The new NHR tax status — what it means for EU relocaters
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.
So what does this mean to new NHR tax status applicants proving their intent to move to Portugal? Portugal Pathways, if not making sense of all of it – the details of the new Incentivised Tax Scheme have yet to be revealed and may not be until after the March 10 elections – guides us through some of the main existing features.
If a relocater is already in the process of expediting their application for NHR tax status, they will need to have already demonstrated serious intent to do so, or it will likely be too late, and they 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 according to tax, property and relocation advisers Portugal Pathways.
Existing NHR tax status holders
For existing affluent expats already enjoying the benefits of the Non-habitual residency (NHR) tax regime, it is really important that they seek advice early in their NHR tax status life to ensure that they are structured correctly to mitigate progressive tax rates in the future.
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 the NHR tax status holder is between 1 to 7 years into the 10-year benefits of low tax, it’s vital that they have structured and planned their 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 holders are in year 8 or 9 of their 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 their NHR tax status life can have potentially serious consequences on their income and assets in the future.
How to be eligible
To be eligible for NHR tax status, the relocater must meet the following requirements:
• They must not have been a Portuguese tax resident for the previous 5 years.
• They must have a residence in Portugal on December 31st of the year in question or have made an appointment with the immigration office.
• They 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 they are a non-EU citizen, they need to prove that they 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 the application as demonstrating proof of intent.
What happens if you don’t have a visa yet as a non-EU citizen?
As a non-EU citizen, if the relocater doesn’t have their Portuguese residence visa yet, but can provide evidence that they have an appointment with the immigration office or a visa residency card, this will demonstrate a proof of intent in time for the December 31, 2023, deadline to new entrants to NHR tax status. And they will then be able to still qualify for NHR tax status in time for the 31st of March 2024 tax period.
They will need to provide the Portuguese tax authorities with documentation that proves an intention to reside in Portugal, such as a lease agreement, utility bills, schools, or visa appointments. They will also have to ensure that they have an NIF tax ID, Portuguese bank account, and in the case of children, evidence that they 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 a relocater’s professional or personal income and assets, investments, and most likely their profession or retirement status where applicable.
What are the 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, applicants should seek professional tax advice depending on where their assets are held.
• A flat tax rate of 20% on Portuguese-source employment income.
What does it mean for new NHR tax status applicants who are currently expediting their application and evidencing their intent?
If the relocater is already in the process expediting their application for NHR tax status, they will need to have already demonstrated serious intent to do so, or it will likely be too late, and 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.