Portugal has long been renowned for its highly sought-after tax incentive known as the Non-Habitual Residents regime, making it one of Europe's favoured choices for individuals looking for a beneficial tax regime.
The Non-Habitual Residents (“NHR”) regime in brief
The NHR regime provides eligible individuals with the opportunity to attain a special tax residency in Portugal, allowing them to benefit from a lower rate of tax on certain income and capital gains for 10 years.
Subject to meeting certain requirements, the NHR regime provides a reduced level of taxation of pension income (a maximum flat rate of 10%), employment and self-employment income deriving from ‘high added value’ activities, as well as a tax exemption over non-Portuguese sourced income received.
Eligibility for the NHR regime required individuals to establish their tax residency in Portugal by spending more than 183 days in Portugal within a 12-month period, or by maintaining a permanent residence in the country.
Additionally, applicants must not have been a tax resident in Portugal in the five years leading up to their application.
Changes to the regime
The 2024 State Budget for Portugal, presented to the Portuguese parliament effectively ended new applications for the NHR regime, with individuals becoming resident in Portugal on or after 1 January 2024 no longer being eligible to benefit from the NHR regime.
Nevertheless, individuals may still continue to benefit from the tax advantages offered by the NHR regime. This includes individuals who had previously obtained NHR status, and for those who established a residence for tax purposes in Portugal by 31 December 2023 (subject to applying for the regime by 31 March 2024).
What is the impact of this change on individuals?
Individuals previously granted NHR status.
NHR status remains without any effect, remaining valid for the remainder of the ten-year period.
NHR status obtained prior to enactment of new policy.
NHR status remains without any effect, remaining valid for the ten-year period.
Portuguese residence acquired by 31 December 2023 and NHR application submitted.
If tax residency in Portugal or a residence permit was secured by 31 December 2023, the deadline for applying for NHR status is 31 March 2024.
Portuguese tax residency acquired in 2024 or later.
The NHR program in Portugal is not accessible for individuals acquiring tax residence during 2024.
The NHR regime in Portugal has long been a key driver in individuals looking to relocate to the continent, whilst seeking more favourable tax treatment of their income and gains.
However, with the closure of the NHR regime, similar regimes for non-domiciled individuals in Spain, Italy and Greece could become more attractive for individuals. Alternatively, outside of Europe, countries such as the UAE also offer attractive destinations for individuals looking for good weather and favourable taxation.
Written by Anthony Roberts, with additional input by Richard Thomson-Curtis.