Introduction to the NHR Regime
Portugal’s non-habitual resident (NHR) tax regime has long been a popular choice for individuals looking to benefit from favourable tax incentives. However, recent developments have led to significant changes in the regime, with the Portuguese Parliament approving the end of the NHR regime shortly.
The End of the NHR Regime
Effective 1 January 2024, the NHR regime will no longer be available for new residents. This means that individuals not registered as NHR residents before this date will no longer be eligible for the regime. However, it’s important to note that the existing NHR regime will continue to apply to individuals registered as NHR residents until the end of the ten years set out in the law.
Grandfathering Provision for Existing NHR Residents
A grandfathering rule has been implemented to protect individuals already registered as NHR residents. Suppose you are officially registered as a tax resident in Portugal and have applied for NHR before 31 December 2023. In that case, you will continue to enjoy the benefits of the existing NHR regime until the end of the ten years. For example, if you registered as an NHR resident in 2020, you will be unaffected by the end of the NHR regime and can continue to apply the existing NHR rules until 31 December 2029.
Special Grandfathering Regime for New Arrivals
For individuals who comply with the following criteria, there is a special NHR grandfathering rule in place, i.e. meaning that they can secure NHR status under old rules by applying for said status until December 31, 2024:
- Having a promissory employment agreement or secondment agreement signed by 31 December 2023 to work in Portugal.
- Having a lease agreement or other agreement granting the use or possession of property in Portugal concluded before 10 October 2023.
- Having a reservation or promissory contract for property acquisition in Portugal concluded before 10 October 2023.
- Enrolling dependents at a Portuguese educational establishment by 10 October 2023.
- Having a valid residence visa or residence permit by 31 December 2023.
- Initiating a procedure for granting a residence visa or residence permit by 31 December 2023, per current immigration legislation.
It’s important to note that this special grandfathering rule also applies to individuals who are members of the household of taxpayers covered by the conditions mentioned above. For example, suppose you have a promissory employment agreement signed with a Portuguese company to start working in Portugal in 2024. In that case, you can register as a tax resident under the NHR regime and benefit from the special grandfathering rule.
The New NHR (aka NHR 2.0): Tax Incentive for Scientific Research and Innovation
In addition to the changes to the NHR regime, a new tax incentive for scientific research and innovation has been introduced for individuals relocating to Portugal from 1 January 2024 onwards. To be eligible for this incentive, individuals must meet on of the the criteria below:
- Hold a job position or carry out other activity as a tax resident in the Autonomous Regions of Madeira and the Azores under terms to be defined by regional decree.
- Teaching in higher education and scientific research, including scientific employment in entities, structures, and networks within the national science and technology system, as well as jobs and members of governing bodies in entities recognized as technology and innovation centres.
- Qualified jobs and members of the governing bodies of entities fall within the scope of contractual benefits towards productive investment, as defined in Chapter II of the Portuguese Investment Tax Code.
- Highly qualified professions, as defined by a Ministerial Decree, in companies with relevant applications in the year of starting work or the prior five years that benefit or have benefited from the Tax regime for investment promotion (RFAI) or in industrial and service companies (with activities in areas to be defined by Ministerial Decree) that export at least 50% of their turnover in the year of starting work or the prior two years.
- Other qualified job positions and members of the governing bodies of entities engaged in economic activities recognized by AICEP or IAPMEI (investment public agencies) as relevant to the national economy, particularly in attracting productive investment and reducing regional asymmetries.
- Research and development personnel, with costs eligible for the R&D tax incentive system, as outlined in the Investment Tax Code.
- Job positions and members of the governing bodies of entities certified as start-ups under the Portuguese Start-Up Law.
Taxpayers meeting the requirements as new tax residents from 2024 onwards and falling within any of the positions listed above may be subject to a special tax rate of 20% on employment or entrepreneurial income earned within the scope of the said activities for ten consecutive years. To be eligible for this regime, taxpayers must continue to earn active income, with a maximum interim period of 6 months between eligible activities or jobs.
Under the current proposal, eligible taxpayers will be exempt from foreign income tax in several categories, including employment income performed abroad, self-employment income performed abroad, foreign rental income, and capital gains on foreign-based assets. However, it’s important to note that this exemption does not include pension income. Furthermore, certain items of income derived from sources in blacklisted jurisdictions will be subject to a flat 35% tax rate.
A Ministerial Decree will regulate the registration of beneficiaries with entities and communication with the tax authorities. Until the approval of such a decree, the activities qualifying as “high added value activities” will be the ones currently applicable for the NHR regime, and the registration of beneficiaries will be made directly with the tax authorities, as in the NHR regime. Understanding that this special regime can only be utilized once is crucial. It is not available for taxpayers who have already benefited from the NHR regime or have opted for partial exemption under a special regime for former residents.
Former Residents Tax Regime
For former Portuguese tax residents who become residents again between 2024 and 2026, a 50% relief capped at EUR 250,000 of employment and business income is available. This regime applies only to former tax residents who have not been tax residents in Portugal in the five years preceding their application. The relief applies for a period of five years and cannot be combined with any other special regime.
The new NHR regime in Portugal, set to take effect in 2024, significantly changes the tax benefits available to individuals relocating to the country. While the current NHR regime will end, grandfathering provisions will ensure a smooth transition for existing NHRs. The new tax incentive for scientific research and innovation also aims to attract individuals engaged in these activities.
It is essential to consult with legal and tax professionals to understand how these changes may impact your circumstances and determine the best course of action. You can make well-informed decisions regarding your tax residency and financial planning in Portugal by staying informed and seeking professional advice.
Disclaimer: This article provides general information and should not replace personalized advice from tax professionals. The content is based on the available information at the time of writing and is subject to change. Please consult with professionals for advice tailored to your specific circumstances.
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