In Portugal, holding the Non-Habitual Resident (NHR) status can offer significant tax advantages for freelancers and self-employed professionals. However, to fully benefit from the tax reductions linked to this status, there are certain stipulations related to the nature of your professional activity. In this article, we will unravel the concept of high value-added activities, how to determine if your profession qualifies, and how to inform and provide evidence of your professional status to the Portuguese Tax Authority.
The Importance of High Value-Added Activities
While holding the NHR status is a significant step towards tax advantages, it’s merely a starting point. If you render a freelancer service, the crux lies in ensuring that the professional activity you perform is categorized as a high value-added activity under Portuguese legislation. Only by fulfilling this criteria can you genuinely capitalize on the NHR’s tax benefits (20% flat tax rate).
Identifying High Value-Added Activities
The specific activities that are recognized as high value-added are clearly detailed in the Annex to Ordinance No. 12/2010, amended by Ordinance No. 230/2019. This list encompasses a broad spectrum of professions such as developers, doctors, journalists, engineers, and more.
If your profession is featured on this list, you’ll need to utilize its specific code when filing your annual Tax Return. This step is pivotal for ensuring you get the tax benefits associated with your NHR status for that professional activity.
Navigating the Tax Process
Interestingly, the process has been streamlined over the years. Currently, there’s no prerequisite for gaining approval from the Tax Authority before claiming high value-added activity status. Instead, you simply have to indicate your high value-added activity code when submitting your annual Tax Return.
However, while the process might seem straightforward, it’s crucial to be proactive. The Tax Authority holds the discretion to seek evidence or further clarification regarding your professional activity. As outlined in article 128 of the Portuguese Personal Income Tax Code, should such a request arise, you’re mandated to respond within a 15 days deadline.
The Nuance of Codes
It’s essential to recognize that the code you use when initiating your freelancer activity (when you open your formal freelancer on the Tax Authority online portal) differs from the high value-added activity code. These codes stem from separate legislative references. When filing your annual Tax Return (typically from April to June for the income acquired in the preceding year), you must accurately report your High Value-Added activity (HVA) to the tax authorities, making sure to utilize the correct HVA code.
Ensuring Transparency and Compliance
To maintain the integrity of your NHR benefits, it’s paramount to ensure clarity and transparency in your professional dealings. Specifically:
- Documentation: Ensure that all invoices and contracts with clients clearly reflect the nature of your high value-added activity.
- Expertise and Background: Portuguese legislation emphasizes that to qualify, individuals should either have a substantial duration of experience in the activity or possess academic credentials that validate their expertise.
By meticulously adhering to these guidelines, you not only ensure compliance but also cement your position to leverage the full spectrum of NHR tax benefits.
Customized Assessment and Expert Guidance
Given the intricate nuances and potential implications, a one-size-fits-all approach doesn’t suffice. Each individual’s situation can vary, warranting a personalized evaluation.
For those unsure about their standing or seeking clarity, our explore.tax team offers dedicated video consultations. This personalized assessment can be invaluable in determining your eligibility in line with Portuguese legislation.
Furthermore, if you’re in need of assistance with your invoices or contracts, our team can meticulously assess, draft, or amend the necessary clauses to mitigate tax risks and ensure compliance.
In Conclusion
In the realm of freelancing and self-employment in Portugal, the NHR status presents a tantalizing proposition. However, to truly harness its benefits, understanding and adhering to the guidelines related to high value-added activities is crucial. With diligence, transparency, and the right guidance, professionals can navigate this landscape efficiently, ensuring they enjoy the tax advantages while remaining compliant with the nation’s law.
