How the taxation for new residents may look in 2024
The Non-Habitual Resident (NHR) regime is a beneficial tax regime that offers people who were not tax residents in Portugal for the past 5 years a more favorable Personal Income Tax (PIT) for a period of 10 years. The benefits of the regime include:
- A 20% flat rate taxation on the income obtained in Portugal and coming from employment and self-employment income. . However, the benefit is only applicable to income generated by high-value-added activities of a scientific, artistic, or technical nature performed in Portugal, as listed in a Ministerial Order (examples are Directors and Executives of production, industry, services and business companies, Doctors, Dentists, Engineering, IT, communication, scientific and related subjects’ Specialists and Technicians, University Teachers, Artists, among others);
- Foreign-sourced pension income is taxed at a 10% flat rate; and
- Foreign-sourced income may be exempt from tax[i];
- Other types of domestic income received by NHRs are liable to PIT according to the rules applicable to ordinary tax residents.
To qualify for the NHR regime the following requirements must be met:
- Not having been taxed as a Portuguese resident in the 5 years prior to the application;
- Having a residency in Portugal either by a rental contract or by owning a real state for housing purposes;
- Becoming a tax resident in Portugal can be achieved by:
- Staying in Portugal for more than 183 days (continuously or not) during a 12-month period, which begins or ends in that tax year (January 01st to December 31st); or
- Having a residential accommodation in Portugal used as habitual housing on any day of the 12-month period.
Recently, the Prime Minister of Portugal revealed that it was this Government’s intention to end the NHR regime, which has been officially included in the 2024 State Budget Proposal presented in Parliament last week (October 10th, 2023).
According to the 2024 State Budget Proposal, the NHR regime will be revoked as of January 1st, 2024. Nevertheless, the Proposal includes a grandfather clause so that the regime is still applicable to the following individuals:
- The ones already registered as NHRs at the time that the State Budget Law enters into force (until their 10-year period ends);
- The ones that meet the conditions of access to the regime until December 31, 2023, as well as the holders of a residence visa valid at that time, provided that the registration process is submitted until March 31, 2024.
While ending the regime in place since 2009, the 2024 State Budget Proposal does include a new tax incentive that resembles the NHR, targeted to attract scientific research and innovation.
It proposes the same 20% tax flat rate for a 10-year period for new tax residents in Portugal who earn Employment and Self-Employment Portuguese Income derived from:
- Higher education teaching careers and scientific research;
- Qualified positions within the scope of contractual benefits for productive investment, as defined in Chapter II of the Fiscal Investment Code; and
- Research and development jobs for employees with minimum qualifications equivalent to a doctorate degree, whose costs are eligible for the tax incentives system for research and business development, specifically provided in the Portuguese Tax Law.
The new taxpayers may also benefit from a tax exemption on foreign-sourced income, including derived from employment or self-employment income, investment income, rental income or capital gains income, except if obtained in tax havens (that will be taxed at a 35% tax rate). Pension income is also excluded from this tax exemption.
This regime can only be used once by the same taxpayer, and individuals who are benefiting or have already benefited from the NHR regime or have opted for the taxation of the income under the terms of “Programa Regressar” are not eligible for this new regime.
Finally, and according to the 2024 State Budget Proposal, it is also proposed to extend the “Programa Regressar” (Return Program), nowadays directed to taxpayers who had prior residence in Portugal, to all taxpayers that become tax residents of Portugal until 2026 [and who have not been tax residents of Portugal in the past five years] which would allow for 50% tax exemption on employment and self-employment Portuguese income up to € 250.000,00 during the first 5 years.
We will monitor closely the Parliament discussions on the 2024 State Budget Proposal, keeping all investors informed of any developments or amendments that may occur. Should it remain unchanged, it will enter into force on January 1st, 2024, meaning that the window to move to Portugal and acquire tax residency ends by December 31, 2023.
We remain available for any clarifications needed.
[i] Foreign Source income, such as employment income, certain types of self-employment income, investment income, rental income, and capital gains may be exempt from PIT in Portugal provided that such income is taxed in the origin source country according to the applicable Tax Treaty with Portugal or, if there is no Tax Treaty with Portugal, if the income is effectively taxed in the origin source country (not considered a tax haven) and not considered derived in Portugal, under Portuguese domestic tax law.
