Portugal’s prime minister António Costa announced on the 2nd of October of 2023 the end of the special tax regime for non-habitual residents (NHR). Here’s all you need to know about this program, and how the latest news affect you whether you already have NHR status or want to take this last opportunity to get it.
First, the NHR scheme is not a residency or visa program, as many think. The NHR tax regime is, well, a special tax regime. The Portuguese government designed it to deal with the 2008 Financial Crisis and the country's rapidly shrinking population – by attracting talented and wealthy individuals to move to Portugal. The NHR program allows anyone (both European and non-European passport holders) who has not been resident in the country for the past 5 years to get tax benefits for the first 10-year period as a Portuguese resident, as long as they perform a high-value activity there.
Portugal's NHR program has been extremely successful, with more than 4,000 applications approved since its launch. It has also made the country one of the preferred options for high net-worth individuals (HNWIs), becoming one of their preferred locations in Europe and the EEA.
Despite the success of the program, in an interview with TVI/CNN Portugal’s prime minister António Costa stated that as of 2024, the government has decided not to keep “a measure of fiscal injustice that is no longer justified and is a biased form of inflating the housing market, which has reached unsustainable prices”. “There was a time when it was necessary,” the PM said. “This measure made sense. In the first 10 years, 59% of people who had benefited continued to reside in Portugal, despite the regime ending (NHR provided a form of ‘tax amnesty’ for 10 years only). But right now, it does not make sense.”
One main reason behind this decision is the pressure from both the European Union and foreign countries. For example, in 2016, Finland pulled its citizens out of the regime, describing it as a ‘tax holiday’ for retirees living in Portugal who, Finland believed, should have contributed fully to public coffers. Sweden’s then finance minister Magdalena Andersson (who later became prime minister) described herself as “disgusted” at the concept that wealthy retirees were being offered tax perks.
Another reason is the political instability inside Portugal. The rising prices and the housing crisis are taking thousands of Portuguese taxpayers onto the streets in protest and creating a climate of social unrest and backlash against expats.
It's quite obvious that the inflow of high net-worth individuals has contributed to the increased cost of living (especially in localized areas such as Lisbon). It's, however, uncertain to which extent this is the main reason, as other forward-looking countries successfully managed to attract foreign capital and talent sustainably. Unfortunately, Portugal lacks the right structures so locals can benefit from a booming economy and will most likely get relegated to becoming part of the declining world.
“Who has it will keep it”, Costa assured. Portugal’s non-habitual resident (NHR) program is ending in 2024, but no exact date has been given yet [1]. So even if no more new foreigners will be given tax incentives to relocate as of 2024, those who already have non-habitual resident status will keep it for as many of the 10 years they have left. This includes reduced tax rates and other benefits such as:
- 20% flat rate income tax. This flat tax rate applies to employment income (i.e., as a freelancer) on any Portuguese-sourced income. Considering the general Portuguese income tax rate for those making over €25,076 is 37%, and for those making over €39,968 is 45%, this is an astronomical tax benefit for Personal Income Tax.
- A 10% tax rate on foreign pension income.
- Exemption on social security contributions during the first year for self-employed individuals.
- No wealth tax, inheritance tax, or gift tax.
- Tax exemption on foreign-sourced income like dividends, interests, royalties, capital gains, rental income, and real estate – as long as the source of income's country has a tax treaty (Double Taxation Agreement or DTA) with Portugal, and this income is taxed in origin as per the OECD model tax convention.
- Cryptocurrencies are taxed at 0% as long as they have been held for more than one year.
In case you're wondering if you can still get NHR status before it ends in 2024, here's the eligibility criteria:
- You must be registered as a Portuguese tax resident with a residence certificate and Portuguese Tax ID number (NIF).
- You must not have been considered a Portuguese tax resident in the last 5 consecutive years.
- Not actively hold a prominent political position.
Additionally, you'll need to submit your NHR application to the Portuguese Tax Authorities (at a tax office or online at Portal das Finanças) before filing your tax returns by the 31st of March of the year following the tax year when you become a tax resident (given the latest you'll need to get NHR tax status before the end of the current year). Last, to qualify for NHR you should a high added-value activity or skilled job included on the 2020-amendment list:
- Skilled workers in industry and construction and handicraftsmen, including in particular skilled workers in metallurgy, metallo-mechanics, food processing, wood and clothing, in craftsmanship, in printing, manufacturing precision instruments, jewelers, crafts-men, electricity and electronics workers.
- Operators of installations and machinery and assembly workers, in particular fixed plant operators and machinery.
- Specialists in information and communication technologies (IT).
- Technicians and professionals of science and engineering, programmers, of intermediate level.
- Technicians of information and communication technology, market-oriented.
- Market-oriented farmers and skilled workers in agriculture and animal production.
- Market-oriented skilled workers in forest, fishing and hunting.
- Director General and Chief Executive of companies.
- Directors of administrative and commercial services.
- Directors of production and specialized services.
- Directors of hotels, restaurants, stores and other services.
- Specialists in the physical sciences, mathematics, engineering and related techniques.
- Dentists and Stomatologists.
- Physicians.
- University and higher education professors.
- Authors, journalists and linguists.
- Creative artists and of performative arts.
Since there are only three months left in 2023, if you hold a passport that gives you settlement rights in Portugal (like an EU passport), you will most likely still be able to become a Portuguese resident and get NHR status before 2024. Reach out to us and we'll connect you with the best tax consultants in the country.
However, if you need a visa to live in the country (like the Digital Nomad Visa or the Portugal Golden Visa Program), you won’t be able to make it on time as the average processing time for these programs is around 4 months. This means you won't get resident status before the end of the year, and therefore you won't be able to apply for the NHR status before it ends.
So, in summary:
🟢 If you're already an NHR: no need to worry. You'll continue to enjoy the tax benefits for the full 10 years you were promised.
🟡 If you're living in Portugal without NHR status and you qualify: request it before the cutoff in March 2024. The sooner the better, given the potential changes.
🟠 If you're planning to move to Portugal as an EU citizen: you still have time, but act quickly to register your new residency and apply for NHR.
🔴 If you're planning to move to Portugal as a non-EU citizen: you'll most likely won't make it on time as you'll need to apply for a visa, which usually takes ~4 months.
If you don't want to miss future opportunities like this, use Baseflow to get a citizenship that gives you settlement rights where you will be treated best.
[1] It's unclear when (or if at all) Portugal will implement these changes. The Portuguese government also announced the end of the Golden Visa program in 2022, but so far only the real estate option has been limited.
New update (December, 2023):
First, individuals who are already registered under the NHR scheme or who became tax residents before 31st December 2023 are grandfathered in and will not be affected by the new changes.
The new rules also grandfather existing people who become tax residents in 2024, and are able to show that:
- They entered into an employment agreement (or promissory work agreement) dated no later than December 31st, 2023, under which work shall be completed in Portugal; or
- They entered into a rental or similar agreement, dated no later than October 10th, 2023 for the use of Portugal-based property; or
- They entered into a reservation or promissory agreement, dated no later than October 10th, 2023, for the use of a Portugal-based property; or
- They enrolled their children no later than October 10th in a Portugal-based school; or
- They entered into a rental or similar agreement, dated no later than October 31st, 2023, for use of a Portugal-based property; or
- They have a visa or residence permit valid until December 31st, 2023; or
- They have an initiated immigration procedure until December 31st, 2023.
For individuals wanting to use the NHR program from 2024 onwards, it will still be possible but with a much narrower focus on individuals working for Portuguese entities with special status.
There is luck if you still want to use the NHR program from 2024 onwards, Madeira and the Azores will still be able to grant NHR status to residents after 2024. Making it your best option if you want to make full use of the NHR program.
With the new updates to the Portuguese NHR program, Portugal is no longer the most attractive destination in Europe for tax-optimization. Read our other articles to learn about forward-looking European countries.
