Important changes
Since 2009, the NHR regime has been successful at attracting non-Portuguese residents such as pensioners, skilled workers, and investors to come and live in beautiful Portugal.
A few weeks ago, the Portuguese Prime Minister suddenly announced the end of Portugal’s famous NHR tax regime from 1 January 2024 onwards. After restructuring the Golden Visa program and excluding the possibility to apply for residency based on a real estate investment, the favourable NHR regime, in its current form, will now also come to an end.
On 10 October, the Portuguese Government published their Budget Proposal. The proposal introduces some significant changes to the NHR regime and a few new tax incentives. We highlight the most relevant ones.
Current NHR regime phasing out
The Budget Proposal officially confirms the termination of the current NHR regime. The related tax benefits that many foreigners living in Portugal benefit from, will be systematically phased out. Some transitional measures will be put in place that allows the regime to continue to apply after 31 December 2023 (grandfathering), albeit under a strict timing:
- Taxpayers who benefit from the NHR regime before 1 January 2024, can continue to do so until the end of their 10-year period
- Taxpayers who meet the conditions for the NHR regime on 31 December 2023, and who hold a valid residence permit, need to apply for the NHR regime before 31 March 2024 in order to benefit from it for the next 10 years
- Foreigners moving to Portugal (or applying for residency) after 31 December 2023 will no longer qualify for the NHR regime
- The NHR regime will remain unchanged for those who already benefit from it and who meet the conditions by 31 December 2023. The regime should be fully phased out by 2034
The recent Budget Proposal also gave some insight into an amended NHR regime called ‘Incentive to Scientific Research and Innovation’ for specific categories of professionals.
Incentive to Scientific Research & Innovation
This new tax regime is aimed at attracting highly skilled profiles and promoting scientific and industrial research. Taxpayers should meet the following conditions:
- Become a tax resident of Portugal
- Not have been a resident of Portugal for the past 5 years
- Not have used the (current) NHR regime or Return Program (see below)
- Not exercise any business activity covered by the Investment Support Program (‘Regime Fiscal de Apoio Ao Investimento’ or RFAI)
The favorable regime includes the following tax benefits for a period of 10 years:
- Flat tax rate of 20% on Portuguese sourced income
- Full tax exemption for income from work, business, capital and assets from outside Portugal
- Flat tax rate of 35% on income from non-Portuguese sources paid by a foreign company without a permanent establishment in Portugal, and which enjoys a more advantageous tax regime abroad
This advantageous regime only applies to income from one of the following activities:
- Higher education professors and scientific researchers
- Qualified employment within the specific scope of ‘contractual benefits for productive investment’ (i.e. investment projects in the fields of industry, tourism and technology)
- R&D jobs for personnel with minimum qualifications equivalent to a doctorate, to the extent such costs are eligible for specific R&D tax incentives (as stipulated in Portuguese law)
Time to go home
Since 2019, Portugal implemented an advantageous regime for former residents of Portugal who ‘return home’ after spending time abroad (Programa Regressar). The target was that these tax benefits would create an incentive for people to come back to Portugal.
The Budget Proposal now extends this regime to taxpayers who become tax residents of Portugal between now and 2026. The requirement of prior residence in Portugal no longer applies to be able to benefit from it.
The regime implies that for a period of 5 years, income from work and other business activities (regardless of the field of expertise of the beneficiary) will be tax exempt for 50% up to a maximum of €250,000 annually. Above that threshold, the earnings will be taxed at the standard progressive tax rates.
Incentives for start-ups
The Budget Proposal also focuses on several tax measures with the intention of fostering innovation and investment in the start-up ecosystem.
Entities that have a startup status will benefit from a reduced corporate tax rate of 12.5% on the first €50,000 of taxable income, with the current 21% rate applied to the amount above that. In addition, startups will also be able to grant tax-deferred stock options.
Move quickly!
With the publication of the Budget Proposal, it is certain that the NHR regime will come to an end this year. Those who still wish to benefit from it will have to move quickly.
You should keep in mind that the Budget Proposal remains subject to amendments and the above is only a preliminary evaluation. This proposal will only become final on 29 November 2023, after a final vote in Parliament.
If you would likely not qualify for any of the above new tax incentives, Portugal can still be interesting for you due to their crypto-friendly tax regime, and the absence of any wealth or inheritance tax.