End of NHR - Last Call Before Boarding !
- mouniamikou
- 17 nov. 2023
- 4 min de lecture
Dernière mise à jour : 11 mai 2024
In Portugal, the tax regime for Non-Habitual Residents (NHR) has long been praised for the tax benefits it offers compared to the standard regime.
The State Budget bill for 2024 plans to end the NHR regime for individuals settling in Portugal from 2024 onwards. The law is currently under review and will be voted on by Parliament until November 29, 2023, with the final draft expected on December 14, 2023.
Given the composition of Parliament, the reform proposed by the government is not expected to undergo major changes.
As the content of the NHR status reform project attracts the greatest attention from newcomers, this article provides an analysis.
This article aims to review the main aspects of the current tax regime, the reform project, and its consequences for newcomers to Portugal and current beneficiaries. The article also details the actions to be taken by those who wish to benefit from the NHR status before it's too late.
Let's now delve into the key aspects of taxation as an NHR and aspiring NHR:
1. The main features of the NHR tax regime
In Portugal, the personal income tax (IRS) is a progressive tax ranging from 14.5% to 48%, with certain income categories subject to a flat tax, such as dividends taxed at 28%.
Tax residents in Portugal are required to declare their worldwide income. To avoid double taxation of foreign income, a tax credit can be requested.
The NHR regime offers numerous advantages. For instance:
Private pensions are taxed at a flat rate of 10%.
Some income from abroad (such as dividends, for example) can benefit from an exemption in Portugal if they are taxable in the source state according to a non-double taxation agreement.
Income as an employee or self-employed person from high value-added activities carried out in Portugal can be taxed at a flat rate of 20%.
The Non-Habitual Resident status is granted for 10 years. The end of the NHR does not affect the duration of the status for those who already benefit from it.
The NHR regime is, therefore, a favorable tax regime worth activating. This regime is open to newcomers, regardless of their nationality. Portuguese citizens are also eligible.
Two conditions must be met:
Become a tax resident in Portugal.
Have not been a tax resident in Portugal for the previous 5 years.
After covering the main features of the regime, let's delve into the reform project.
2. End of the NHR: the objective of the reform project
The complete details of the reform will be unveiled when the State Budget Law for 2024 is adopted.
According to the reform project, the NHR status cannot be requested by individuals settling in Portugal from 2024.
The last eligible beneficiaries are newcomers in 2023, provided they become tax residents in 2023 and request the status before December 31, 2023.
However, an amendment to the project envisages a potential derogation for individuals settled in Portugal in 2023 who could not submit their NHR status application before December 31 due to administrative reasons. To benefit from this extension, one must be able to demonstrate their settlement in Portugal in 2023 or their intention to do so, based on very strict conditions and a list of accepted documents as evidence, such as a visa application or a signed employment contract before December 31, 2023.
If possible, and especially for EU citizens, it is strongly recommended not to rely on this potential derogation.
If you arrived in Portugal in 2023 or are planning to do so, it is time to take quick action to not miss out on the benefits of the NHR tax regime.
For those who already have NHR status, in principle, the reform should not have an impact on the ten years of tax benefits. However, caution is advised, and it is recommended to stay attentive to the publication of the law to assess its effective consequences.
3. Actions to take to benefit from the NHR regime before its end
If you settled in Portugal in 2023, make sure to:
Be registered as a resident in Portugal with the immigration services,
Be declared as a tax resident with the tax authorities, and
Apply for NHR status before December 31, 2023.
Given the proposed reform, it is essential to be reactive and act quickly.
As a reminder, in addition to the year-end holidays, December 1 and 8 are public holidays in Portugal. This could slow down the processing times of your file by the administration at various stages of the process.
Conclusion
Only individuals settled in Portugal this year can still request the favorable tax status of NHR.
Unless there is a potential derogation, this request must be made before December 31, 2023, after completing the necessary procedures with the authorities to be recognized as a tax resident.
Advice: Assess your situation and the steps you still need to take.
I am at your disposal to help clarify your situation and guide you through the process of obtaining your NHR status.
To schedule a consultation, assess your situation, and identify the actions to be taken, click here.