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NHR Regime to Conclude by the End of 2023

Oct 16, 2023

The proposal for the State Budget of 2024, presented in the parliament on the 10th of October, puts an end to the Non-Habitual Resident (NHR) regime, as announced earlier by the Prime Minister of Portugal in an interview with a television channel.

The Non-Habitual Residence (NHR) regime, which came into effect in Portugal in 2009, essentially allows eligible individuals to attain tax residency in Portugal, thereby avoiding or reducing income tax on specific categories of income for a duration of 10 years.

This regime will be discontinued from the 1st of January 2024. However, it will continue to be applicable to the following groups:

Individuals already registered as NHR when the State Budget Law comes into effect;
Those who meet the access conditions for the regime until the 31st of December 2023, as well as holders of a valid residence visa at that time, provided that the registration process is submitted by the 31st of March 2024.

The tax conditions for individuals already benefiting from the NHR regime will remain unchanged for the remainder of the 10-year program.

Simultaneously, the proposal includes the creation of a new special tax incentive regime for Scientific Research and Innovation. This regime will apply to individuals who become tax residents and have not resided in Portugal during the previous five years and fall into the following categories:

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;
Specialized positions within the framework of contractual incentives for productive investments, as outlined in Chapter II of the Fiscal Investment Code;
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.

Furthermore, individuals seeking to avail themselves of these benefits must 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 details on how we report this information to the Tax Authority should be announced this 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 favorable 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's imperative to note that this regime is accessible to an individual only once, and those who have previously benefited from the Non-Habitual Residence (NHR) regime or have opted for income taxation under the 'Former Residents' regime are not eligible for this new scheme."

It is also important to highlight that there will be minor changes to the “Programa Regressar”, created in 2019 with the aim of supporting emigrants in returning to Portugal through financial support and tax benefits for those who:

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.

In light of these changes, individuals affected by the conclusion of the NHR regime and those considering the new tax incentive scheme are encouraged to take timely action to secure their eligibility and navigate the evolving fiscal landscape in Portugal.

Should you have any further inquiries regarding this matter, please do not hesitate to contact us. We are delighted to offer our assistance and support.

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Benefits of Personal Income Tax for Young Professionals

by Diogo Pedro • 07 May, 2024

Over the past four years, young workers who earned their first income as employees or self-employed individuals have been eligible for a tax benefit in their personal income tax, known as 'IRS Jovem”. This benefit is intended to offer young workers the possibility of minimising their tax obligations, allowing for a higher amount of disposable income. To enjoy this benefit, taxpayers are required to comply with the following requirements: Have a complete course of level 4 or higher studies on the National Qualifications Framework (high school level acquired through double certification and aimed at pursuing higher education such as a bachelor’s degree, a master’s degree, or a PhD). Age between 18 and 26 years old. Considered independent, i.e., no longer included in the parent’s household for tax purposes. The specified age limit includes individuals up to 26 years old, inclusive. However, this limit is extended to 30 years old for taxpayers who have completed a degree at level 8 of the National Qualifications Framework (PhD). In 2024, this tax benefit has been improved, with increased tax exemption rates and an expanded range of applications over time. In this sense, upon completing the course of studies required, the individual may qualify for an exemption from personal income taxes for a duration of 5 years, as explained in the following details: 100% of the income in the first year with a cap of 40 times the Social Support Index – “IAS” value (€20.370,40). 75% of the income in the second year with a cap of 30 times the IAS value (€15.277,80). 50% of the income in the third and fourth year with a cap of 20 times the IAS value (€10.185,20). 25% of the income in the fifth year with a cap of 10 times the IAS value (5€.092,60). Moreover, the exemption can only be used once by the same taxpayer and should be requested when preparing and filing the personal income tax return. It is also important to acknowledge that this benefit has implications for withholding tax, allowing adjustments to the value subject to withholding tax. However, be aware that, while the withholding tax rate applied corresponds to the total amount of income earned, it is only applicable to the portion that is not exempt. If you have any questions or need assistance with this or related matters, feel free to reach out . We would be delighted to help you.

Being an urgent process, this legal action has priority over legal actions not deemed to be urgent.

My application has been pending for months with the Immigration Office - AIMA. What can be done?

by Sara Ferreira • 29 Apr, 2024

It is known to the general public that the Portuguese Immigration Office (AIMA) has not been able to timely approve residency authorisation requests within the legal timeframe defined to do so, thus resulting in residency applicants having their applications on hold for months, in some cases even years. One way to tackle this inaction from the Immigration Office is to file a legal action, namely the Subpoena for rights, freedoms and guarantees of the citizens.