Portugal – US nationals and the Portuguese non-habitual tax resident (NHR) regime

13 May 2022
Sérgio Varela Alves

Capital gains from the alienation of movable property (personal property) in the United States of America: their exemption from taxation in Portugal under the non-habitual resident regime

Under the non-habitual resident regime, capital gains from the alienation of movable property (personal property) - e.g., from selling stocks or other participations in companies or other legal entities -, are in general taxed in Portugal at a flat tax rate of 28% in personal income tax, except if the capital gains are earned by a company or other legal entity located abroad owned by the non-habitual resident individual in Portugal, or if the income arises from a permanent establishment he or she also owns abroad, e.g., like an office. 


Article 81.º, no. 5, § a) of the Portuguese Personal Income Tax Code clearly states that to «non-habitual residents in Portuguese territory who obtain, abroad, income of category […] G [capital gains], the exemption method applies, provided that [income] may be taxed in the other Contracting State, in accordance with the double tax convention concluded by Portugal with that State».


Therefore, Portugal will tax the capital gains from the alienation of movable property, except if they may be taxed abroad under the double tax convention, and even if the other State doesn’t effectively exercise its power.


At a first glimpse, the double tax convention Portugal signed with the United States of America predicts a similar solution in its article 14.º, where on its point 6 we find a default rule asserting that «gains from the alienation of any property other than property referred to in paragraphs 1 through 5 shall be taxed only in the Contracting State where the alienator is a resident».


Nonetheless, it happens that article 1.º, § b) of the Protocol to the double tax agreement adds that «notwithstanding any provision of the Convention […] a Contracting State may tax its residents, and the United States may tax its citizens, as if the Convention had not come into effect. For this purpose, the term citizen shall include a former citizen whose loss of citizenship had as one of its principal purposes the avoidance of tax, but only for a period of 10 years following such loss».


This apparent contradiction was subject to an arbitral decision from the arbitration court in Lisbon “CAAD” because the Portuguese Tax Authorities wanted to tax the income, but the taxable person argued that the Protocol should be instead applied, meaning that the exemption predicted on article 81.º, no. 5, § a) of the Portuguese Personal Income Tax Code had its determination complied with.


Thus, in the words of the court, “in relation to income of category G (capital gains) from a North American source, the subsumption to § a), nº. 5 of Article 81.º of the Portuguese Personal Income Tax Code appears to be linear, since such income is, in accordance with the Convention, of which the aforementioned Protocol forms an integral part, taxable in the State of residence (Portugal) and, at the same time, in the State of nationality (United States of America)», meaning the exemption method should have been applied.


The decision may still be appealed, and there is no formal precedent deriving from it, which means that the Portuguese Tax Authority is not legally bound by it in similar future situations. Nevertheless, the Court ruling was unanimous, and it represents a first judicial case to prevent the taxation of any type of non-Portuguese sourced capital income or gains at the level of US nationals residing in Portugal and benefitting from the NHR regime.

Sérgio Varela Alves

Tax Consultant

by Danielle Avidago 29 April 2025
Danielle Avidago | Immigration Consultant
The legal framework for the RCBE is set out in Law No. 89/2017.
by Tomás Melo Ribeiro 23 April 2025
The Central Register of Beneficial Ownership (RCBE, Registo Central do Beneficiário Efetivo) is a mandatory register established by the Portuguese government.
Portuguese Tax Return - How to apply for a submission deadline extension.
by António Pratas Nunes 21 April 2025
Submit IRS Modelo 3 in Portugal by 30 June 2025 or request an extension until 31 December with Modelo 49 in specific cases.
Novas regras para a concessão,renovação e substituição da Autorização de Residência CPLP em Portugal
by Sara Sbai Oliveira 16 April 2025
Nova lei reformula Autorizações CPLP: cartão físico de 2 anos, visto consular obrigatório e acesso à livre circulação no Espaço Schengen.
Purchasing a newly built or extensively renovated home is one of life’s most significant investments
by Margarida Tempera 14 April 2025
Bought or renovated a home in Portugal and found defects? You may have legal protection, with warranty periods from 5 to 10 years under Portuguese law.
Portugal remains an attractive jurisdiction for international investors.
by Tomás Melo Ribeiro 3 April 2025
A branch is not a separate legal entity. It operates as an extension of the parent company and is fully dependent on it, both legally and financially.
Portugal has implemented a series of tax benefits to encourage urban rehabilitation.
by Diogo Pedro and Cleuzina Cruz 1 April 2025
To maximise these benefits, property buyers should assess eligibility before purchasing a property, ensuring it meets the criteria for IMT exemption.
The most important requirement is demonstrating an effective connection to the Portuguese community
by Florbela Lopes 31 March 2025
Acquiring Portuguese citizenship through marriage or a civil partnership with a Portuguese national may appear to be a straightforward legal process.
The present overview provides a comprehensive and structured analysis of the D2 Visa.
by Luís Maria Branco and Tomás Melo Ribeiro 28 March 2025
The D2 Visa allows non-EU, EEA, and Swiss nationals to legally start a business, invest, or engage in entrepreneurial activities in Portugal.
AIMA may suspend the 'green lane' if there are security concerns or significant difficulties.
26 March 2025
A “green lane” will be established to streamline the work visa process for foreign nationals being recruited by Portuguese companies.
More posts