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The year 2023 brought forth a tide of substantial changes to Portugal’s coveted Non-Habitual Resident (NHR) regime, stirring both concern and anticipation among current beneficiaries and prospective entrants. Here’s a comprehensive walkthrough of the alterations, and what they signify for different cohorts of individuals in 2023 and 2024.
1. Sweeping Adjustments in Professional Eligibility:
- A major overhaul was witnessed with a shift from the initial list of professions, which was based on the codes of economic activities (CAE), to a new framework hinging on the Portuguese Classification of Occupations (CPP). The CPP-based model is expected to better address the hiring challenges faced by employers across diverse sectors in Portugal by aligning with the actual demand for specific skills and qualifications【Source】.
- The new list, in effect since January 1, 2020, brought in professions like doctors, engineers, university professors, and ICT specialists, while sidelining others such as psychologists and architects. This revision is open to review every three years depending on the economic scenario of the country【source】.
2. Curtains Closing on the NHR Regime for New Entrants:
- October 2023 marked a significant announcement by the Portuguese Prime Minister António Costa, declaring the cessation of the NHR tax regime for new entrants from 2024【Source 1】【Source 2】【Source 3】【Source 4】.
- However, a silver lining remains for individuals who become tax residents by December 31, 2023, as they can still apply for the NHR status and enjoy its benefits for the consequent 10-year period【Source】.
3. Introduction of New Tax Incentives:
- Replacing the NHR, a new tax incentive tailored for certain professionals is set to commence from January 1, 2024. This includes higher education professors, scientific researchers, and personnel engaged in R&D jobs with doctoral qualifications, provided these costs are eligible for specific R&D tax incentives. They will benefit from a 20% tax rate on professional income earned in Portugal, alongside exemptions on various foreign-sourced incomes like employment, dividends, and capital gains【Source 1】【Source 2】.
- Moreover, a broader tax incentive is introduced, granting a 50% personal income tax exemption on employment and freelance income for five years to anyone becoming a Portuguese tax resident (without being so in the past five years), capped at 250,000 EUR per year【Source 1】【Source 2】.
4. Opinions on the New Tax Regime:
- The new regime, though aimed at attracting non-habitual residents, has been criticized by tax experts as “complicated”, “ineffective”, and “not attractive” due to its limited scope in terms of eligible professions and jobs. They contend that it may fail to lure individuals to Portugal, contrasting it with the former NHR model which had a broader appeal【Source】.
Implications:
- For Newly Arrived Individuals (2023 and 2024): Those eyeing Portuguese tax residency before the end of 2023 should hasten their move to avail the existing NHR benefits for a decade. Post-2023 entrants, on the other hand, would have to navigate through the new tax incentives, which, although promising, have a narrower professional scope.
- For Existing NHR Beneficiaries: The transition bears no impact on current NHR beneficiaries, who will continue to enjoy the regime benefits until their 10-year period concludes【Source 1】【Source 2】.
The unfolding scenario underscores Portugal’s strategic shift in its fiscal landscape, with a clear pivot towards incentivising scientific research, innovation, and a more targeted attraction of new tax residents. Like any major policy shift, it presents a blend of opportunities and challenges, necessitating both current and prospective tax residents to stay informed and possibly seek expert advice to effectively navigate through these changes.
