December 13, 2023

End of an era for Non-Habitual Tax Regime

Portugal

At the beginning of October, Portugal’s Prime Minister António Costa, announced that the Non-Habitual Tax Regime would be ending by 2024. After weeks of uncertainty, the Portuguese government confirmed the NHR tax regime will continue until the end of 2024 – but only to those who have already started their application.

Non-Habitual Residence (NHR) status in Portugal refers to the process whereby individuals can establish their tax residency in the country and granting them significant tax advantages for a period of ten years. The foreign income could benefit from a full tax exemption (eg, dividends, bank interests, old pensions) or being taxed at a flat rate of 10% (new pensions) or 20% (high value activities). The NHR status was first introduced by the Portuguese government in 2009 with the goal of enhancing the country’s global competitiveness by attracting individual of high cultural and economic growth.

The following are the main features of the Non-Habitual Resident Programme:

  • Tax Exemption on Foreign-Sourced Income: One of the main benefits of the NHR programme is the tax exemption on various types of foreign-sourced income. This includes dividends, interest, and rents, allowing non-residents to benefit from preferential tax treatment on income earned outside of Portugal.

  • Benefits Duration: Under the current NHR regime, beneficiaries are entitled to the statutory tax benefits for a duration of ten years. This has been a key component in the program's popularity, providing a decade-long window of favourable fiscal treatment.

  • Qualifying conditions: To qualify for NHR status, Individuals must meet particular conditions, such as not having been a tax resident in Portugal for the previous five years and engaging in qualifying activities recognised by the Portuguese government.

However, the law under discussion includes a transitional provision that would allow the regime to continue operating under its current terms for all applicants who, on January 1, 2024, are already registered as non-residents (NRH) with the Portuguese Tax Authority; and/or who, on December 31, 2023, meet the requirements for NHR registration; or who, on December 31, 2023, hold a valid non-resident visa.

It should be highlighted, however, that current holders of the special regime will be able to keep it for the balance of the ten-year period.

Fiduciary Group are not tax advisors; if you need assistance/advice on this, please contact us on info@fid.gi and we will put you in touch with suitable advisors; if you have a tax representative, we strongly recommend that you contact them for additional guidance on this topic.  

Disclaimer: The information provided in this article does not constitute legal advice and should not substitute for counsel. The information is based on the opinion of an independent expert and does not claim to be complete or definitive.