The recent announcement of the Prime Minister of Portugal suggests the termination of the tax regime for non-habitual residents (“NHR”). Official details remain pending, but insights from our partner law firm in Portugal provide some details on potential developments.
Based on this announcement, the following changes are to be expected:
- Existing NHR Status Holders. Those who already hold NHR status will retain its benefits until the end of the program's 10-year period
- Eligibility Cut-off. Individuals who become tax residents in Portugal by 31 December 2023 will still be eligible for the NHR regime. However, those who establish residency after 1 January 2024 might not qualify for NHR status
Further official details and clarifications are expected by 10 October 2023, when the Government of Portugal presents its state budget proposal. We will be monitoring these developments and will provide updates.
WHAT THIS MEANS
This evolving landscape may have consequential effects for individuals with plans to secure a NHR status in Portugal. Those considering applying must reassess their timelines. Given the narrowing window, securing this status could become challenging and even unattainable, depending on individual circumstances. Collaborating closely with our Portuguese associates, our team is dedicated to guiding you through this transition and striving to achieve the desired outcomes.
BACKGROUND: NON-HABITUAL RESIDENCE REGIME IN PORTUGAL
The key features of the current NHR regime based on publicly available information:
- Special Tax Rate. Individuals under the NHR regime engaged in “high-value-adding activities of scientific, artistic or technical nature” have their qualified Portuguese-source employment and self-employment income taxed at a special 20% rate. This encompasses professions such as architects, doctors, engineers, artists, managers, self-employed, technicians and others.
- Exemptions for Foreign-source Income. The regime offers tax exemptions on various foreign-source incomes, including employment income, rental income, dividends, and others, provided it can be taxed in the source state under a double tax treaty or has been effectively taxed in a non-blacklisted jurisdiction.
- Pensions. Historically, pensions from foreign sources were tax-exempt under the NHR regime. However, as of 2020, such pensions are subject to a flat rate of 10%.
- Eligibility and Duration. The NHR regime can be applied for individuals becoming tax residents in Portugal, provided they have not been tax residents in the country in the previous five years. The regime's benefits last for 10 consecutive years.
Should you need more information, please feel free to contact Asters' Senior Associate Pavlo Shovak and Associate Olena Mitskan.