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Relocation taxation to Portugal and the NHR regime

The relocation process involves many aspects, including family aspects, legal aspects and economic aspects. Alongside these aspects, there are taxation aspects of relocation to Portugal that must be considered before leaving Israel. The need to examine the residency of individuals in the process of relocation or immigration to a foreign country is very significant for Israeli residents residing abroad, due to the accompanying tax implications. Seeking tax advice from a tax expert in order to arrange the reporting and payment of tax in Israel is mandatory. One of the main aspects that there is To examine when considering relocation or return from it is the tax aspect, and in particular – the manner of reporting to the Tax Authority on fruitful income generated during the stay abroad or income accrued from capital assets acquired during the stay abroad while avoiding accidents, double taxation and double payment of National Insurance. During the stay abroad, the individual generally has three main alternatives for dealing with the Israel Tax Authority:
Filing tax returns in Israel as an Israeli resident, reporting and paying tax on worldwide income (including National Insurance contributions) less certain expenses (rent, car, flights and other expenses) in accordance with the Income Tax Regulation or in accordance with income tax rules (when an Israeli employee is sent to work abroad for an Israeli employer) and allowing tax credits paid abroad.
Severance of tax residency according to Israeli law and at the same time failure to report in Israel the income originating outside of Israel after the date of departure (paying attention to the requirement to submit a specification report inaccordance with Amendment 223).
Severance of residency is subject to the provisions of the tax treaty signed with the destination country. 
The Taxation System in Israel
According to the taxation system in Israel, Israeli residents are obligated to report all their income, whether produced in Israel or abroad, and to pay the tax in Israel for them. This means that an Israeli resident who has relocated abroad will be considered an Israeli resident for tax purposes as long as he has not reported the date of severance of his tax residency to the Israel Tax Authority. As an Israeli resident, he will be required to report his income (including income from abroad) and tax supplementation in the State of Israel. In addition, he will be entitled to deduct various deductions from his taxable income according to the provisions of the regulations for deduction of certain expenses mentioned below and to claim the tax paid abroad as a credit from the tax liability in Israel. On the other hand, as a foreign resident, he may enjoy an exemption from reporting income from work generated abroad to the Israel Tax Authority. There are many taxation issues regarding the conduct of the relocation and his family members vis-à-vis the tax authorities,  The main one is the obligation to report and pay tax on income generated abroad, and if there is one, to which tax authority it is required to report first.  Whether to the foreign tax authority or in Israel or both, and whether there may be a double tax problem.  We will expand on this in the article below.
Taxation of employee income in partial relocation to Portugal
When it comes to moving abroad for a fixed period, the individual usually retains his status as an "Israeli resident" for tax purposes. The residency examination is carried out according to the internal laws of each of the countries, and in the event that the individual is considered a resident for tax purposes in both countries, the residency status will be determined in accordance with the provisions of the bilateral tax treaty signed between the countries. As stated, the taxation system in Israel is personal. In this method of taxation,  Every Israeli resident is obligated to report his income, whether produced in Israel or abroad. Failure to report income from abroad to the Tax Authority may lead to criminal proceedings. Since this is an Israeli resident, these income will be subject to the regular tax rates applicable to an individual resident of Israel.
When the stay abroad is temporary, the initial right of taxation on the income from salary received from the foreign local employer will usually be to the foreign tax authority and Israel will have the right of residual taxation. Since we are dealing with an Israeli resident who generated income from wages under a foreign employer, the income will be subject to the regular tax rates applicable to an individual resident of Israel and in calculating the tax on taxable income, the taxpayer is entitled to receive tax credit points from Israel,  Deduction of expenses of stay abroad and credit for the tax to be paid in Portugal, thus solving the problem of double taxation. Even if you received the tax relief according to the NHR track in Portugal, but you are still defined as a tax resident in Israel, then you are required to complete the tax in Israel. After completing the process of full disconnection of residency from Israel, it will be possible to exit the Israeli tax network and save the completion of the Israeli tax and thus benefit from the special tax regime in Portugal. When no social insurance treaty is signed between the countries, there is exposure to double payment of social security. In Israel,  You will be required to pay a 12% fee on wage income generated in Portugal.
Taxation of employee income in full relocation or immigration to Portugal (severance of residency)
The work plan vis-à-vis the Tax Authority depends to a large extent on the subjective intentions of the relocation. If a decision has been made to relocate the center of life for a number of long years or to emigrate abroad, it is necessary to begin preparation for severing residency from Israel for both tax  and national insurance purposes, otherwise there may be exposure to income tax supplementation and double payment of National Insurance contributions. Staying abroad for more than 183 days constitutes a presumption in Israeli law for severing tax residency,  But it is not enough to complete the disconnection process.When a taxpayer decides to sever residency from Israel, he is ostensibly exempt from income tax on his income from abroad from the date of severance of residency, but the Tax Authority does not easily recognize immediate severance, and therefore the Income Tax Ordinance was amended, which establishes, retroactively from the 2016 tax year, an expanded reporting obligation on individuals who go abroad for relocation. (Learn more). Until Amendment 223 to the Income Tax Ordinance, individuals who left Israel could take the position of not reporting the date of departure from Israel to the tax authorities and postpone the process until returning to Israel. The change following the amendment raises the issue of residency even in the years following departure and requires Israeli residents to provide information to the tax authorities every year.
It should be noted that the interpretation of the term "resident" – and especially the date of termination of residency – is controversial in most cases, including in cases of relocation. The Tax Authority's position, which is backed by the ruling, is that this is a process of severing residency, and only in clear cases will leaving Israel be considered an immediate severance of residency after moving abroad.  Severance as stated in "day one" may also be pursuant to Amendment 168 to the Income Tax Ordinance (New Version), 5721-1961 (hereinafter: the "Ordinance"), in which the question of severing an individual's residency and determining the date of his becoming a "foreign resident" was examined. According to this amendment, the date of departure will be assessed according to the day on which the individual ceases to be an Israeli resident, based on the definition of "foreign resident" in the Ordinance. If two conditions are met cumulatively – staying outside of Israel for at least 183 days a year in the tax year under consideration and the one thereafter,  If the center of his life is determined outside of Israel in the two tax years following the aforementioned tax years – the individual will be considered a "foreign resident" from the day he left Israel (or continued to reside outside it), in the first tax year in which he resided outside of Israel for more than 183 days as stated. It is important to remember that beyond "tax residency" status in the foreign country, it may remove you from the Israeli tax network, but this status will require you to pay tax abroad on your worldwide income. 
Taxation of individuals in Portugal
Residents of Portugal for tax purposes are taxed on their income worldwide at progressive rates ranging from 14.5% to 48% (in 2023). Non-residents are subject to income tax only on income of Portuguese origin, which includes not only the portion of remuneration that can be allocated to an activity carried out in Portugal, but also remuneration received from a Portuguese company or permanent establishment (PE).Nonresidents, on the
Who is considered a resident of Portugal for tax purposes?
An Israeli who relocates to Portugal and lives there for a period exceeding 183 days during a period of 12 months will be considered a tax resident in Portugal and will be liable to tax there on all his profits worldwide, including from Israel – subject to a special exemption granted by Portuguese law regarding new immigrants to Portugal as stated above. According to the Portuguese tax law in force from January 2015, an individual is considered a resident of Portugal for tax purposes if he meets one of the following conditions:
Resides for more than 183 days, consecutive or not, in Portugal in any 12-month period beginning or ending in the relevant financial year.
He stays less than 183 days in Portugal, but maintains a residence in Portugal during each day of the period mentioned above.
As a rule, the taxpayer will become a resident of Portugal from the first day of his stay in Portuguese territory until his last day of stay in Portugal, with a few exceptions. If the individual is classified as a tax resident in Portugal, he will be taxed in the country on all his income, both in Portugal and outside Portugal – all unless there is a tax exemption as part of the exemption granted to new immigrants in the NHR track.If the individual is classified as a foreign resident (and not as a resident of Portugal), he will be taxable only on his profits produced in Portugal.

NHR - What is a Non-Habitual Residents tax regime?


It appears that the Portuguese government is considering not extending tax benefits for immigrants starting in 2024. However, it appears that the legislative change will only apply to immigrants starting in 2024. Over the past few weeks, there has been widespread debate over the proposal to end the tax regime for non-ordinary residents ("NHR") set out in the proposed budget bill for 2024. Apparently, the NHR as we've known it for several years is indeed going to end on December 31, 2023,  With a new regime that erases most of its benefits (except those related to pension income) from January 1, 2024 ("NHR 2.0"), but to a different extent intended for different beneficiaries. Beneficiaries should, among other things, be employed in start-ups, companies engaged in research and development or be engaged in certification of jobs recognized by the Portuguese government. For the avoidance of doubt, current NHR beneficiaries and taxpayers, who on December 31, 2023, are registered as NHR, will be able to benefit from the regime until the end of the 10-year period.
In general, residents who fall under the aforementioned tax regime are taxed at a flat rate of 20% on income from work (category A) and income from independent business (category B) generated within the borders of Portugal and deriving from activities of high value to the Portuguese economy (engineering, technology, science, art, medicine, etc.) instead of the progressive tax rates listed above. The tax regime may not benefit low-income earners in the first tax bracket who are entitled to choose to tax on income at a rate of 14.5%. The tax regime grants tax exemption applies to passive income from an external source (e.g. income from property, interest and dividends), provided that certain conditions are met. Please note that although the tax regime grants an exemption on passive income in the country of residence, it is possible that you will be taxed in the country of origin.
In most cases, capital gains from the sale of securities are taxable at a flat rate of 28%. In addition, a uniform tax rate of 10% applies to pensions of foreign origin as well as other payments from pension funds and similar retirement plans. This regimen can be enjoyed during a period of 10 years. An application for an NHR tax regime must be submitted online by March 31, of the year following the year in which the taxpayer changes status to a tax resident in Portugal. Also,  A condition for receiving tax benefits according to the NHR track is that the individual owns a permanent residence in Portugal (an apartment owned or rented by him) at the end of the year in which eligibility for the special tax regime is required.
It is important to remember that there are no issues for tax breaks and exemptions granted under this tax regime, as long as the individual is still defined as an Israeli resident for tax purposes who is required to report and pay the full tax required in Israel. If you want to enjoy the tax benefits granted to new immigrants, it is important to start preparing correctly forsevering residency at the time when the decision to emigrate to Portugal was formulated.
Social Security Contributions in Portugal
Payment of social security contributions on income from wages – applies at the rate of 34.75% of wages (consisting of an employee share of 11% and 23.75% is imposed on the employer). These deposits cover family benefits, pensions and unemployment benefits. In addition to social security contributions at a general rate of 23.75%, employers must buy an insurance premium to cover work accidents. The premium varies depending on the job and risk classification.
Digital Nomad Visa in Portugal
There are three categories of Portuguese visas:
Portugal Temporary Stay Visas, also known as Schengen Visas, are designed to stay in Portugal for up to a maximum of 90 days in any 180-day period. The visa can be obtained for tourism purposes, family visits, business, temporary work, moving to the airport or other stay in Portugal of a temporary nature. Also suitable for digital nomads who wish to stay in Portugal temporarily.
Temporary residence visas for a period of more than 90 days. 
Long-stay visas, designed for stays longer than one year. This category includes several visas.
D7 Passive Income Visa.The D7 visa is also known as a pension or passive income visa but is also suitable for barymouth workers and digital nomads. This visa is ideal for retirees or entrepreneurs who want to live in Portugal without the need for a large financial investment. The visa is available to those who can provide proof of passive income such as: real estate, retirement annuity, salary, etc.
TheD2 entrepreneur visa is intended for entrepreneurs, freelancers or self-employed persons outside the EU, who wish to reside in Portugal and establish a business or start-up in Portugal or invest in a business in Portugal. This visa is intended for small and medium-sized businesses interested in raising foreign investments for the development of the Portuguese economy. To apply, you must submit a business plan that reflects economic, technological, and cultural return.
With the D7visa and the D2 visa, you can benefit from the incentives under the NHR and benefit from the incentives of this fiscal regime as detailed above.
The purpose of obtaining tax advice in the process of relocation to Portugal
The main purpose of tax advice is to examine the point in time in the relocation process and to analyze the residency status from the moment of departure from Israel. The determination regarding the residency status of the counseling applicants will have a significant impact on the manner in which it is required to act vis-à-vis the Tax Authority and report income from abroad. After determining residency status, all recommended reporting alternatives will be presented to the counseling applicants, while examining the tax considerations alongside the alternatives and the tax exposures in respect thereof. A comprehensive consultation will be held regarding taxation aspects, including: Determination of residency status,  The obligation to submit tax returns and reports to the Israel Tax Authority, the applicability of exit tax on the date of departure, taxation of income from work (including allocations of options and RSU's shares), social security issues, tax review in the destination country, review of the provisions of the tax treaty with the destination country, instructions will be given and the way to properly conduct vis-à-vis the authorities will be outlined. If necessary, memoranda will be provided regarding tax implications and exposures derived from income generated in the target countries, and calculations of income tax and National Insurance expected for decision making will be made.
About Our Offices
Our firm has knowledge and 16 years of experience in the field of international taxation, and in particular – accompanying Israelis in the process of relocation or immigration to Portugal. Our firm provides a basket of solutions on all taxation and social security issues in the process starting from the decision to leave Israel and throughout the period of stay abroad. The firm's services in the field of income tax and national insurance include, inter alia, tax consulting for Israeli salaried employees in relocation (under foreign employersor employers who are residents of Israel),  Advising Israeli residents with investments abroad, accompanying business activities abroad (self-employed abroad), academics abroad, Israelis on sabbatical who generate income abroad ("Shabtunists"), submitting tax returns, writing opinions and submitting pre-ruling requests on complex issues, tax arrangements vis-à-vis the tax authorities and National Insurance and representation in discussions. Our firm has a long list of successes in the field that have yielded the firm's clients very substantial tax returns. 
Our firm is experienced in taxing relocation of Israelis to countries and cities throughout Europe (Rome/Milan, Portugal, England, Ireland, Switzerland, Munich, Amsterdam, Larnaca/Limassol, Romania, Bulgaria, France, Spain, Greece, Ukraine, Czech Republic) Relocation to countries in the Americas (New York/New Jersey/Minnesota/Florida/California ,Mexico, Argentina, Toronto/Vancouver/Ottawa), Australia, New Zealand, Eastern countries (Thailand, China, Singapore, Japan, India) and African countries. Our firm has a long list of successes in the field, which have yielded, among other things, very substantial tax refunds to clients. The firm was chosen as a leader in accompanying Israelis who went abroad for the purpose of emigration and/or relocation and providing solutions in the field of income tax and national insurance. The writer is a CPA with extensive knowledge in the field of taxation and lectures in academic institutions in courses in the field of international taxation and relocation in particular.
 
The aforesaid should not be construed as a recommendation to perform actions and/or tax advice and/or investment advice and/or advice of any kind. The information presented in the article is general information only and does not constitute a legal opinion and/or a substitute for advice that takes into account the data and special needs of each person. The author and/or the accountant's office  bear no responsibility whatsoever towards the readers, and they are required to obtain professional advice before any action relying on the aforesaid. Only the provisions of the law, case law or the directives of the treating institution are binding and determining. Anyone who makes any use of the aforementioned information does so at his sole discretion and responsibility. In any case where the masculine is written, it also refers to the feminine,  and vice versa, unless explicitly stated otherwise.

Relocation taxation to Portugal and the NHR regime
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Relocation taxation to Portugal and the NHR regime

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