The Future of Portugal's NHR Program: Secure Your Tax Benefits Today
Updated: Nov 30
Will the NHR program conclude in 2023?
The answer is both affirmative and negative. The forthcoming State Budget ('Orçamento de Estado') for 2024 indeed terminates this tax benefit. However, it introduces a new tax incentive for scientific research and innovation, ensuring that diverse professions can still enjoy a decade-long reduction on personal income tax, mirroring the duration provided by the NHR. A transitional period is also instituted, extending until December 31, 2024.
1. Introduction: The Future of Portugal's NHR Program
In response to the ongoing political crisis in Portugal, the government has introduced a fresh transitory Non-Habitual Residence (NHR) regime for the year 2024. To comprehend the dynamics of housing and tax scenarios in Portugal, it is crucial to have insight into the prevailing political climate.
The nation is currently grappling with a political crisis triggered by the resignation of the Prime Minister in November 2023. The situation is particularly worrisome as discussions on the State Budget for 2024 (OE2024) are ongoing in the Parliament.
Despite the acceptance of the resignation by the President of Portugal, the Socialist Party (PS) continues to hold power, at least until January 2024, when the parliament is slated for dissolution. Subsequently, PS will operate with restricted capacities and authority until a new government emerges following the general elections in March 2024.
In addition to this political upheaval, the dissolution of Portugal’s Agency for Borders and Foreigners (SEF), the phased-out Golden Visa program, and the conclusion of the NHR initiative further contribute to the complexity of understanding the current immigration policies in the country.
2. NHR - Transitional regime
The proposed amendments to the State Budget, as presented by the PS party, will afford individuals registering as tax residents in 2024 the opportunity to still avail themselves of the Non-Habitual Residence (NHR) benefits. This is contingent upon the ability to substantiate that they undertook preparations for their relocation in 2023, supported by evidence of at least one of the following:
1. A promise or employment contract signed before December 31, 2023, stipulating duties to be performed within Portuguese territory.
2. A lease agreement or alternative arrangement conferring the use or possession of real estate in Portuguese territory, signed by October 10, 2023.
3. A reservation contract or promissory contract (CPCV) for the acquisition of real estate in Portuguese territory, executed before October 10, 2023.
4. Enrollment or registration of dependents in an educational institution domiciled in Portuguese territory, completed by October 10, 2023.
5. Possession of a residence visa or residence permit valid until December 31, 2023.
6. Initiation of a procedure, by December 31, 2023, for the issuance of a residence visa or residence permit, duly recorded with the relevant authorities, either through the scheduling of an appointment or the actual appointment for the submission of the residence permit application, or by applying itself.
3. What is the NHR Tax Regime?
Introduced in 2009, the Non-Habitual Residency (NHR) tax regime in Portugal is a strategic initiative aimed at bolstering the country's global competitiveness. Tailored to attract highly skilled professionals and stimulate foreign investment, the program mitigates the tax obligations for foreigners residing in Portugal.
It's important to note that NHR is not a pathway to legal residency in Portugal but rather a tax status for foreigners already permitted to live in the country.
Benefits of NHR in Portugal:
The NHR tax regime presents an enticing opportunity to optimize savings for those living and working in Portugal. Here's why:
1. Special Personal Income Tax Treatment: Enjoy a decade of exemptions and reduced tax rates on personal income taxes.
2. Tax Exemption on Foreign Income: Benefit from a comprehensive exemption on nearly all foreign income.
3. Flat Tax Rate: For self-employment and specific professions, NHR offers a flat 20% rate on incomes earned in Portugal, a significant advantage compared to national income tax rates that can reach 48%.
4. No Minimum Stay Requirement: Maintain NHR status without the obligation of a minimum residency period.
5. White-Listed Tax Environment: Joining a tax environment white-listed in the EU provides enhanced financial flexibility and tax benefits.
6. Tax Exemption for Gifts or Inheritance: Enjoy tax exemption on inheritance or gifts to direct family members.
7. 0% Wealth Tax: NHR status holders are exempt from wealth tax.
8. Free Remittance: Transfer your funds to Portugal at no cost, facilitating efficient financial management.
4. Apply for Portugal's NHR Program
Who can apply for NHR in Portugal?
- EU, EEA, and Swiss citizens
- Foreign investors with a Golden Visa
- D7 Visa holders
- D3 Visa holders
Meet the eligibility requirements
To be eligible for the Non-Habitual Residency (NHR) program, individuals must meet specific criteria. Qualified applicants are required to be highly skilled professionals and must not have been tax residents in Portugal for the preceding five years. This program is tailored to attract individuals with significant expertise who can contribute to the country's growth and development. In order to apply for NHR, you have to become a tax resident in Portugal.
How do I become a tax resident in Portugal by December 31, 2023?
To qualify as a tax resident in Portugal, one must spend more than 183 days per year in the country OR own a property in Portugal designated as their habitual residence. To substantiate this status, you are required to provide one of the following documents:
1. A rental contract with a validity of at least 6 months.
2. A lending contract (free lease) with a validity of at least 6 months.
3. The property deed, if you own the residence.
4. A residence permit or EU registration certificate (CRUE).
Process of Achieving NHR Status in Portugal
Step 1: Verification of Legal Residency
Demonstrating legal residency as an EU, EEA, or Swiss citizen is the initial step. Simply register at the local town hall, known as the "Câmara Municipal."
Required documents include:
- European Health Insurance Card (EHIC)
- Valid ID or Passport
- Copy of your health insurance
No proof of address is necessary at this stage.
Step 2: Registration as a Tax Resident in Portugal
To acquire Portuguese tax residency, secure a Número de Identificação Fiscal (NIF) and use it for registration at the government finance office in your locality.
Step 3: Enrollment on the Government’s Financial Portal
Subsequently, register on the government's financial portal by selecting the "Registrar-se" button. Approximately two weeks later, you'll receive an access code via mail.
Step 4: Online Application for NHR Status
Utilizing your NIF, financial portal account, and proof of Portuguese residency, initiate your online NHR status application. Follow these steps:
1. Cidadãos -> Serviços -> Dados Cadastrais -> Residente Não Habitual -> Entregar Pedido de Inscrição
You'll be required to sign a form affirming your new Portuguese tax residency and the absence of such status in the past five years. Supporting documentation includes tax returns covering the last five years, a long-term rental contract, or proof of Portuguese property ownership.
5. NHR Alternatives
What alternative options are slated to replace the NHR regime in 2024?
Despite the conclusion of the NHR program, the Portuguese government aims to sustain its appeal to skilled professionals through a distinct system centered on scientific research and innovation. Although this new initiative mirrors some of the conditions and benefits of the NHR, its primary focus is considerably more targeted. Let's delve into the eligibility criteria for applicants under this fresh tax regime.
Who qualifies for the tax incentive for scientific research and innovation?
Similar to the NHR, individuals seeking eligibility for this program must be highly qualified professionals with no prior tax residency in Portugal within the last 5 years. Additionally, applicants are required to spend at least 183 days in Portugal annually.
According to the provisions outlined in the State Budget for 2024, applicants' income must fall within the following categories to qualify for this innovative tax incentive:
1. Careers in higher education and scientific research, encompassing scientific employment in entities, structures, and networks dedicated to the creation, dissemination, and transmission of knowledge, integrated into the national science and technology system.
2. Qualified positions within the realm of contractual benefits for productive investment.
3. Research and development roles for individuals with doctorates, falling under the scope of SIFIDE (Portuguese System of Tax Incentives for Research and Business Development).
Upon acceptance into the program, participants will benefit from a fixed IRS tax rate of 20% applicable to the specified activities for a consecutive 10-year period starting from the year of their registration as Portuguese tax residents. Furthermore, program participants can enjoy complete tax exemption on foreign income derived from various sources, including dependent work, freelance activities, capital, property and capital gains, and other increases in assets.
The NHR program stands as an exceptionally appealing tax regime for those contemplating a move to Portugal. This program boasts various compelling advantages, such as diminished tax obligations, augmented disposable income, and the prospect of enjoying a superior quality of life. Although the future of Portugal's NHR Program is currently undergoing changes, alternative avenues are emerging, offering continued opportunities for advantageous tax arrangements.
To streamline the process and mitigate the risk of errors in your NHR application, we highly recommend enlisting the services of a trusted solicitor. Lagos Homes can further assist by directing you to a reliable partner who specializes in handling these procedures, ensuring a seamless and error-free experience for you.