The New Portugal NHR Tax Regime: An Expert Guide (2024)
End of NHR: What Now?
Portugal has long been a beacon for expatriates seeking a blend of vibrant culture, mild climate, and favorable tax conditions. The Non-Habitual Resident (NHR) program, introduced a decade ago, has played a pivotal role in this appeal, providing significant tax advantages to those relocating to Portugal.
As this program comes to an end, the Portuguese government, in collaboration with fiscal authorities and influenced by economic strategies shaped in the Portuguese Parliament, introduces the Tax Incentive Scheme for Scientific Research and Innovation (TISRI).
This guide offers a detailed exploration of the transitioning tax landscape in Portugal.
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What is NHR?
The Non-Habitual Resident (NHR) program has been a highly advantageous tax benefit scheme that offers a reduced personal income tax rate for work done in Portugal under certain conditions. It also provides a full tax exemption for many types of foreign-sourced income, such as dividends, interest, and royalties.
The program offers a flat tax rate of 10% on pension income, operating alongside the existing network of double taxation agreements. This has made the NHR program an attractive option for foreigners and new tax residents seeking low taxes on their global income.
The End of the Non-Habitual Tax Resident
The famous NHR scheme concluded for new applicants on December 31st, 2023, marking the end of the NHR tax regime as part of a new state budget proposal by the Portuguese government.
Transition Period
The scheme continues to apply for people who arrive in Portugal during 2024, so long as they have started their immigration process during 2023 and met one of the following requirements:
had a work contract in Portugal or a Promise for one, signed before December 31, 2023
had a property lease agreement signed by October 10, 2023, for use in Portugal
had a dependent enrolled in a Portuguese educational establishment by October 10, 2023
had either a valid residence visa or permit, or at least scheduled an appointment or submitted an application to the competent authorities
members of the same household of any of the above
There have been rumors that NHR application attempts are automatically rejected. Our experience has been the opposite—all our clients' applications have been accepted based on a declaration that one of the above conditions has been met. The Portuguese tax authorities may request evidence at a later stage.
How Bad is it?
The impact varies. Pensioners with high incomes are likely to pay significantly more tax now that the pension tax benefits under the NHR tax scheme are over. For others, it depends on their individual situation. Clever and early tax planning can mitigate many of the worst effects of the removal of NHR.
Information provided by FRESH PORTUGAL, EXPAT LAWYERS in Portugal. Feel free to reach out to the Fresh team for advice on your specific circumstances.
Introducing TISRI: Portugal's New Regime for Tax Benefits in the Post-NHR Era
While certain individuals who initiated their move to Portugal prior to 2024 may still be eligible for NHR, its availability is gradually phasing out. There is no "new NHR regime," but its successor, the Tax Incentive Scheme for Scientific Research and Innovation (TISRI), has emerged as part of a transitional regime.
Portugal's New Special Tax Regime to Entice Expats: What is TISRI?
Following the abrupt announcement of the cessation of NHR, Portugal's government faced significant backlash for dismantling a program that had greatly supported the national economy. In response, TISRI was established, bearing resemblances to NHR in some respects while also drawing parallels with schemes observed in other countries like Spain.
Like NHR, TISRI targets new residents who haven't held tax residency in Portugal within the past 5 years and offers a status that can be retained for a consecutive 10-year period. Essentially, TISRI mirrors many of NHR's advantages. However, unlike NHR, which was attainable by any new Portuguese tax resident, TISRI necessitates continuous fulfilment of specific eligibility requirements, as explained in more detail below.
Who Qualifies?
To be eligible for TISRI, a new taxpayer must not have held tax residency in Portugal within the past 5 consecutive years. Additionally, those benefiting from NHR status are ineligible to apply for TISRI.
What are the Advantages?
TISRI offers primary benefits such as reduced tax rates on specific income types and complete exemption on others. Qualified employment and self-employment income can opt for a special tax rate of 20%.
Moreover, under this new scheme, foreign-sourced income from employment and self-employment is tax-exempt in Portugal, provided it originates from non-blacklisted jurisdictions.
Additionally, passive foreign income sources like capital gains, capital income (such as dividends, royalties, and interest), and property enjoy full exemption from Portuguese taxation, again, given they aren't sourced from blacklisted jurisdictions.
How Does TISRI Stack Up Against NHR? Who Wins and Who Loses?
Media coverage has extensively pointed out that TISRI doesn't encompass any provisions for pension income. Indeed, pension income falls outside the purview of TISRI and is subject to full progressive taxation, making pensioners the primary losers under the TISRI regime.
Conversely, unlike NHR, TISRI doesn't mandate foreign income to be potentially taxable in another country to qualify for exemption. This means that under TISRI, capital gains from foreign sources, including securities, are fully exempt in Portugal (or at least, as per legal provisions).
Moving to Madeira and Azores Islands
At present, the autonomous governments of Madeira and Azores are yet to define their criteria. Considering their political inclinations and historical approaches, it's probable that the criteria will be inclusive, potentially covering all residents and workers on the islands, including remote workers.
This suggests that NHR-like benefits may be extended to residents on the islands who aren't retired. We'll monitor developments and update this guide accordingly.
Working for/Certified Startup Companies
This broader criterion appears to encompass anyone employed by a startup, irrespective of their role. However, the main caveat lies in the startup's certification requirement; without it, the benefits aren't applicable. Achieving startup certification is feasible through various routes.
Startups receiving investments from certified venture capitalists (VCs) or angel investors automatically qualify. Alternatively, startups can pursue direct certification through entities like the Startup Program, with the certification process already in operation.
What About Pensioners?
Pensioners need not despair. While state pensions will undergo progressive taxation, savvy expats switching from pension products to non-pension investments, coupled with meeting TISRI's qualification criteria, can enjoy full exemption on foreign-sourced income.
Conclusion: Navigating the New Horizons of Portugal’s Tax Policies
As we close the chapter on the advantageous NHR scheme and usher in the era of TISRI, it is crucial for expatriates, potential investors, and foreign residents considering Portugal as their new home to understand the evolving tax landscape. This guide aims to provide a comprehensive overview of the old and new regimes, drawing on expert knowledge and the latest updates from the Portuguese tax authorities.
For those planning their move or adjusting to the new requirements, staying informed and seeking advice from experts in Portuguese tax law will be key to maximizing the benefits of the evolving policies. As Portugal continues to adapt its fiscal strategies to the global economy and expatriate needs, the opportunities for a rewarding life in this charming country remain plentiful.
Portugal's door remains wide open, and with excellent visa opportunities, TISRI is an enticing incentivised tax status program that, for some, surpasses the erstwhile NHR.
Information provided by FRESH PORTUGAL, EXPAT LAWYERS in Portugal. Feel free to reach out to the Fresh team for advice on your specific circumstances.
Move to Portugal
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