For years, Portugal has offered one of Europe’s most popular tax incentives called the NHR program for non-habitual residents.
While Portugal’s NHR program may end, the window is still open for you to act now. There are still opportunities 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.
Nomad Capitalist is a turnkey solution for offshore tax planning, dual citizenship, asset protection, and global diversification. You can find out more here.
Changes to Portugal’s NHR Program
The Portuguese government presented the 2024 State Budget to Parliament, which includes a significant change regarding the NHR tax regime in Portugal. Under the new budget, individuals who become tax residents in Portugal in 2024 will no longer be eligible to register under the NHR tax regime.
However, the tax benefits provided by the Portugal NHR Tax Regime will still apply to specific individuals. This includes taxable persons who have already acquired the NHR status within the designated time frame, those who establish tax residency in Portugal by December 31, 2023, and those with valid residence visas until December 31, 2023.
Those aiming to become tax residents in Portugal by December 31 can apply for the NHR until March 31, 2024.
How will the change 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 have acquired tax residency in Portugal or a residence permit until 31st December 2023, the deadline to request NHR status is 31st March 2024.
- Obtaining tax residence during 2024: Portugal’s NHR program is not available.
Why Is The Change Happening?
The 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 – all that is about to change.
Bowing to political pressure, particularly from left-wing politicians, during a recent television interview, 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 are ending 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 their government debt or to bail out banks, had to find a way to bring people into the country. So, they 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 offers 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 ex-pats considering a move to Portugal, the NHR program offers 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.
How to Qualify for the NHR Scheme
To qualify for the NHR scheme, you must establish your tax residency there by spending more than 183 days in Portugal within 12 months or having a permanent residence there.
You must not have been a Portuguese tax resident in the five years preceding your application.
Non-EU nationals must obtain a residence permit to be eligible. Your application made online via the tax authorities website, can be submitted up to the 31st of March in the tax year you acquire residence.
When Will Portugal’s NHR Program End?
Portugal’s Government proposed to end the NHR scheme in its current format in the 2024 Budget Bill. For new applications, the regime will cease from 1 January 2024 onwards.
The NHR program is unchanged for people who already benefit from it. Transitional measures will allow the NHR to continue to apply.
- Those who benefit from the NHR program before 1 January 2024 can do so until the end of their 10-year period.
- Those who meet the NHR conditions on 31 December 2023 and hold a valid residence permit must apply before 31 March 2024 to benefit from it.
Conclusion
Anyone who’s thinking about relocating to Portugal should not hesitate. It’s essential to take action as soon as possible. If you still want to be eligible for the NHR Regime, you must move your tax residency to Portugal before December 31, 2023, and submit the NHR application as soon as possible.
Though the scheme will end, there is still some time to move to Portugal. This is not about getting a Golden Visa, keeping it in your back pocket, and spending minimal time in the country. 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.
This is an ongoing discussion; we understand that Portugal’s NHR will only change after 2024, so there is still time as we go through the legal process and possibly maneuvers by the authorities to keep some of the incentives.
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 the immigration options won’t be going away, but it appears the tax-friendliness will.
Let’s discuss all the possible options, depending on your situation. You must move quickly if you want to get grandfathered into Portugal’s NHR program. To find out more, get in touch here.
