Please note: Tax situation no longer up to date! New rules apply from 1 January 2024. You can find more information here.
Unpacking the Non-Habitual Resident (NHR) Program & Portugal’s Retirement Perks
Switzerland has given us the exquisiteness of luxury watches, creamy chocolates, and divine cheeses, but for Swiss retirees, Portugal may offer something equally appealing – a slice of paradise that promises a financially savvy retirement. Here’s what you need to know to retire in Portugal in order to pay as little as possible.
Why retire in Portugal?
If you’re wondering where to retire in Europe, we don’t think it gets much better than Portugal. With its strategic geographical location, exceptional quality of life, and remarkable tax advantages, Portugal is much more than a charming holiday destination.
Prime Location: Nestled conveniently between Europe, America, and Africa, Portugal’s prime location offers an easy gateway to explore the rest of the world.
English Proficiency: Portugal ranks 7th in English proficiency among non-native speakers, ensuring Swiss retirees will have little to no language barriers when communicating.
Well-connected Transportation: With a network of 10 airports, traveling in and out of the country is seamless, making visits from family and friends or jetting off to other destinations a breeze.
Coastline Galore: The country’s vast 2,562 km of coastline presents a host of beautiful beach towns and seaside activities, perfect for retirees escaping the landlocked confines of Switzerland.
Quality of Life: Portugal’s ranking as the 5th best country in quality of life for expatriates ensures a comfortable and enriching retirement experience (Quelle: InterNations / ExpatInsider).
Award-winning Destination: Having bagged multiple accolades such as best city break, best tourism destination, and best golf destination, Portugal offers an array of recreational activities, whatever your interests.
Climate: Portugal’s mild climate, with plenty of sunshine year-round, is a pleasant change for those used to Switzerland’s harsh winters, making it ideal for outdoor activities and a healthy lifestyle.
Tax Regime Comparison Switzerland-Portugal
If you leave Switzerland for good, you will no longer be subject to full tax liability, but if you have real estate assets or income from a business activity based in Switzerland however, you remain subject to limited tax liability.
There is no withholding tax for OASI (AVS), 3rd pillar or most 2nd pillarpensions in Switzerland, but lump-sum benefits from Swiss pension funds and institutions for tied pension provision (2nd and 3a pillars) are always subject to withholding tax. However, there is a double taxation agreement between Switzerland and Portugal that assigns the right of taxation only in Portugal at least for all old age benefits that were accrued through work activity in the private sector. For lump-sum benefits from the 2nd pillar (private sector) and the 3rd pillar you can request the withholding tax to be refunded .
Withholding tax is only deducted from pensions and board member fees if Switzerland has the right of taxation, for pensions e.g. in most cases if you have worked for the public sector. It also imposes a 35% withholding tax on dividends paid by Swiss companies, the interest on bonds issued by Swiss borrowers, and the interest on Swiss bank deposits. This can also be partially (or in exceptional cases fully) reclaimed due to the double taxation agreement.
As a Swiss retiree you can apply for the Non-Habitual Resident Tax Regime which allows you to transfer your tax residency to Portugal and take advantage of exceptional tax benefits as described below.
Non-Habitual Resident (NHR) Tax Regime
The NHR tax regime is one of Portugal’s unique selling points for Swiss retirees. By transferring your tax residency to Portugal, you can enjoy a host of benefits under this regime for ten years, including:
- A special tax rate of 20% applicable to income derived from “high value-added activities.”
- Tax exemption on foreign-source income, provided it is already taxed in the source country. Switzerland has a Double Taxation Agreement (DTA) with Portugal, which covers most types of income.
A flat tax rate of 10% on pensions from a foreign source, as opposed to the standard progressive rate of up to 48%.
Additional Tax Benefits of Retiring in Portugal
In addition to the NHR regime, Portugal offers other tax incentives that make it an even more attractive destination for retirees:
- A tax exemption for gifts or inheritances to spouses, descendants, or ascendants.
- No wealth tax and freedom to remit funds either in Portugal or abroad without incurring additional tax.
- A beneficial tax regime for individuals starting self-employment activities in Portugal.
- Favorable tax treatment for pensions and other life insurance products that may reduce your effective tax burden.
Portugal Visa Requirements for Retirement
The transition to Portugal as a Swiss retiree is relatively straightforward. Portugal welcomes Swiss citizens, along with those from the EU/EEA, without requiring a Portugal residency visa. However, to reside in Portugal, you need:
- A Registration Certificate from the Portuguese authorities upon arrival.
- After five years of residency in Portugal, you can apply for a long-term residency with SEF, renewable every ten years.
- Upon completing six years in Portugal, you have the option to apply for Portuguese citizenship.
How Much do I need to Retire in Portugal?
Portugal’s cost of living is notably lower than many European countries. To lead a comfortable retirement, you’d typically require between €1,500-€2,000 per month. This budget considers housing, utilities, healthcare, groceries, and local leisure activities, but will vary depending on your lifestyle choices.
Where is the Best Place to Retire in Portugal?
Deciding where to retire in Portugal largely depends on your personal preferences. The country offers a range of locales, each with its unique charm and lifestyle. For you to have an idea of what are the preferences of the Swiss community in Portugal, here are the top five choices based on stats by the Portuguese Government.
Algarve
If a serene beachside setting is more your style, the Algarve, with its stunning coastlines, golf courses, and relaxed lifestyle, might be the perfect choice.
Lisbon
Portugal’s capital city, Lisbon, offers a blend of cosmopolitan living with rich historical undertones. Here, you’ll find an eclectic mix of modern and classical architecture, vibrant nightlife, and an international community.
Porto and Douro Valley
Wine connoisseurs might be drawn to Porto and the Douro Valley, known for their exquisite wines. Porto was qualified for several consecutive years as the most wanted city for tourism. The city is made up of brilliant architecture, many places to visit and activities to do.
Silver Coast
The Silver Coast is famous for its ancient towns, breath-taking sandy beaches and rugged coastline. Here, you can enjoy everything that traditional Portuguese culture offers and a high standard of living at a more relaxed pace. To escape the hustle of big cities like Lisbon and Porto, this is one of the best alternatives.
Alentejo
Alentejo is a region of Portugal known for its rural and natural landscape, hot and dry climate, wineries, traditional gastronomy, historical and cultural heritage, and the famous Alentejo hospitality. It is also a popular tourist destination, attracting visitors interested in outdoor activities such as walking, cycling and bird watching, as well as enjoying the tranquility and beauty of the region.
Retire in Portugal Made Easy
Portugal truly is a golden retirement destination. Its warm, welcoming climate, captivating culture, and the significantly appealing Non-Habitual Resident (NHR) tax scheme make it a retirement paradise. If you are a Swiss retiree seeking to live your golden years in a place that perfectly balances quality of life and financial efficiency, Portugal should absolutely be at the top of your list.
Allow yourself to relish the Portuguese charm, whilst taking advantage of the country’s favorable tax environment under the NHR scheme.
To be fully advised on property search and taxation matters like retire in Portugal with minimal taxes, we truly recommend you Pearls of Portugal, a reliable buyer’s agent helping Swiss retirees to enjoy the retirement they truly deserve. It’s time to step into a new chapter of life.
Photo by Nick Karvounis auf Unsplash