The New NHR: Non-Habitual Residents in 2024

Introduction to the NHR Regime

Portugal's non-habitual resident (NHR) tax regime has long been a popular choice for individuals looking to benefit from favorable tax incentives. However, recent developments have led to significant changes in the regime, with Parliament Portuguese soon to approve the end of the NHR regime.

The end of the NHR regime

As of 1 January 2024, the NHR scheme will no longer be available to new residents. This means that individuals not registered as NHR residents before this date will no longer be eligible for the scheme. However, it is important to note that the existing NHR regime will continue to apply to individuals registered as NHR residents until the end of the ten years provided for by law.

Grandfather provision for existing NHR residents

A grandfathering rule has been implemented to protect individuals already registered as NHR residents. Suppose you are officially registered as a tax resident in Portugal and have applied for the NHR before December 31, 2023. In that case, you will continue to enjoy the benefits of the existing NHR regime until the end of the ten years. For example, if you registered as an NHR resident in 2020, you will not be affected by the end of the NHR regime and will be able to continue to apply the existing NHR rules until 31 December 2029.

Special scheme for newcomers

For individuals who meet the following criteria, there is a special NHR safeguard rule, i.e. meaning that they can obtain NHR status under the old rules by applying for NHR status by 31 December 2024:

Have a promissory employment contract or secondment contract signed by December 31, 2023 to work in Portugal.
Have a lease agreement or other concession agreement for the use or possession of property in Portugal entered into before October 10, 2023.
Have a reservation or promissory contract for the acquisition of a property in Portugal entered into before October 10, 2023.
Enrolment of dependents in an educational establishment Portuguese until October 10, 2023.
Have a residence visa or residence permit valid until December 31, 2023.
Initiate the procedure for granting a residence visa or residence permit by December 31, 2023, under the terms of the immigration legislation in force.

It is important to note that this special safeguard rule also applies to individuals who are members of the household of taxpayers covered by the above-mentioned conditions. For example, let's say you have a promissory employment contract signed with a Portuguese company to start working in Portugal in 2024. In that case, you can register as a tax resident under the NHR regime and benefit from the special safeguard rule.

The New NHR (also known as NHR 2.0): Tax Incentive for Scientific Research and Innovation

In addition to the changes to the NHR regime, a new tax incentive for scientific research and innovation was introduced for individuals moving to Portugal from 1 January 2024. To be eligible for this incentive, individuals must meet one of the criteria below:

Hold office or engage in other activity as a tax resident
Teaching in higher education and scientific research, including scientific employment in entities, structures and networks of the national scientific and technological system, as well as jobs and members of governing bodies in entities recognized as technological and innovation centres.
Qualified jobs and members of the governing bodies of entities fall within the scope of the contractual benefits to productive investment, defined in Chapter II of the Investment Tax Code.
Highly qualified professions, defined by Ministerial Decree, in companies with relevant applications in the year of commencement of activity or in the previous five years that benefit or have benefited from the Investment Promotion Tax Regime (RFAI) or in industrial and service companies (with activities in areas to be defined by Ministerial Decree) that export at least 50% of their turnover in the year of commencement of work or in the previous two years.
Other qualified positions and members of governing bodies of entities that carry out economic activities recognized by AICEP or IAPMEI (public investment bodies) as relevant to the national economy, namely in attracting productive investment and reducing regional asymmetries.
Research and development staff, with eligible costs for the R&D tax incentive scheme, provided for in the Investment Tax Code.
Positions and members of governing bodies of entities certified as start-ups under the Portuguese Start-Ups Law.

Taxpayers who meet the requirements as new tax residents as of 2024 and fall into any of the positions listed above may be subject to a special tax rate of 20% on income from work or business activity earned within the scope of such activities for ten consecutive years. To be eligible for this scheme, taxpayers must continue to earn active income, with a maximum interval of 6 months between eligible activities or jobs.

Under the current proposal, eligible taxpayers will be exempt from foreign income tax in several categories, including income from work done abroad, income from self-employment carried out abroad, foreign rental income, and capital gains on foreign-based assets. However, it is important to note that this exemption does not include pension income. In addition, certain items of income sourced from sources in blacklisted jurisdictions will be subject to a flat tax rate of 35%.

A Ministerial Decree will regulate the registration of beneficiaries with entities and communication with the tax authorities. Until the approval of such a decree, the activities qualified as "high value-added activities" will be those currently applicable to the NHR regime, and the registration of beneficiaries will be done directly with the tax authorities, as in the NHR regime. Understanding that this special regime can only be used once is crucial. It is not available to taxpayers who have already benefited from the NHR regime or have opted for partial exemption under a special regime for former residents.

Tax Regime for Former Residents

For former Portuguese tax residents who become residents again between 2024 and 2026, a 50% relief, capped at €250,000, from employment and business income is available. This regime applies only to former tax residents who have not been tax residents in Portugal in the five years prior to their application. The exemption applies for a period of five years and cannot be combined with any other special scheme.

Conclusion

The new NHR regime in Portugal, expected to come into force in 2024, significantly changes the tax benefits available to individuals moving to the country. While the current NHR regime will end, the safeguard provisions will ensure a smooth transition to existing NHRs. The new tax incentive for scientific research and innovation also aims to attract individuals who are engaged in these activities.

It is essential to consult with legal and tax professionals to understand how these changes may impact your circumstances and determine the best course of action. You will be able to make well-informed decisions regarding your tax residency and financial planning in Portugal by staying informed and seeking professional advice.

Disclaimer: This article provides general information and should not be a substitute for personalized advice from tax professionals. Content is based on information available at the time of writing and is subject to change. Consult professionals for advice tailored to your specific circumstances.