Changes to Portugal’s Non-Habitual Residents Tax Regime
On October 2nd, the Prime Minister made a significant announcement regarding Portugal’s Non-Habitual Residents (NHR) tax regime. There are plans to terminate this tax scheme in 2024. While specific details are currently limited, it’s crucial to note that these changes to the Portugal’s Non-Habitual Residents Tax Regime will not impact existing NHR holders.
The comprehensive changes are expected to be unveiled in the State Budget for 2024, which will be released in the upcoming weeks. If you are contemplating applying for the NHR scheme or are in the process of relocating to Portugal, we strongly recommend taking swift action. Ensure that you update your tax status as soon as possible and submit your NHR application before the year’s end to secure the tax benefits for a period of 10 years.
Given the pivotal role of taxation in any relocation decision, seeking legal advice is a prudent step. Mostly when changes to the Portugal’s Non-Habitual Residents Tax Regime are being discussed.
While EU citizens can expect a smooth process, it is important to be aware that non-EU citizens will need to initiate the Immigration process to register as Tax Residents in Portugal and apply for the NHR tax regime. Therefore, meticulous Immigration planning becomes paramount.
Keep in mind that the NHR tax regime stands as the sole individual tax benefit program available in Portugal. It can be used in conjunction with various types of residence visas when the applicant intends to reside in the country.
Additionally, there is an abundance of misleading information circulating, particularly concerning a purported “digital nomads” or “remote work” tax regime linked to specific visas. It’s imperative to clarify that this information is inaccurate. Digital nomads will be subject to Portugal’s general tax regulations for residents if they do not apply for NHR tax status.
Our dedicated team is committed to ensuring the success of all applications scheduled for completion by the year’s end. We remain vigilant in staying updated with any new information that may arise.
NON-HABITUAL RESIDENTS (NHR)In 2009, Portugal introduced a tax regime for “Non-Habitual Residents” (NHR), with the aim of persuading highly qualified professionals, pensioners and high net worth individuals to live in the country, offering special tax conditions for specific types of income. The tax benefits of the NHR special tax regime are defined by type of income and consist of potential tax exemptions or reduced rates for a period of 10 years.
BENEFITS OF NHR STATUSThe benefits of NHR status depend on the requirements set out in Portuguese law. Most depend on the specific taxation rules determined in the double taxation agreements signed by Portugal and are related to tax exemptions, royalties, dividends and interest, capital gains from the sale of securities, real estate income and pension income.
Tax exemption
Tax exemption in Portugal for income from employed work should be applied to income from a foreign source effectively taxed at source (considered the country of source of the income under the Portuguese rules and double tax agreement rules), regardless of the rate and whether the country of origin is a country or territory subject to more favourable taxation arrangements, when considered obtained outside Portugal, under Portuguese law. It may be necessary to analyse the applicable Social Security rules, in particular when working remotely.
The tax exemption in Portugal for income from self-employment should apply to income considered to be from foreign sources in accordance with Portuguese legislation, provided that it is related to a high value added activity and provided that it can be taxed at source under a double taxation agreement or, in the absence of the latter, under the OECD model tax convention, namely because they are obtained through the fixed establishment of the natural person in the other country. When the country of origin is included on the Portuguese list of countries, territories or regions with privileged and more favourable tax arrangements, the NHR tax benefits may not be applicable.
When the conditions for exemption are not met, or when the income is considered earned in Portugal, under the terms of national law, income from employed and self-employed work may be taxed at a fixed rate of 20%, if derived from an eligible professional occupation.
Royalties, Dividends and Interest / Capital Gains on the Sale of Securities / Real Estate Income and Capital Gains
The tax exemption should apply to income deemed to be of foreign origin that may be taxed at source under a DTA or under the rules of the OECD model convention. When the country of origin is included on the Portuguese list of countries, territories or regions with privileged and more favourable tax arrangements, the NHR tax benefits may not apply, and the income may be subject to an increased tax rate in Portugal.
Pension income
Taxation at a reduced tax rate of 10% shall apply to pension income that is not considered earned in Portugal, in accordance with national law. The same taxation rules may apply to pre-retirement income, income from pension funds and retirement savings funds, advance payments or principal repayments, and a case-by-case analysis is advisable.
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