Note: Portugal's NHR tax regime is no longer open to new applicants
The Portuguese government announced in their state budget for 2024, that anyone who has applied to secure NHR tax status in Portugal by December 31st, 2023, must be able to prove they have taken serious steps of intent to reside in Portugal.
Minimum requirements for NHR tax status to new entrants
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To be eligible for NHR tax status, you must meet the following requirements:
• You must not have been a Portuguese tax resident for the previous 5 years.
• You must have a residence in Portugal on December 31st of the year in question or have made an appointment with the immigration office.
• You must have proof that you intended to establish your habitual residence in Portugal. This could include proof of address such as property ownership in Portugal, a rental agreement, utility bills, a Portuguese bank account, as well as a NIF tax ID.
If you are a non-EU citizen, you need to prove that you have an immigration appointment, or a visa residency card, or alternatively an 'expression of interest' letter.
These would need to have been in place in good time before the end of December application deadline for the authorities in Portugal to consider your application as demonstrating proof of intent.
What happens if you don't have your visa yet as a non-EU citizen?
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As a non-EU citizen, if you don't have your Portuguese residence visa yet, but can provide evidence that you have an appointment with the immigration office or a visa residency card, this will demonstrate your proof of intent in time for the December 31, 2023 deadline to new entrants to NHR tax status. And you will then be able to still qualify for NHR tax status in time for the 31st of March 2024 tax period.
You will need to provide the Portuguese tax authorities with documentation that proves your intention to reside in Portugal, such as a lease agreement, utility bills, schools, or visa appointments. You will also have to ensure that you have your NIF tax ID, Portuguese bank account, and if you have children, evidence that you have registered them in a school in Portugal.
What will replace the NHR tax regime?
The Portuguese government has not yet fully announced the full details of the replacement for the NHR tax regime, which was tentatively named the Incentivised Tax Scheme (ITS) in draft announcements.
However, it is likely that the new tax regime will have similar benefits as the current NHR tax status, but there will inevitably be some impact to people's individual circumstances from these changes.
This will always be wholly dependent on the structure of your professional or personal income and assets, investments, and most likely your profession or retirement status where applicable.
Exact benefits of the NHR tax regime
The NHR tax regime offers a number of tax benefits, including:
• 0% tax on passive income from non-Portugal derived income such as dividends, royalties, and 10% on overseas pensions.
• Exemption from capital gains tax, gift tax, and on the sale of assets, such as property and investments, under Portuguese tax law. However, please seek professional tax advice depending on where your assets are held.
• A flat tax rate of 20% on Portuguese-source employment income.
What this means to new NHR tax status applicants who are already expediting their application and evidencing their intent.
If you are already in the process expediting your application for NHR tax status, you will need to have already demonstrated serious intent to do so, or it will likely be too late, and you will need to apply for the new tax scheme that replaces the NHR tax regime next year.
There are very few professional supply chain partners who are taking on brand new applications before the end of December. Non-EU passport holders must have a residency card or an appointment already in place with the immigration office along with a NIF tax ID, proof of address in Portugal, and other items that demonstrate proof of intent before the December deadline.
Existing EU passport holders must have proof of address in Portugal and other items that showed they had proof of their intent to do so before the December deadline.
Impact on existing NHR tax holders in the future
For existing affluent expats already enjoying the benefits of the Non-habitual residency (NHR) tax regime, it is really important that you seek advice early in your NHR tax status life to ensure that you are structured correctly to mitigate progressive tax rates in the future.
Your existing benefits will remain in place for the 10-years, however, according to a recent wealthy expats report, just 27% of existing NHR tax holders have taken advice early enough in their NHR tax status life to negate future tax burdens.
If you are between 1 to 7 years into the 10-year benefits of low tax, it’s vital that you have structured and planned your assets and income such as dividends, royalties, investments, property, and tax in a structured financial plan to mitigate progressive Portugal tax rates of 28% to 48%. Even if you are in year 8 or 9 of your NHR tax status life it is not too late to take measures to mitigate this tax burden.
Failure to consult with a professional tax advisor and a cross-border specialist in Portugal early in your NHR tax status life can have potentially serious consequences to your income and assets in the future.
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