Portugal : Non-haitual resident (NHR) transitional regime

INTRODUCTION

The NHR regime, introduced on 23 September by Decree-Law No. 249/2009, with the aim of attracting high-net-worth individuals and highly qualified professionals, brought tax competitiveness and attracted foreign investment to Portugal.

However, believing that the regime had already produced the desired effects, the Government decided to announce its termination in October 2023, having subsequently clarified its terms in the new State Budget Law (LOE).

THE MITIGATION RULES

The various changes approved by LOE 2024, which came into force on 1 January 2024, included some mitigation rules for the NHR regime, with the purpose of safeguarding the cases of taxpayers who met the established criteria and wished to relocate to Portugal under this special regime in 2024 and onwards, namely applicants who:

1. were already registered as NHRs in Portugal on the date this proposal came into force;
2. met the conditions to qualify as residents in Portugal for tax purposes on 31 December 2023;
3. became residents for tax purposes by 31 December 2024 and who declared, for the purposes of their registration as non-habitual residents, that they had one of the following:

• promise or contract of employment, promise or secondment agreement signed before 31 December 2023, for work to take place on national territory;
• lease agreement or other agreement granting the use or possession of real estate on Portuguese territory signed before 10 October 2023;
• reservation contract or promissory contract for the acquisition of a right in rem over real estate on Portuguese territory signed before 10 October 2023;
• enrolment or registration of dependents in an educational establishment on Portuguese territory completed by 10 October 2023;
• residence visa or residence permit valid until 31 December 2023;
• procedure for a residence visa or residence permit initiated before the competent authorities before 31 December 2023, in accordance with the legislation in force applicable to immigration, namely through the request for an appointment or an actual appointment for submission of the application for a residence visa or residence permit, or by submitting the application for a residence visa or residence permit;

1. family members of the applicants in any of the above situations.

 

In all cases, the regime is applicable for a period of 10 consecutive years and under the terms previously in force, thereby maintaining the obligation to request registration as an NHR before 31 March of the year following the year in which the tax residency begins.

Provided the NHR registration is carried out after this deadline, special taxation under the transitional regime will take effect as from the year of registration and only for the remaining part of the 10-year period.

THE BENEFITS OF THE REGIME

Similar to the previous provisions, the transitional period of the NHR regime maintains all previous advantages for those registering from 2024 onwards, particularly the exemptions applicable to some types of income from a foreign source and the special tax rates.

Specifically, regarding income from a foreign source, the NHR regime allows an exemption from Personal Income Tax for various types of income including, among others, dividends, interest, rental income and capital gains, provided that taxation rights are attributed to the source State under the applicable Double Taxation Treaty or, if there is none, under the OECD Model Convention.

Additionally, pensions from a foreign source received by NHRs are taxed at a flat rate of 10%, even if they are not taxed in the source State.

On the other hand, income from dependent or independent work, when arising from high value-added activities of a scientific, artistic or technical nature that are included in the official published list, may benefit from taxation at a special rate of 20%, compared to progressive taxation under the general regime which can go up to 53%.

CONCLUSIONS

In practice, and depending on the type and source of income as well as the rules established in each of the Double Tax Treaties signed by Portugal, the NHR regime remains very attractive for those who intend to move to Portugal in 2024, provided that they comply with the requirements described above. This is also because the country has no taxation on successions or donations to spouses, descendants or direct ascendants, and enjoys a very pleasant Mediterranean climate, combined with the fact that it is one of the safest countries in Europe.

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