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The 2024 State Budget and the NHR tax regime
Since 2009, Portugal has a special tax regime for non-habitual residents who wish to move to Portugal.
According to this regime, the beneficiaries don’t pay any tax on dividends, interest, royalties, capital gains, rental income, and salaries from foreign source. Pensions from foreign source are only taxed at a flat rate of 10% and people that qualify as highly qualified professionals only pay a 20% flat rate tax on income from Portuguese source. And the benefits last for ten consecutive years.
According to the Portuguese State Budget Proposal for 2024 the non-habitual residents tax regime shall be fully revoked.
Transitionally, the State Budget Proposal for 2024 states that this regime only shall continue to apply to:
- Taxpayers registered as non-habitual residents by the time of entry into force of the 2024 State Budget Law and until the end of the ten-year period foreseen under the regime; and
- Taxpayers who, on 31st December 2023, are eligible for the regime or hold a valid residence visa, provided that the registration is made up to 31 March 2024.
Even though, the Portuguese State Budget Proposal for 2024 provides for the creation of a new tax incentive similar to the non-habitual residents tax regime, but that is only applicable to taxpayers working on higher education and scientific investigation teaching staff included in the national framework of science and technology; qualified labour under the contractual regime for productive investment, as per the applicable legislation; and R&D labour by PhDs under certain conditions.
In this case, taxpayers that become tax resident in Portugal shall benefit from:
- A special 20% flat rate on net professional income from Portuguese source;
- An exemption on foreign sourced employment income, business and professional income, investment income, rental income and capital gains.
Simultaneously the Portuguese State Budget Proposal for 2024 also states that all foreigners - non-resident in Portugal in any of the previous 5 years - that become tax residents in Portugal in the years 2024 to 2026 shall benefit from a 50% relief from taxation of employment and business income up to EUR 250,000, and for 5 years, which is a much less favourable tax regime.
Meanwhile, with the resignation of the Portuguese Prime Minister, there was the expectation that the Portuguese State Budget Proposal for 2024 wouldn’t be approved.
However, the Portuguese President, made a declaration stating that he will only accept the Prime Minister resignation in December – after the budget vote in parliament – so that the Portuguese State Budget Proposal for 2024 may still be approved by the ruling party and so that European-funded public investments, already planned for 2024, are not jeopardised by the lack of a State Budget.
Accordingly, it’s very likely that the Portuguese State Budget Proposal for 2024 will be approved as it is, and the non-habitual residents tax regime will be effectively revoked.
Elections will take place on March 10 2024 and a new government will be formed.
If the ruling party wins the elections or is able to form a government with a left-wing coalition, it’s more than likely that there will be no rectifications or amendments to the state budget.
However, in any other scenario, the elected government will most likely reform and revise the State Budget for 2024 and there is a possibility that the non-habitual residents tax regime may be reinstated. Especially because there is a growing opinion that this regime brings more good than harm to the Portuguese economy and that, after all, it will not have contributed greatly to the housing crisis experienced in Portugal.
Nonetheless, the reform and revision of the State Budget for 2024 will not happen before April 2024.
Therefore, as things stand at the moment, the non-habitual residents tax regime will indeed be revoked and only those who fall under the transitional regime provided for in the Portuguese State Budget Proposal for 2024 will still be able to benefit from this tax regime, that is:
- Taxpayers registered as non-habitual residents by the time of entry into force of the 2024 State Budget Law and until the end of the ten-year period foreseen under the regime; and
- Taxpayers who, on 31st December 2023, are eligible for the regime or hold a valid residence visa, provided that the registration is made up to 31 March 2024.
