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Only 27% of existing wealthy NHR tax holders in Portugal have prepared and structured their assets and tax for the future

Only 27% of existing wealthy NHR tax holders in Portugal have prepared and structured their assets and tax for the future

Thousands of wealthy expats in Portugal are being urged to act now to ensure they don’t get caught by a sting in the tail of the soon-to-be phased out Non-Habitual Residency (NHR) tax regime.

This follows a new ‘Wealthy expats in Portugal survey report 2023’ published at the end of October, where over 1000 affluent expats were interviewed and indicated that only 27% of current expats on NHR tax status had structured their tax and financial future in early preparation for the end of their ten-year NHR tax regime qualifying period.  

The sun-drenched nation and its lifestyle have proved hugely attractive to affluent expats who can enjoy the benefits of life in Portugal as well as a range of enticing tax incentives under the NHR – a tax regime which was designed to bring wealth and investment to its shores.

More than 53,700 affluent expats in Portugal have taken advantage of the NHR tax regime – first launched in 2009 – but were left unsettled by the recent announcement by Portugal’s Prime Minster, Antonio Costa, that it was to come to an end.

On October 29th the Portuguese government will be releasing more detail about the Non-Habitual Residency (NHR) tax regime as it relates to the December 31st, 2023, deadline to new entrants and the newly proposed Incentivised Tax Scheme (ITS) that is due to replace it in 2024.

This follows on from the recent October 10th, 2023, draft bill from the Portuguese government that stated it will bring the curtain down to new entrants to NHR tax status. It suggested new applicants need to apply before December 31st, 2023, and then complete their application/approval by March 31st, 2024.

The announcement is also expected to give more insight into the Portuguese government’s new Incentivised Tax Scheme (ITS), which is expected to replace the NHR tax regime next year to new entrants.

The Incentivised Tax Scheme (ITS) will potentially offer a more limited range of tax benefits to qualifying people and professionals. This includes a flat 20% tax rate for a decade and a 50% tax exemption on professional income, up to a cap of €250,000, for five years.

Current affluent expats in Portugal already with NHR tax status will keep their benefits for the duration of their 10-year term but urgently need to plan for the end of that period as early as possible to avoid progressive tax rates.

The survey report which was published on the 24th October about wealthy expats in Portugal, revealed just 27% of current affluent expats with NHR status have planned in advance ahead of the end of their 10-year NHR tax status and mitigate the potential for a huge increase in their tax burden under Portuguese progressive tax rates of between 28% and 48%.

Portuguese Prime Minister Antonia Costa

David Vacani, CEO of Beacon Global Wealth Management who advises high net worth individuals based in Portugal, explained: “Many affluent expats are too busy enjoying the fabulous lifestyle Portugal offers that they forget to plan ahead.

“We have always advised people that it’s never too early to start looking at what happens after the 10-year perks expire.

“If you take action within the first two to three years of your NHR tax status, you can end up paying a much lower tax rate over a prolonged period of time way beyond the 10-year qualifying period if you structure things correctly.

“Even if you are entering the last years of the NHR tax scheme, you still have time to take steps – but we would strongly advise you to act much sooner in years 1 to 7 than leaving it too late.”

David Vacani is also the chairman of FEIFA (Federation of European Independent Financial Advisors)

Steve Philp, a spokesman for Portugal Pathways said: “Portugal’s appeal is certainly not diminishing – with thousands of affluent expats still drawn to its quality of life, 300+ days of sunshine, safety and security, culture, great investment opportunities and top-quality health care and education.

“But the changes to the NHR tax regime will have an impact. The key is to act sooner rather than later, and that includes people who are already on the scheme based on the findings of the new Wealthy Expats in Portugal Survey Report.’’

The ‘Wealthy Expats in Portugal Survey Report 2023’ is published by the independent research company, World Digital Foundation (WDF research).

Paul Stannard, chairman of Portugal Pathways: ‘’This survey of current and prospective wealthy expats highlighted that Portugal is such a culturally rich, safe and secure haven compared with almost anywhere else in the world to relocate but many existing expats had failed to structure their tax and finances in Portugal for the long term.’’

The research polled more than 1,000 current and potential affluent expats from in particular the UK, USA, Canada, Brazil and South Africa and Asia – to share their opinions and insight on their likes and dislikes as well as discuss the benefits and challenges of a life in Portugal.

Some of the key findings in the 'Wealthy Expats in Portugal Survey Report 2023' was that only 27% of current NHR tax holders had prepared and structured their tax status in the first 7 years of their 10-year plan under NHR, to mitigate Portuguese progressive tax of between 28% and 48% after it ends. The research showed that there was a lack of structured long-term planning for the majority of existing NHR tax holders.

The findings showed that delaying this tax and wealth planning under NHR tax regime is potentially creating a significant potential tax burden for many wealthy expats who have not sought expert specialist advice.

Steve Philp at Portugal Pathways stated: ‘’It was important that current NHR tax holders connect with the relevant professional advice to plan and mitigate any tax burden for the 53,263 existing affluent NHR tax holders in Portugal.’’

The report also highlighted that Portugal is still in the top 5 locations for investment, relocation, retirement, security, healthcare, cost of living, happiness, climate, culture, and lifestyle of over 50 countries famed for their attraction to affluent expats from abroad.

Portugal has also recently been named as a major real estate top property hotspots for high net worth individuals and international investors well as its status as the number one place to relocate in the world in 2023.

Alternatively register for our next webinar and understand more about what to do and how to act in relation to your NHR tax status to mitigate future progressive tax rates of between 28% and 48%.

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Disclaimer: The guidance above should not be fully relied upon and does not constitute formal instructed professional advice. In relation to tax advice in Portugal, please engage and instruct a regulated professional for all tax advice and structured financial planning. Please contact Portugal Pathways if you would like an introduction to one of our professional advisors.

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