HNWI Americans rush to beat NHR scrap deadline
United States citizens are scrambling to qualify for Portugal’s tax breaks before they are phased out according to Bloomberg.
An end to tax breaks for so-called ‘Non-Habitual Residents’ announced by the prime minister in October as part of a wider sweep of measures to address Portugal’s housing crisis has “led to a surge in Americans filing for tax residency”.
Although normally aimed at EU citizens, since the scrapping of most investment avenues offered by the Golden Visa programme, which effectively ended at the start of 2023, according to wealth management and tax advisors Blevins Franks “people of any nationality (including non-EU/EEA citizens) can potentially qualify for NHR if they have not been resident in Portugal within the previous five calendar years”.
According to Bloomberg, “Americans living abroad still pay US taxes. But the non-habitual resident tax system allows expats relocating to Portugal to pay a flat 20% tax on income and 10% levy on pensions for 10 years. That’s less than the progressive tax regime for locals, which requires residents with annual incomes surpassing about €79,000 to pay a 48% tax”.
Portugal’s NHR regime was set up in 2009 to attract overseas capital after Portugal’s real estate, construction and overall economy was battered by the fallout from the US housing market collapse in 2007-8, Portugal’s Sovereign Debt Crisis in 2011-2014 and ensuing Great Recession which saw overseas investment dry up.
Both the NHR and Golden Visa programmes, the latter introduced in 2012, were great successes, with nearly 90,0000 people benefitting from the programmes to date.
In Portugal here were around 660,000 expats living in the country, of which nearly 10,000 are US citizens. The number of Americans more than tripled to 9,794 between 2018 and 2022, according to official statistics.
In 2021, Portugal had 1,198,793 inhabitants that were born in a foreign country, out of 10,467,366 inhabitants, accounting for 11.5% of its total population.
Immigration to Portugal has steadily increased in the last years. At the beginning of 2020 there were 590,348 foreigners living in the country, their number increased to 662,095 at the end of 2020, to 698,887 at the end of 2021 and up to 781,915 at the beginning of 2023. This means that the relative incidence of foreigners has increased from 5.7% to 7.5% in just 3 years. From December 2019 to December 2022 the number of foreigners increased by 32.4%.
However, the number of US citizens in Portugal, expected to rise to 10,000 by 2024 is still a lot less than Brazilians (239,774), Brits (45,256), or even Chinese (22,230).
And despite generous tax breaks, expats under the NHR programme alone paid €1.4Bn in taxes benefitting the Portuguese economy, while the Golden Visa programme brought in €7Bn to State coffers since its introduction in 2012.
While the changes to Portugal’s tax incentives schemes were passed in the parliament on November 29, the NHR deadline has been extended through a transitory regime to Dec 31, 2024 but applicants must show documentary evidence that they were planning to move to Portugal in 2023.
“The original reprieve now extends to individuals, who had already started their journey to relocate to Portugal in 2023, up until the 31 of December 2024, if they can provide proof”, states Portugal Homes on its website.