Portugal's Tax Landscape Shifts: NHR Regime Ends, New Incentives Emerge

The proposal for the Portuguese State Budget of 2024, unveiled in the parliamentary session on 10th of October, signifies the termination of the Non-Habitual Resident (NHR) regime, a decision previously communicated by the Prime Minister of Portugal during a televised interview.

The Non-Habitual Residence (NHR) regime, implemented in Portugal in 2009, essentially grants tax residency in Portugal, consequently offering tax benefits by exempting or reducing income tax on certain income categories for 10 years.

Commencing from 1st of January 2024, this regime will be discontinued. Nevertheless, it will continue to apply to the following groups:

1. Individuals already registered as NHR when the State Budget Law takes effect;
2. Those who meet the access conditions for the regime until 31st of December 2023 and holders of a valid residence visa at that time, provided they submit the registration process by 31st of March 2024.

For individuals already benefiting from the NHR regime, the existing tax conditions will remain unaltered for the remaining period of their 10-year program.

Simultaneously, the proposal encompasses the establishment of a new special tax incentive regime dedicated to Scientific Research and Innovation. This new regime will apply to individuals who become tax residents and have not resided in Portugal during the preceding five years. Eligible categories include:

1. Academic and scientific research roles, including roles in entities, institutions, and networks dedicated to the generation, dissemination, and transmission of knowledge, integrated within the national science and technology framework;
2. Specialized positions within the framework of contractual incentives for productive investments, as outlined in Chapter II of the Fiscal Investment Code;
3. Roles in research and development, primarily targeted at individuals holding a Ph.D. qualification. The associated costs are eligible for incentives within the fiscal framework for business research and development, as defined in Article 37, number 1, b) of the Fiscal Investment Code.

Moreover, individuals seeking to avail themselves of these benefits are required to register with the Fundação para a Ciência e Tecnologia, I.P., the Agência para o Investimento e Comércio Externo de Portugal, E.P.E., and the Agência Nacional de Inovação, S.A., as applicable. Further particulars on how we report this information to the Tax Authority will be communicated within the year.

The new regime incorporates the following elements:

• Taxation at a special personal income tax rate of 20% on earnings from employment and self-employment within these specified fields. This favourable rate applies for a continuous duration of 10 years, commencing from the year of becoming a resident in Portuguese territory;
• An exemption from tax on foreign-sourced income stemming from employment, self-employment, investment, rentals, and capital gains from selling real estate. The tax exemption is calculated progressively, meaning that the exempt income is combined with other taxable income to determine the applicable tax rate.

It is crucial to note that this regime is accessible to an individual only once, and those who have benefited before from the Non-Habitual Residence (NHR) regime or have chosen income taxation under the 'Former Residents' regime are ineligible for this new scheme.

Additionally, there will be minor adjustments to the "Programa Regressar", introduced in 2019 to support emigrants in returning to Portugal through financial aid and tax incentives. Eligibility criteria comprise:

• Have resided in a foreign country for at least 12 months, which qualifies them as emigrants;
• Have begun or start a professional activity (as an employee or self-employed) between the 1st of January 2019 and 2026 in mainland Portugal;
• Have been absent from Portugal for at least three years (from the start of their professional activity in Portugal).
• Have regularized their social security and tax status;
• Are not in breach of any obligations if they have received financial support from the Institute of Employment and Vocational Training (IEFP);
• Family members (remaining in Portugal) of emigrants who left the country at least three years ago can also apply for support;
• The exemption of 50% applicable can`t be higher than €125.000,00 euros.

Given these modifications, Individuals impacted by the end of the NHR regime and those considering the new tax incentive scheme should take action to secure eligibility and navigate the evolving fiscal landscape in Portugal.

If further inquiries arise concerning this matter, please do not hesitate to contact us. We are available to provide support and guidance.