The Portuguese Non-Habitual Resident program (NHR) is a Portuguese tax regime designed to attract foreign investors, professionals, and pensioners to live and work in Portugal by offering a favorable tax environment. Under the scheme, individuals who become tax residents in Portugal and meet certain criteria can benefit from a flat tax rate of 20% on income from certain categories, such as employment, self-employment, and pensions, among others.
The NHR scheme also provides exemptions or reductions on income from foreign sources, such as dividends, interest, and capital gains, provided that certain conditions are met. This can make it an attractive option for those who have income streams from other countries such as Cyprus. Additionally, there are no wealth taxes in Portugal, and inheritance tax is very low, which can make it an appealing destination for those who want to transfer assets to their heirs.
Why an NHR needs to incorporate a Cyprus Company
If you’re a Portuguese Non-Habitual Resident (NHR) looking to expand your business internationally and take advantage of tax regimes of Cyprus and Portugal, setting up a company in Cyprus may be an excellent option for you. Cyprus is known for its favorable tax regime, making it an attractive destination for businesses looking to reduce their tax liability while accessing EU markets. One significant benefit can be the fact that you can receive ‘tax-free’ dividends from your Cyprus Company to Portugal (certain restrictions/conditions apply).
In this article, we’ll explore some of the tax benefits of setting up a Cyprus company as a Portuguese NHR.
- No Withholding Taxes on Dividends
Dividends paid by a Cyprus company to its shareholders are not subject to any withholding tax, unless paid to an entity in a blacklisted jurisdiction. This means that Portuguese NHRs who own a Cyprus company can receive dividends without any tax deduction, both in Cyprus and Portugal, making it an attractive option for investors looking to generate passive income. We strongly suggest to look into this with your Portuguese tax consultant, as the shareholding structure of the Cyprus Company may matter for you to be able to take advantage of such a benefit.
- Low Corporate Tax Rate
Cyprus offers one of the lowest corporate tax rates in the EU, with a flat rate of 12.5%. This means that companies incorporated in Cyprus will be taxed at a lower rate compared to other EU countries, reducing their tax liability and leaving more profits for reinvestment or distribution to shareholders.
- Double Tax Treaties
Cyprus has signed double tax treaties with over 65 countries worldwide, including Portugal. This means that companies incorporated in Cyprus can avoid double taxation on their income.
- No Capital Gains Tax on the Sale of Shares
Cyprus does not impose any capital gains tax on the sale of shares, making it an attractive jurisdiction for companies looking to sell their shares or exit their investment. This means that Portuguese NHRs who sell their shares in a Cyprus company can do so without incurring any capital gains tax.
- Favorable Intellectual Property (IP) Regime
Cyprus offers a favorable IP regime, which allows companies to benefit from a reduced tax rate of 2.5% on income generated from IP assets, such as patents, trademarks, and copyrights. This means that companies incorporated in Cyprus can reduce their tax liability on their IP income, making it an attractive destination for technology and innovation-based companies.
In conclusion, setting up a company in Cyprus can provide significant tax benefits for Portuguese Non-Habitual Residents looking to expand their business internationally. Cyprus offers a low corporate tax rate, access to a wide network of double tax treaties, no withholding taxes on dividends, no capital gains tax on the sale of shares, and a favorable IP regime. As with any tax planning strategy, it is essential to seek professional advice and guidance to ensure compliance with local regulations and to maximize the benefits of the program.
*It is important to note that the NHR scheme has specific requirements and conditions that must be met to be eligible for the tax benefits. Therefore, it is advisable to seek professional advice and guidance to ensure that you comply with the regulations and to maximize the benefits of the program.