Will Portugal Terminate its NHR Regime?
written by: Pedro Marques Monteiro — Portugal Immigration Lawyer
The proposal for the State Budget of 2024 presented to Parliament by the Portuguese Government, puts an end to the Non-Habitual Resident (NHR) regime starting from January 2024.
The NHR regime came into effect in 2009 in the midst of the Portuguese financial crisis with the purpose of bringing high network individuals to reside in Portugal. It has been a major success across the expat community with over 77.000 citizens currently benefiting from it. To do so, individuals, regardless of their nationality, need to:
- (i) become tax residents in Portugal and:
- (ii) have not been tax residents in Portugal in any of the previous 5 years.
The Benefits of the NHR Regime
NHR regime beneficiaries get:
- Exemption from income tax in Portugal on certain types of foreign income; and
- Reduced 20% flat personal income tax rate on active income (even if from Portuguese source).
The program is valid for 10 years.
Proposal to Cancel
Despite its success, and catalyzed the Portuguese housing crisis, the Portuguese government announced their intention to terminate the program. However, it will continue to be applicable to individuals who have already registered as NHR to maintain their status for the 10 year period. Those who meet the access conditions can take advantage of the regime until the 31st of December 2023. Conditions are holding a valid residency visa (not residency card) at that time, and submitted the NHR registration process by the 31st of March 2024.
New Special Tax Incentive
Simultaneously, the proposal includes the creation of a new special tax incentive for Scientific Research and Innovation. This regime will apply to individuals who become tax residents and have not resided in Portugal during the previous five years and fall into the following categories:
- Academic and scientific research roles, including roles in entities, institutions, and networks dedicated to the generation, dissemination, and transmission of knowledge, integrated within the national science and technology framework;
- Specialized positions within the framework of contractual incentives for productive investments, as outlined in Chapter II of the Fiscal Investment Code;
- Roles in research and development, primarily targeted at individuals holding a Ph.D. qualification.
Individuals seeking to avail themselves of these benefits must register with the Fundação para a Ciência e Tecnologia, I.P., the Agência para o Investimento e Comércio Externo de Portugal, E.P.E., and the Agência Nacional de Inovação, S.A., as applicable and will be able to benefit from similar benefits as the NHR holders.
Other Tax Incentives
In addition, a new tax incentive is introduced for individuals who become Portuguese tax residents starting January 1, 2024 (without having held this status in any of the previous 5 years). They will be granted a 50% personal income tax exemption for employment and freelance income for 5 years, regardless of their field of expertise. However, this exemption is capped at 250,000 EUR annually, with income exceeding this threshold subject to regular tax rates.
It is also worth mentioning that Portugal has other tax advantages, such as the absence of general wealth or inheritance taxes and a crypto-friendly tax environment, combined with specific tax regimes, that will remain unchanged.
Where the Proposal Stands Now
Even though the proposal still needs to be discussed and voted, the fact that the ruling government holds majority of the seats makes it very unlikely for the program to continue unchanged. However, there have been several specialized newspapers announcing that the government is considering the creation of a transitional regime, applicable to immigrants with pending visa/residence permit applications, who would be at risk of not being able to apply for the NHR tax regime within the deadline. More updates on this are expected in the future.
Find Out More
Navigating taxes overseas can be tricky business. Especially in ever-changing tax and immigration environments. It’s highly recommended to consult with a professional. For more information, please contact our trusted partner at arp@legalsquare.eu
