On October 2, the Portuguese Prime Minister took the nation by surprise when he announced a significant shift in the Non-Habitual Residency (NHR) tax regime starting in 2024. For many, the NHR scheme has been a beacon of tax incentives, but with this recent announcement, the landscape is poised to change.
The Major Announcements
End of Special Tax for New NHRs: From 2024, the special tax regime for new non-habitual residents will be terminated. However, for those already benefitting from this regime, there will be no changes. As the Prime Minister succinctly put it, “Whoever has it will keep it.”
Introduction of the “Incentive to Scientific Research and Innovation”: Replacing the NHR is the new tax regime specifically tailored for certain professionals:
- Higher education professors and scientific researchers.
- Those qualified within the specific scope of contractual benefits for productive investment.
- R&D jobs with personnel having minimum qualifications equivalent to a doctorate, provided these costs are eligible for specific R&D tax incentives.
For individuals in the categories above (who haven’t been a tax resident of Portugal in the past 5 years), a 20% rate on professional income earned in Portugal will be applied. Additionally, they’ll have access to exemptions on various foreign-sourced incomes, such as employment, dividends, capital gains, real estate income, or interest.
Broadened Tax Incentive: Starting January 1, 2024, a new tax incentive will be introduced. Anyone becoming a Portuguese tax resident (and not having been so in the past 5 years) will enjoy a 50% personal income tax exemption on employment and freelance income. This is for 5 years and isn’t limited to any specific expertise. The catch? This exemption is capped at 250,000 EUR per year. Income above this will be subjected to standard tax rates.
The Implications
These are significant changes, and here are some key takeaways:
- For those eyeing Portuguese tax residency before December 31, 2023, it might be beneficial to accelerate this move to benefit from the current NHR rules for a decade.
- For others not in this position, several promising options remain. Beyond the potential transitional provisions surrounding the existing NHR rules, new tax residents will benefit from a 50% tax break on employment and freelance income for 5 years (with the noted cap).
In a Nutshell
Portugal’s tax landscape is evolving, with clear indications of incentivizing scientific research, innovation, and broadly encouraging new tax residents. As with all major policy shifts, there are pros and cons, opportunities, and challenges. It’s essential to stay informed and perhaps seek expert advice to navigate these changes effectively.
Seek Expert Advice on Navigating the NHR Changes
Understanding Portugal’s evolving tax landscape, especially the shifts in the NHR regime, requires the insights of a seasoned professional. Meet Luis: With a stellar career spanning over two decades as a tax consultant within the Big 4, he’s not just any expert. His commitment and proficiency saw him rise to the position of Partner in 2014. Moreover, since June 2020, he’s been leading the charge as the head of the individual taxation team.
Why navigate these intricate changes alone when Luis, with his vast experience and keen understanding of individual taxation, can be your guide? From in-depth insights into the NHR regime to assisting you in acquiring its benefits, Luis is the expert you need by your side. 🔗
Book a consultation with Luis today and ensure you’re poised to make the best of Portugal’s taxation opportunities.