Complete Beginner’s Guide to PT Taxes on Your Non-PT Wages with NHR 1.x

Intro

Look, dealing with bureaucracy is tough, and tax rules can be a nightmare—especially when you’re moving to a new country. When I first moved to Portugal with NHR 1.x status, I had no clue how my UK wages would be taxed. Would Portugal take a cut even though my income was already taxed at source in the UK? After hours of forum searching and talking to tax professionals, I discovered there’s a lot of conflicting information out there. This guide breaks down exactly what happens to your non-Portuguese wages when you have NHR 1.x status.

Step-by-Step Guide to Understanding NHR and Non-PT Wages

Step 1: Understand Your Tax Residency Status

The first thing you need to determine is your tax residency. This is crucial because it determines where you file taxes and what income gets taxed where. Here’s what I learned:

• If you’re physically in Portugal for more than 183 days in a calendar year, you’re likely considered a Portuguese tax resident
• If you’re in Portugal for less than 183 days, you might still be considered a tax resident if you have a permanent home available to you in Portugal
• Your tax residency determines which country has the primary right to tax your worldwide income

Step 2: Know Your NHR Status

NHR 1.x (the old version) has different rules than the new NHR 2.0. With NHR 1.x:

• You get a 10-year tax holiday on most Portuguese-sourced income
• Foreign-sourced income may be exempt if it meets certain conditions
• The key is whether the income is already taxed at source in another country

Step 3: Determine Where Your Work is Performed

This was a game-changer for me. The location where you physically perform your work matters tremendously:

• If you work in an office in London for a UK company, that’s UK-sourced income
• If you work remotely for a UK company while in Portugal, that might be considered Portuguese-sourced income
• The physical location of work performance often determines the source of income for tax purposes

Step 4: Apply the Double Taxation Agreement (DTA)

Portugal has DTAs with many countries, including the UK. These agreements prevent you from being taxed twice on the same income. Here’s how it works:

• The country where the income is sourced (the UK in my case) gets first taxing rights
• Portugal will typically give you a foreign tax credit for taxes paid in the UK
• If the UK tax rate is lower than Portugal’s, you might owe the difference in Portugal

Costs/Fees to Consider

Based on my research and experience, here are the potential costs:

• UK income tax rates: 20-45% depending on your income bracket
• Portuguese tax rates: 14.5-48% for employment income
• Potential difference: If UK taxes at 40% and Portugal’s rate is 48%, you might owe 8% to Portugal
• Tax advisor fees: €300-€1000 for proper tax filing guidance

Requirements for NHR 1.x with Non-PT Wages

To qualify for the benefits I’m describing, you need:

• NHR 1.x status (not the new NHR 2.0)
• Tax residency in Portugal (even if you spend less than 183 days there)
• Non-Portuguese sourced income that’s already taxed at source
• A valid tax residence certificate from Portugal

Common Mistakes to Avoid

Here are the mistakes I almost made and what I learned:

Mistake 1: Assuming All Foreign Income is Tax-Free

Not all foreign income qualifies for NHR benefits. The income must be:

• Already taxed at source in another country
• From a country with a DTA with Portugal
• Not from illegal activities or certain blacklisted jurisdictions

Mistake 2: Not Understanding the “High-Value Occupation” Rule

This confused me for weeks. The “high-value occupation” criteria applies to your PORTUGUESE-sourced income, not your foreign-sourced income. If you have a job in Portugal, that income needs to be in a qualifying profession (like IT, engineering, medical, etc.) to get the 20% flat rate.

Mistake 3: Thinking Physical Presence Doesn’t Matter

While NHR doesn’t require you to live in Portugal full-time, your physical presence does affect your tax situation. If you’re working in the UK office, that’s clearly UK-sourced income. But if you start working remotely from Portugal, that could change everything.

Mistake 4: Ignoring Spanish Tax Authorities

If you’re coming from Spain, be aware that Spanish tax authorities are increasingly scrutinizing people who move to Portugal for tax purposes. They may consider you a Spanish tax resident if you haven’t properly established Portuguese tax residency.

Real-Life Experience from the Forums

Here’s what actual people with NHR 1.x experienced:

@mikemuks62 shared that while showing as tax resident in Portugal, he had to show worldwide income in his Portuguese tax returns but only his rental income in Portugal was actually taxed, since he lived more than 6 months outside Portugal.

@tommigun confirmed that non-PT employment income is exempt from Portuguese taxation under NHR if it’s already taxed at source. The “high-value occupation” criteria only applies to your PT-based income.

My situation is similar: I work in an office in London, so my income is clearly UK-sourced and taxed at source. With NHR 1.x, Portugal doesn’t tax this income because it’s already been taxed in the UK.

Special Considerations for UK Income

If you have UK-sourced income like I do, here are some specific things to know:

• The UK/Portugal DTA is quite clear about taxing rights
• UK income tax is generally higher than Portuguese rates for most income levels
• You’ll need to file a Portuguese tax return even if no tax is due
• Keep documentation of UK tax paid for your Portuguese filing

Conclusion

After all my research and confusion, here’s the bottom line: If you have NHR 1.x status and earn non-Portuguese wages that are already taxed at source in a country with a DTA with Portugal, Portugal will NOT tax that income. The “high-value occupation” rule only applies to income you earn from working in Portugal.

This was a huge relief for me, as it means I can keep working my UK job while enjoying the benefits of living in Portugal without facing double taxation. Just remember to file your Portuguese tax return annually and keep good records of where your income comes from and where it’s taxed.

The key is understanding that NHR 1.x is designed to attract foreign income to Portugal, not to tax income that’s already been taxed elsewhere. As long as you meet the requirements and your income is properly sourced, you should be in good shape.