Why Portugal’s NHR Tax Incentive is Going Away
November 12, 2024
For years, Portugal has offered one of Europe’s most popular tax incentives for non-habitual residents (NHR).
While Portugal’s existing NHR program has ended, this might not spell the end for the country as a tax-friendly location.
The government is in the process of finalising the new NHR 2.0 program, offering alternative tax advantages. This would mean you still have the opportunity to move to Portugal, pay lower taxes and live in the heart of Europe.
This article explores the changes to Portugal’s NHR program you need to know about.
Is NHR Ending in Portugal?
The Portuguese government presented the 2024 State Budget to Parliament, which included a significant change regarding the NHR tax regime in Portugal.
Under the new budget, individuals who became tax residents in Portugal in 2024 will no longer be eligible to register under the NHR tax regime.
In short, this means that yes, the NHR has ended in Portugal.
However, the tax benefits provided by the Portugal NHR Tax Regime will still apply to specific individuals.
This includes those who have:
- Already acquired the NHR status within the designated time frame
Valid residence visas until December 31, 2023.
Establish tax residency in Portugal by December 31, 2023
How Will the Portugal NHR End Impact You?
- NHR status already granted: No implications. NHR status will still be in force for your ten-year period.
- NHR status obtained before the law comes into force: No implications. NHR status will still be in force for your ten-year period.
- NHR application submitted: If you acquired tax residency in Portugal or a residence permit until 31st December 2023, the deadline to request NHR status was 31st March 2024.
- Obtaining tax residence during 2024: Portugal’s original NHR program is not available.
Why is the Portugal NHR Ending?
Portugal’s NHR program gave low rates of tax to those who were non-habitual residents. It was somewhere to pay, not zero, but in the mid-single digits in tax, if you could structure things properly. Unfortunately, all that has changed.
Bowing to political pressure, particularly from left-wing politicians, during an early 2024 television interview, then-Prime Minister Antonio Costa said that it no longer makes sense to continue the NHR regime because ‘maintaining this measure for the future is prolonging a measure of fiscal injustice,’ adding ‘the program is a biased way of inflating the market which has reached unsustainable prices’.
For the same political reasons as the government changed the golden visa scheme, they have ended this special tax status because the Portuguese Communist Party and the left bloc have highlighted the housing crisis and rising inflation. Costs also said that 59% of the people whose NHR status had expired decided to stay in the country.
The housing crisis that has prompted the change is similar to that of other countries like Luxembourg, Ireland and Turkey.
In Portugal, the homeownership rate has fallen by 50% among young people. A nearly 9% surge in real estate prices has left younger people struggling to purchase homes. And like other countries, the issue is generational, as older people drive Portugal’s homeownership rate of 70%.
What is Portugal’s NHR Program?
During the global financial crisis, Portugal was one of the countries that, struggling to refinance its government debt or to bail out banks, had to find a way to bring people into the country.
So, it offered this special tax regime that allowed foreigners who make their money outside the country to have a special deal.
Introduced in 2009, the NHR program is a special tax scheme to attract foreign residents to live and work in Portugal. Unlike its golden visa scheme, which we will cover later, the NHR program was aimed at people who wanted to become tax-resident, thereby establishing residence in Portugal.
In short, the NHR program offered a tax exemption on certain types of foreign source income and lower taxes on income from other high-value activities. A person availing of the scheme could enjoy these benefits for ten consecutive years from becoming a resident.
Portugal’s Golden Visa Program
The golden visa scheme allowed people to pay for immigration status, have very low taxes, live in Portugal, and work towards getting one of the world’s best passports. It was a great opportunity.
Under changes to Portugal’s golden visa scheme, it’s no longer possible to invest in real estate to qualify for the program, and the capital transfer option is also no longer available.
The golden visa and NHR tax incentives are different, though. You can hold a residence permit and work towards citizenship with a golden visa but not be a tax resident.
The NHR is for people who want to be tax-resident in Portugal and live there most of the time and use it as a tax-friendly country.
Tax Advantages of the NHR Scheme
For expats considering a move to Portugal, the NHR program offered several tax advantages:
- Income from employment outside Portugal, taxed elsewhere, is tax-free in Portugal
- A flat rate of 10% is applied to retirement and pension income
- Income derived from rather than from tangible goods or products deemed high value-added is exempt from Portuguese tax
- Passive income from foreign assets, like property, dividends, royalties, and capital gains, may also be tax-exempt in Portugal.
What is Portugal’s NHR 2.0?
As Portugal’s NHR program has come to an end, NHR 2.0 is a term we’re using to describe potential future tax schemes in Portugal that may replace the NHR program.
While the Portuguese government has not officially introduced a direct replacement, discussions suggest that any new tax regime would likely offer fewer tax benefits than the original NHR program.
This change reflects the government’s desire to address concerns over housing market inflation and perceived fiscal inequality caused by the NHR’s tax advantages.
NHR 2.0, if implemented, could include more modest incentives to attract foreign residents while balancing the needs of the local economy and housing market.
Unlike the NHR, which offered extensive tax exemptions on foreign income, a new version might tighten these benefits, particularly for passive or high-income earners.
Portugal’s NHR is Ending: FAQs
No, as of January 2024, you can no longer apply for the NHR in Portugal.
The NHR program ended for new applicants as of 2024, though those who qualified by December 31, 2023, can still benefit from it for up to 10 years. There may be a new tax regime, called NHR 2.0, coming in to replace the old program. Watch this space for updates.
There is no official replacement yet, but potential alternatives, such as a new tax regime, may be introduced. However, we’re expecting fewer benefits than the NHR.
‘NHR 2.0’ refers to the potential new tax scheme that will replace the NHR. It is aimed at attracting and retaining highly qualified professionals, innovators and entrepreneurs and will likely offer fewer tax incentives than its predecessor.
Are There Still Opportunities Elsewhere?
Anyone who’s thinking about relocating to Portugal should not hesitate. While the NHR program has come to an end, there is an NHR 2.0 on the horizon. This could still mean some tax advantages for living in Portugal.
This makes sense if you’re looking for a tax-friendly place but are not willing to go to Dubai, Panama, Kuala Lumpur or Uruguay.
It’s for people who want to go to the heart of Europe. If you want to live in Portugal, the benefit is that you don’t even have to get a Golden Visa; there are much more affordable residence permits you can get, which you can couple with the NHR program to drastically reduce your taxes.
You can talk to us now about the prospects of getting that; there may be alternatives worth considering. If you already have NHR status, you’re okay, but if you want to live in Europe, there may be better deals. Places like Italy and Greece and tax-friendly countries like Cyprus, Malta, and Ireland may be worth considering.
The bottom line is that you must quickly move on all your options. If you’re considering moving to Portugal, talk to us at Nomad Capitalist. You may want to live in Portugal, and while the immigration options won’t be going away, it appears some of the tax-friendliness is.
Let’s discuss all the possible options, depending on your situation. To find out more, get in touch here.
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