Is this the end of the NHR Regime in Portugal?

The possible end of the NHR Regime in Portugal has left people confused. What’s next for taxation laws in the country?

Article by Viv Europe - Official Legal and Relocation Partner to KipperTree.

November 16, 2023

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The recent news has taken people by surprise. First, the news of the end of the NHR Regime in Portugal. Later, the resignation of the Prime Minister. There’s a lot of speculation and waiting, but are we hopeful? This article will attempt to uncover all that we know about the end of the NHR Regime as of November 2023. 

All is not lost, folks! The government still has many incentives for ex-pats and investors that keep the interest in Portugal alive. We’ll talk about how this regime brought about significant changes in the past and what it means for existing NHR status holders. 

Keep reading to learn all about these new changes and the legal framework for the termination. The future of taxation in Portugal will still interest you because of how the system works. Tag along to find out more! 

What was the NHR Regime?

The Non-Habitual Resident Regime was created in 2009 and has saved expats tens of thousands of euros in tax. Almost 15 years and counting of tax incentives helped expats invest in other markets within Portugal. 

As per the law, the regime offered a Personal Income Tax (IRS) reduction for up to 10 years. This was specifically for expats of any nationality and Portuguese citizens returning home after at least five years. 

What were the tax benefits for ex-pats?

The NHR Regime targets individuals from two categories: passive income earners and highly qualified workers. 

Within these two categories, the tax benefits are: 

Fixed tax rate of only 10% on passive income outside Portugal;

Fixed tax rate of only 20% on work income in Portugal (related to some areas of activity).

For income sourced outside of Portugal, the fixed tax rate of 10% is applicable on pensions, dividends, royalties, capital gains, and property gains. 

For work income within Portugal, for those who performed a professional activity, individuals were required to submit the Income Tax Declaration (IRS). The flat tax rate of 20% is applied to people who work under the category of highly qualified workers. 

As for other income related to activities that didn’t qualify for the NHR Regime in Portugal, the tax rates are between 14.5% and 48%. 

Impact on foreign investment and real estate market

While the NHR Regime was often a matter of debate and criticism, it brought significant investments that boosted the economy. 

The Non-Habitual Resident status attracted foreign investors and hundreds of expat retirees who wished for a better life. As people capitalized on the tax incentives, small towns, and previously dormant or underutilized areas saw immense transformations. There was significant commercialization and development in the tourism sector.

Apart from that, the NHR also helped strengthen the real estate market through foreign investments. Partial credit also goes to the Golden Visa policies at the time. 

Portugal’s property market emerged as a competitive investment option and improved the overall economic situation slowly. 

Unfortunately, there were consequences. 

With the constant increase in demand for real estate, a new housing crisis emerged. This drove property prices and rent too high, which led to a gap between what the locals could afford and what they were expected to pay. 

This is why the end of the NHR Regime was proposed for the State Budget 2024. Now, let’s give you some more details on what we know so far. 

What we know about the end of the NHR Regime 

Let’s break it down from A to Z! 

The NHR regime in Portugal was introduced as a tax benefit but ended up being misused by non-targeted groups. 

This led to potential revenue losses for the Portuguese government. As a result, the EU raised concerns regarding the regime unintentionally acting as a gateway for tax competition and tax evasion risks.

With these political and legal questions raised, Portugal had to think about putting an end to the era. The country is now reevaluating its tax system to ensure it complies with global standards due to evolving international tax agreements.

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