Canadian couple relocating to Lisbon — NHR election secured in year one

The situation

Our clients were a married Canadian couple who retired and relocated to Lisbon in February 2023. Both had Canadian pension income and one held a portfolio of income-producing investments. They also retained a rental property in Toronto. They were referred to us by their Canadian accountant approximately five weeks after their arrival in Portugal.

The challenge

Portugal's Non-Habitual Resident regime offers individuals who have not been tax-resident in Portugal during the previous five years a flat rate of 10% on qualifying foreign-source income for ten years. For a couple with material Canadian pension income, this represented a significant benefit compared with standard Portuguese progressive rates, which reach 48%. The critical constraint is timing: the NHR election must be made in the same calendar year in which the individual first establishes Portuguese tax residency. An application made in 2024 for a 2023 arrival would not be accepted.

Our approach

We engaged a Portuguese registered tax adviser in our network immediately. The adviser confirmed eligibility, registered the clients' Portuguese tax numbers, and submitted both NHR applications within the required timeframe. Both were accepted.

We coordinated with the Canadian accountant on the ongoing reporting requirements. Canadian pension income is taxed in Canada at source; the Canada-Portugal double tax treaty provides for credit relief in Portugal, with the NHR rate of 10% applying to the net amount. The Toronto rental property continues to be declared and taxed in Canada with the Portuguese credit applied.

The outcome

Both NHR registrations were secured. The clients benefit from the 10% rate on qualifying Canadian income for a ten-year period. Their annual tax position in both Portugal and Canada is managed by the respective registered advisers, coordinated through our office. The difference between the NHR rate and the standard Portuguese progressive rate, applied to their combined income over ten years, is material.