Portugal will end favourable tax regime for non-habitual residents

The Portuguese Non-Habitual Residents (“NHR”) regime has, since its introduction after the 2008 financial crisis, been attractive to many UK expats. It provides reduced rates of tax on certain employment, self-employment, and pension income, alongside a wide tax exemption on non-Portuguese income and gains. The favourable tax status is currently available for a period of up to 10 consecutive years to individuals who have relocated to Portugal, having not been resident in Portugal for at least the previous 5 years.

The Portuguese government has announced that – subject to the State Budget Law Proposal for 2024 being passed by the Portuguese Parliament, which is expected to be a formality – the ability for new entrants to join the NHR regime will cease in 2024.

Some of the technical detail relating to the proposals may still change but at this point in time, it is expected that:

• Individuals currently within the NHR regime will retain their favourable tax status for the remainder of their designated 10 year period.
• Where individuals qualify for entry into the NHR regime on or before 31 December 2023, and hold a valid residence visa on that date, they will be able to join the NHR regime as long as they complete the registration formalities by 31 March 2024. Individuals that join the regime in this way will still be able to benefit from the regime for up to 10 years.

A replacement regime, being referred to as the Incentivised Tax Status (ITS) regime, is intended to be introduced for individuals working in scientific, R&D, and innovation roles. A more general new regime for newly resident individuals – with no requirement to be working in a particular industry – is also being mooted; the specific details of this are still to be confirmed, but the expectation is that the tax benefits on offer will be more limited than those that are currently available.

UK individuals who have moved to Portugal – or who are intending to do so – in anticipation of applying for entrance into the NHR regime may now need to expedite their application in order to stand the best chance of benefitting from the regime.

If these changes will or may affect you, please do get in touch with our private client tax experts at Moore Kingston Smith to discuss your tax position.