Recently, the Portuguese government announced its plans to revitalize the «Non-Habitual Resident» tax regime, also known as NHR. This program, which offered attractive tax benefits for foreigners and Portuguese citizens who had established their wealth outside the country, was nearing its end after former president Antonio Costa decided to terminate it in 2023.
The measure taken by the previous administration meant that new applications for the benefit could no longer be submitted from January 1, 2024, although it continued to apply to those who opted in before that date. Let’s delve into this topic and see what’s new.
What is the NHR Regime?
For those unfamiliar, this regime allows beneficiaries to enjoy a flat income tax rate of 20% on income earned in the country for a period of ten years. Additionally, some classes of foreign-sourced income could be tax-exempt: dividends, rental income, interest income, capital gains from the sale of assets located abroad, income from employment or self-employment in another country, and foreign pensions, although these are now subject to a flat rate of 10% (since 2020).
Changes in the Regime
The main novelty in this revival of the NHR is its strategy to focus on attracting professionals and entrepreneurs, who will be able to access the tax advantages, instead of its previous focus on retirees. The Portuguese government has decided that foreign pensioners will no longer be able to access the same tax exemptions as before.
Benefits for Professionals and Entrepreneurs
Professionals in highly qualified activities (HQA) and entrepreneurs will continue to enjoy the flat 20% tax rate on their income (compared to the general maximum rate of 48%). This includes those in sectors like technology, science, arts, and specialized technical activities. Additionally, passive income such as dividends, interest, and royalties generated outside Portugal will continue to benefit from tax exemptions as long as they meet the criteria established in the regime. For Portuguese nationals who have established their wealth abroad, they must also have had their tax domicile outside the country for the past five years.
Impact and Expectations
The restructuring of the NHR regime has the potential to attract a steady flow of talent and foreign investment, keeping Portugal as one of the most attractive destinations for expatriates in Europe. The exclusion of pensioners could moderate the real estate market and reduce pressure on public services, thus balancing the economic and social benefits of the regime. In its original form, the regime was criticized for contributing to population aging, as it attracted retirees from other countries while pushing young people abroad due to high housing costs.
How Can I Benefit from this «New» NHR?
To access this regime, you need to have tax residency in Portugal. In this regard, the NHR is compatible with the Golden Visa as well as other visas, such as the Highly Qualified Activity (HQA) visa, the Digital Nomad visa, or the Entrepreneur Visa.
If you want to know which of these options best suits your profile as an investor, schedule a meeting with our team. We have the experience and knowledge necessary to offer you the best advice.
We are experts in international mobility, and our goal is to help you achieve yours.
