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The Portuguese Non Habitual Residency (NHR) Tax Scheme

Correct as of March 2024, reading time: 5 minutes

The Non-Habitual Resident Scheme, better known as the NHR, was originally introduced in Portugal in 2009. Expatriates from around the world have relocated to Portugal to take advantage of the NHR regime, with significant benefits such as reduced income tax liabilities for up to ten years.

In November 2023, the then Portuguese Prime Minister, António Costa, announced that the NHR tax scheme was closing to new applicants in 2024. Since then, parliament has assembled and voted for the abolishment of the scheme. However, there will be a transitional period in 2024 for expats who can provide evidence that they had pre-existing plans to relocate to Portugal and apply to the NHR scheme.

Table of Contents

What Is the Portuguese NHR Tax Scheme?

The Portuguese NHR is a tax status that allows new foreign national residents to access favourable tax treatments. Expats applying for NHR benefits must already have the legal right to live in Portugal.

Popular with affluent foreign nationals and retirees, NHR applicants must either receive pension income or demonstrate they carry out a ‘high value’ profession. They must not have lived in Portugal as a tax resident within the last five years.

Tax incentives include:

  • A special rate of 20% applicable to employment income and professional and business income, from Portuguese source, earned for high added-value activities;
  • A special rate of 10% applicable to pensions;
  • Exemption for foreign source income provided that certain conditions are met: Dividends, royalties, interest or rental income;
  • Salary obtained abroad: exempt if effectively taxed in the source State.

 

Portuguese NHR status lasts for ten years and provides a number of considerable tax advantages with very few ongoing criteria.

What Has Happened to the Portuguese NHR Tax Scheme?

Costa announced that the special taxation treatment will end in 2024, although those who already have NHR status will retain their position until they reach ten years of residency. These comments were confirmed in the Portuguese government’s draft State Budget but were thrown into doubt when Costa resigned abruptly during an investigation into alleged corruption.

He stated that until 2019, around 59% of NHR applicants had decided to remain in Portugal indefinitely after ten years of reduced taxation. The context seems to be that a growing number of expatriates apply for NHR status and then relocate elsewhere – without making long-term contributions to the Portuguese economy.

While a snap election is scheduled for March 2024, the Portuguese parliament had agreed to vote on the State Budget before being disbanded and upheld the proposal on 29th November.

What Does this Mean for Those Who Are in the Process of Moving to Portugal?

Anyone who already has NHR status is not affected – you will continue to receive the tax benefits until your 10-year period is up, the same as it was before.   If you only applied in 2023, you still have another nine years.

And, in a welcome move, it was confirmed that anyone who began the process of moving to Portugal in 2023 can apply for NHR status until the end of 2024.

There are strict conditions for qualifying for this grace period for any taxpayer who becomes a resident for tax purposes by 31 December 2024 and who declares having any of the following for the purposes of his/her registration as a non-habitual resident:

A promissory employment or an employment contract, a promissory secondment agreement or a secondment agreement concluded prior to 31 December 2023, where the performance of the duties is to take place in Portugal;

A lease agreement or other agreement granting the use or possession of a property located in Portugal, concluded prior to 10 October 2023;
A reservation form or a promissory purchase and sale agreement for the acquisition of rights in rem over a property located in Portugal, concluded prior to 10 October 2023;
An enrolment or registration for their dependents, in a school located in Portugal, completed by 10 October 2023;
A residence visa or a residence permit valid until 31 December 2023;

A residence visa or residence permit application, submitted to the competent authorities by 31 December 2023, in accordance with the applicable immigration legislation in force, i.e., an appointment request or an actual appointment for submission of the residence visa or residence permit application, or the submission of a residence visa or residence permit application.

Who Else is Eligible?

Any taxpayer who is already registered as a non-habitual resident in the AT [Portuguese Tax Authority] taxpayer register, by the date of entry into force of this law, provided the period has not yet elapsed;

Any taxpayer who meets, by 31 December 2023, the conditions set out in Article 16 of the Personal Income Tax Code to qualify as a Portuguese resident for tax purposes;

Any taxpayer who is a family member of any of the taxpayers referred to in the preceding information.

It is worth noting that to benefit from the NHR tax regime, applicants must be tax resident in Portugal and not have been tax resident in Portugal in any of the five years prior to the year in which they became resident.

Replacement regime for skilled professionals

The NHR will be replaced by a new regime, but this is focused on employment and does not benefit retired people.

It aims to attract foreign talent and investment to Portugal and applies to people who are employed/self-employed in roles such as higher education teachers, scientific research, technology, and startups. As before, you cannot have been resident in Portugal in the preceding five years and your status will last ten years.

If you qualify, you will benefit from a 20% flat tax rate on employment/self-employment income, and an exemption for foreign income, such as employment income, rent, dividends etc.

Tax and financial planning for Portugal

While these changes emphasise the need for professional advice to benefit fully from all of Portugal’s tax advantages, the attraction to live there remains as strong as ever.

If you are retired or approaching retirement, taking a long-term view will pay dividends.  Legitimate tax planning, wealth management, and succession planning should be based on sound legal and tax principles and not rely on short-term tax breaks and incentives.

Consider how long you expect to live in Portugal, where your assets are, and also where your heirs will live.  Then, take specialist cross-border advice on setting up a strategic financial plan to suit your circumstances, needs, objectives, time horizon, and estate planning wishes.

To discuss your specific needs, as it relates to your plans to become a citizen and resident of Portugal contact SunCap Visa to take advantage of our wealth of knowledge, experience and network of specialist local partners.