The government has now announced its intention to introduce a transition scheme whereby people who indicated their intention to move to Portugal during 2023 in one of 6 ways will be allowed to apply for NHR in 2024. The proposed amendment is full of holes and excludes many people who clearly has such an intention whilst potentially opening the door for people with very little link to Portugal to still apply.
At Fresh Portugal, we intend to hold a Webinar immediately shortly the budget passes, on the 4th of December, when it becomes clear what is ACTUALLY the outcome of the budget.
In an interview with CNN Portugal, the prime minister of Portugal, Antonio Costa, announced that the NHR scheme "no longer makes sense" and will "end in 2024". The budget proposal of October 10, 2023 confirmed that it is the government’s intention to end the regime at the end of 2023. The government has an absolute majority and the end of NHR is not a particularly disputed subject in Portugal, and, therefore, it is expected that the legislation will pass with the proposed language or very similar language. This raises many questions for people who are in Portugal, are planning to move to Portugal or are already in the process of moving.
What does the end of NHR mean?
NHR, the Portuguese Non-Habitual Resident tax regime is one of the best-kept “not so much of a secret” secrets of Europe. It is an incredibly beneficial tax regime that has been making Portugal, an otherwise a high tax country, an attractive choice for people who earn income from a fairly long list of activities that Portugal considered desirable or for people with holdings and investments and other types of income from sources outside of Portugal.
A small group of very high qualified expats (R&D roles with a Ph.D. and equivalents and a few other extremely qualified groups) will continue to benefit from NHR-like benefits (we are still studying the details).
In addition, the proposed budget law includes an amendment of a regime that previously applied to Portuguese citizens returning home but is now amended to include anyone who had not been a tax resident in Portugal in the last 5 years. Under the amended regime, those moving between 2024-2026, will be offered a 50% reduction of the sliding scale normal tax rates for employment and self-employment (but no reductions on foreign income or pension) for a period of 5 years.
We advise treating this new "candy" with a pinch of salt. It is possible that the amendment was designed to attract Portuguese living overseas who have never lived in Portugal and if this is the case, the proposal could be amended before the budget is approved and reinstate the condition of past tax residency (it would be illegal under EU law to limit a benefit only to Portuguese nationals).
The normal Portuguese tax rate to income related to work is a sliding scale of 14% to 48%. Portugal also has solidarity tax for people with higher incomes, up to 5%. Finally, income from work is subject to social security at a rate of 21% for self-employed and a total of 34.75% for employees (11% paid by the employee and 23.75% by the employer).
Other types of income, such as rental from overseas properties, dividends and interest are taxed at lower rates, typically between 25-28%. Right now, under NHR, they are not taxed in Portugal at all.
The overall tax in Portugal will therefore be considerably higher for people who earn high incomes and are no longer allowed to enter the NHR scheme.
What about double taxation treaties? Am I not protected under the treaty?
Most people moving to Portugal come from countries that signed a double taxation treaty with Portugal. Many people believe that such a treaty means that they will only be taxed in one country even without NHR. Unfortunately, double taxation treaties do not prevent taxation in both countries. Double taxation treaties have two purposes: first, to allocate taxation rights between the countries and second, to create a tax credit mechanism, whereby tax paid in one country will be credited in the other country.
This means that a person moving to Portugal will not need to pay the maximum tax in Portugal in addition to the maximum tax in the other country. Instead, for nearly all types of income, the person will pay first to the country that is given the first right of taxation by the treaty but then pay the remainder to the other country if its tax rates is higher. In practical terms, this means that if a person is subject to tax in Portugal and another country, that person will pay the higher of the two taxes (which is nearly always the tax in Portugal). Under NHR, many of these types of income were exempt from tax in Portugal altogether.
When is it coming to force?
According to the budget proposal, NHR ends on 31/12/2023. The proposal is likely to pass as-is or with some changes.
People who met the conditions at that date should still be able to apply before 31/03/2024. There is ambiguity as to whether someone holding a residence VISA will also need to meet the other NHR conditions in order to apply or whether such people will be grandfathered.
In view of the ambiguity, we recommend anyone who wants to be part of the NHR scheme to apply before the end of the year.
EU residents can still make it to NHR on time. First the EU citizen should associate a Portuguese address with their NIF. To do that, the EU citizen should first obtain a CRUE certificate, which is the European confirmation of residency in Portugal. CRUE normally takes a few days to obtain and a 15 Euro fee.
However, the address requirement for a CRUE varies between municipalities. Some require a long term rental contract, whilst others (notably Lisbon and Cascais) will accept a declaration from the person that they live at a specific address.
People who completed an immigration process and have a residency card
An address can be changed based on the address on the residency card. That address should match the one from the rental contract / purchase deed. After changing the address, it is possible to apply for NHR.
People who started an immigration process and have a SEF meeting booked
According to the Finançes instructions, a SEF meeting that has been been booked should be sufficient for changing the address. These instructions are not always followed, but normally a booking confirmation of a SEF meeting + rental contract is sufficient for changing the address and applying for NHR.
People with a VISA but not a SEF meeting or residence card
While our reading of the current proposed language suggests that having a VISA issued on or before the end date should be sufficient to create a right to apply for NHR once the other conditions for applying are met, there is significant ambiguity as to how Finanças may ultimately interpret this requirement and, practically, how it will implement procedures for applying for NHR that comply with the law. Further, the current language is not final and may well change before the budget is approved.
People with a Golden Visa
There is some ambiguity in the proposed law as to whether a golden VISA will be sufficient. We recommend trying to become a tax resident based on the golden VISA and moving to plan B failing that.
“Plan B” - People who do not yet have a VISA, but have a Portuguese rental contract and NIF
For people willing to come personally to Portugal, it is possible to utilise a specific immigration route to obtain tax residency even without a SEF meeting. This requires making an appropriate application, a considerable amount of work, and also requires a rental contract in Portugal and a NIF number.
It is important to remember that this VISA is meant for people with a tie to Portugal in the form of a business or a work contract. Whilst is is possible to base the application on a business that is being started, this process should not be abused and it should be used by people genuinely intending to live in Portugal and operate a business (a local business or freelancer activity).
Is it worth it to rush?
For most people earning an annual income of over 30,000 Euros from a high value activity and primarily those with foreign sourced income, NHR can save you tens and sometimes hundreds of thousands of Euros over 10 years.
For people who are not in high value activities and do not have any foreign sourced income, the new regime could in fact be more beneficial than NHR.
What if you change your mind after becoming a tax resident and decide to go back to your country of origin?
NHR status is not lost. It will be reserved for you for 10 years from the first year of NHR application. However, it is important to remember that all requests need to be made in good faith. It is okay to become a tax resident and go back to your country, but it would be problematic to artificially become a tax resident only in order to revert to one's country shortly after that.
Impact on other immigration routes
We cannot anticipate with full certainty how the expression interest process impact other immigration processes, but we are prepared to support you in your immigration process going forward and deal with issues if and when they arise.
How does Fresh Portugal help?
We have designed an accelerated tax residency package.
We charge a relatively small fee to analyse your documents, give you tax advice and consider your options. We now charge 550 Euros for that.
If you decide to apply for accelerated tax residency, we will prepare and file the application on a full “no success no fee” basis. We charge 3,200 Euros for an individual or a couple if we successfully obtain NHR status (1,600 Euro if we succeed for 1 person out of a couple), payable upon receipt of the confirmation of NHR status.