth tax jurisdiction. With recent developments in other countries regarding these types of taxation, we have been experiencing a growth in interest from ultra-high-net-worth individuals regarding Portugal.

Since the COVID-19 pandemic, digitalisation and flexibility have advanced significantly, transforming work organisation and interactions with clients, public administrations and legal entities. Court hearings by video conference facilitate access to justice, especially in cases where physical presence is difficult. The qualified digital signature, which has the same legal value as a manuscript signature, has become widely used for contracts and official documents. In addition, public services such as those offered by the Institute of Registries and Notaries are now accessible by video conference, making it possible for many acts to be carried out online without the need to travel. This dematerialisation movement has optimised relations with public authorities and simplified legal processes.

Trusts are not recognised or regulated under Portuguese law, with one specific exception: the Madeira Free Trade Zone, where offshore trusts are allowed for activities conducted within the institutional framework of the Madeira International Business Centre. Outside of this context, the Portuguese legal system, rooted in civil law traditions, does not provide for the creation of fiduciary structures, unlike common law jurisdictions where the concept of trust is widely established. Thus, it is not possible to establish a private fiduciary structure under Portuguese law, and any foreign trust involving Portuguese individuals or assets will be governed by the foreign law specified in the trust deed, as there is no specific regulation on trusts in Portuguese domestic law.

Despite the absence of civil law recognition for trusts, in 2014, the Portuguese legislature introduced tax rules applicable to income derived from trusts, as part of that year’s PIT reform. These rules aimed to regulate the tax impact of fiduciary structures (such as trusts), given their growing popularity among Portuguese tax residents with assets in jurisdictions that adopt such structures.

From a tax perspective, income generated by a trust may be subject to taxation in Portugal in two main ways:

• CFC rules. When a Portuguese tax resident holds, directly or indirectly, at least 25% of the economic interests in a trust, income derived from the trust may be taxed in Portugal, even if the income is not distributed. This rule is intended to prevent tax avoidance through the creation of trusts in low-tax or no-tax jurisdictions (tax havens), where the beneficiary effectively controls the assets without declaring them in Portugal. The beneficiary may be the settlor (the person who establishes the trust) or a beneficiary with rights to the income, particularly when the trust is not fully discretionary.
• Taxation of distributions. When a trust makes distributions of income to beneficiaries who are Portuguese tax residents, such income is classified as investment income and taxed at a fixed rate of 28% (or 35% if the trust is domiciled in a tax haven). Whether the distributed amounts are transferred to Portugal or not is irrelevant — the mere existence of the distribution triggers taxation.

In the case of trust liquidation, where the trust’s assets are dissolved and distributed to beneficiaries, taxation depends on the relationship between the beneficiary and the trust:

• If the amount is distributed to the settlor (the person who established the trust), any capital gains arising from the distribution will be taxed as such, at a rate of 28% (or 35% if the trust is based in a blacklisted jurisdiction).
• If the distribution is made to a beneficiary who is not the settlor, the amount will be considered a donation, falling outside the scope of PIT, but it may be subject to stamp duty at a rate of 10% (or 10.8% if real estate is involved). However, stamp duty may not apply if the transaction is not territorially relevant for Portugal, or if an exemption applies.

Thus, while trusts are not legally recognised in Portugal, they can be used by Portuguese tax residents in the context of international estate planning, provided they are properly structured and comply with the applicable tax rules.

Portugal is not a federal state; its legislation applies over the national territory.

The arbitration decision Case No. 698/2022-T considered that, after the death of the settlor, the beneficiaries of a will trust can, through a deed of variation:

• change the terms of the trust (including the identity of the beneficiaries, the distribution of assets among them, the duration of the trust, or the guidelines defined for the management of the trust’s income and assets);
• revoke the trust and access the inherited assets (revoking the will trust); or
• revoke the will trust and transfer assets to new trusts created for this purpose (establishing new trusts).

For income tax purposes, these new trusts are considered to have been established, through the deed of variation, by the original beneficiaries of the will trust, who thus become the settlors of the new trusts.

To benefit from the tax exclusion contained in Article 12, paragraph 8 of the IRS Code (“IRS does not apply to the amount attributed as a result of the liquidation, revocation, or termination of fiduciary structures to taxpayer beneficiaries of said structures other than those who constituted them”), the taxpayer must demonstrate the conditions for such exclusion (under Article 74, paragraph 1 of the Lei Geral Tributária (LGT) namely, that (a) the income in question came from the liquidation, revocation, or termination of a trust, and that (b) the taxpayer did not constitute the trust but was merely a beneficiary of it.

In Portugal, different courts have authority and competence on the territory. However, no specific local case law system exists since court decisions are rendered for the whole state.

The key trends and developments regarding trusts in Portugal are holding companies and Unit-linked Life Insurance. Unit-linked Life Insurance is a financial product that has gained popularity as a succession and tax planning tool as it enables families to pass on wealth without the complications that may arise from traditional trust structures.

In recent years, the landscape of wealth management and estate planning in Portugal has undergone significant changes, particularly concerning unit-linked insurance products. The Portuguese Tax Authorities (PTA) introduced a notable ruling in April 2024 that fundamentally modified the taxation of these financial instruments. Under the previous regime, income from unit-linked insurance policies was taxed only upon full redemption, early termination, or maturity of the policy, allowing for beneficial tax deferral. This arrangement enabled policyholders to postpone tax liabilities until a more favourable time, effectively providing them with greater flexibility in managing their investments.

However, the new ruling has shifted this paradigm. Now, any partial redemption of a unit-linked insurance policy is treated as a taxable event. The PTA’s pro-rata approach requires that a portion of the withdrawal be classified as taxable income, even if the entire policy has not been redeemed. This means that tax liabilities can accrue incrementally with each partial withdrawal, significantly diminishing the appeal of unit-linked products for tax planning and wealth management.

Typically, the assets transferred into a unit-linked policy continue to generate income, which is not immediately taxed until distributed. In cases of redemption, advance payments, or policy maturity, the amount received is treated as capital income. The taxable income is calculated as the positive difference between the amounts received and the total premiums paid. Specific exemptions apply based on the policy’s term. If at least 35% of premiums are paid in the first half of the policy’s term, taxpayers may benefit from a reduction in taxable income based on the duration of the contract. For redemptions occurring after five years but before eight years, 20% of the income is taxable, while for redemptions after eight years, 60% of the income is taxable. Tax residents receiving income from a policy established with a Portuguese institution will face PIT rates of 28%, 22.4%, or 11.2%, depending on the time elapsed since the policy’s inception. For foreign insurers, similar tax rules apply. Taxpayers with NHR status may benefit from exemptions based on applicable double taxation conventions. In the event of the policyholder’s death, the death benefit paid to beneficiaries is exempt from PIT, ensuring that the intended financial support is preserved.

There have been no developments relating to the COVID-19 pandemic.

No national legislative and regulatory developments concerning trusts are to be highlighted here.

Portugal is not a federal state, its legislation applies over the national territory.

It is important to emphasise the position adopted by the Arbitration Courts (CAAD) in Case No. 209/2023-T, dated 9 February 2024, in which it concluded that a trust is a legal relationship created by a person (settlor) through the transfer of title to certain assets (legal ownership) to another person (trustee), who receives this property in trust and for the benefit of third parties, the latter being the beneficiaries of the assets transferred (beneficial ownership). Income from a trust, when earned by the respective settlor, is subject to personal income tax (IRS), as capital income, under the provisions of Article 5(2)(t) of the IRS Code.

Since the settlor has failed to prove that it made bank transfers that would constitute loans or credits to the trustees, as it was required to do under Article 74(1) of the LGT, the Arbitration Court is left to consider that the amounts paid by the trustees to the settlor constitute capital income for PIT purposes (subject to taxation), rather than repayments of previous loans.

In Portugal, different courts have authority and competence on the territory. However, no specific local case law system exists, since court decisions are rendered for the whole state.

None.

There have been no developments relating to the COVID-19 pandemic.