Update: End of the NHR and New Alternative Tax Schemes

Proposal Budget Law for 2024:

On October 10, the Portuguese government released the Proposal Budget Law for 2024, which will now undergo a period of discussion and debate in the coming weeks. The final text is expected to be confirmed according to the presented draft, considering the parliament already gathers most votes, by November 29, 2023.

Grandfathering Rule for Existing NHRs:

For existing NHRs, the grandfathering rule will apply, meaning that tax residents already registered as NHRs will continue to benefit from the current regime until the end of their 10-year period.

New Registrants:

Tax residents as of December 31, 2023, who meet the conditions to register as NHR (including holders of a valid residence visa on that date) may also benefit from the regime until the end of their 10-year period.

End of NHR Regime for New Tax Residents:

Starting January 1, 2024, the NHR regime will no longer be available for new tax residents.

Alternative Tax Incentives for New Tax Residents:

The Proposal Budget Law for 2024 introduces alternative tax schemes for new tax residents, including:

1. 50% Income Exemption: 

New residents arriving between January 1, 2024, and December 31, 2026, may benefit from a 50% exclusion on income from employment and independent work income, up to a maximum of 250.000,00 EUR, for a period of 5 consecutive years. The only condition is that they have not been resident in Portugal during the prior 5 years from their arrival.

2. Tax Benefit for Scientific Research and Innovation:

This benefit is applicable for 10 years to those who have not resided in Portugal the 5 years prior to its application. It covers higher education and scientific research work, qualified jobs on eligible for special investments above 3M EUR, and R&D jobs eligible for special R&D-approved entities. This benefit includes an exemption on foreign-source income. However, it is not applicable to individuals who have applied for the NHR or opted for the 50% income exemption regime.

Here's a simplified comparative table between the Non-Habitual Resident (NHR) benefit and the new 50% Income Exemption scheme, focusing on specific features:

Conclusions:

- The NHR regime will come to an end for tax residents starting their Portuguese tax status in 2024, hence it will formally end in FY2032 when the 10-year period elapses.

- The new scheme excludes tax exemptions over foreign-sourced passive income, such as dividends, interest, royalties, and rental income, and its duration is limited to 5 years.

- Nevertheless, for taxpayers who exclusively earn income from employment and independent business up to a limit of EUR 103,825.90, the new scheme will be more advantageous within the first 5 years.

We understand that these changes may raise questions and require careful consideration. If you have any concerns or require further guidance, please do not hesitate to reach out to us. We are here to assist you and provide the support you need to navigate these evolving tax regulations.

Sincerely,
Westonbridge Team