Portugal to end Popular NHR Regime at the end of 2023

Is Portugal's NHR Regime Ending?

Portugal has long been a popular destination for expatriates and retirees looking to enjoy a high quality of life in a beautiful and welcoming country. One of the key attractions for many is the Non-Habitual Residents (NHR) tax regime, which offers significant tax benefits for individuals relocating to Portugal.

However, in a recently televised interview with CNN Portugal, the prime minister of Portugal, Antonio Costa,  announced that he plans to end Portugal's popular NHR scheme. The recent Portuguese budget proposal in October 2023 further confirmed that it is Portugal's intention to end the regime at the end of 2023. This decision is expected to have a significant impact on those who have already taken advantage of the NHR program, as well as those considering a move to Portugal in the future.

​The NHR tax regime (Non-Habitual Residents) in Portugal allows qualifying  professionals, retirees and high net worth individuals to benefit from a 20% flat rate of tax on Portuguese-source income. Many foreigners who planned to move to Portugal at the beginning of 2024 are understandably upset by the short notice of this news. John, a user comment from a popular Facebook group, stated the following:

"You have got be kidding me! Please someone tell me this is just a nightmare from which I will soon awake. We are sitting on a plane right now on our way to Lisbon, and will soon be in Portugal to sign a promissory contract on a new home. We were hoping to renovate the home and move in next summer. Am I understanding that we have as little as 3 months now to move?" -John Williams

​For individuals who are considering a move to Portugal, this announcement may influence their decision to relocate. The removal of this significant tax benefit may make other countries with more favorable tax regimes more appealing. Spain, for example, also has a similar tax regime, where  NHRs are taxed at a flat rate of 24%. Spain may become an attractive alternate option to those who were considering a move to Portugal. 

Understanding the NHR Regime

The Non-Habitual Resident (NHR) tax regime was introduced by the Portuguese government in 2009 with the aim of attracting wealthy individuals and retirees to Portugal. Under this regime, qualified individuals who become tax residents in Portugal enjoy several tax benefits, including:

1. Tax exemption on foreign income: NHRs are exempt from paying taxes on certain types of foreign income, including pensions, rental income, and capital gains, for a period of 10 years.
2. Reduced tax rates on Portuguese income: NHRs benefit from reduced tax rates on income earned in Portugal, particularly for high-value professions such as engineering, finance, and technology.
3. Wealth tax exemption: NHRs are exempt from paying wealth tax in Portugal, making it an attractive option for individuals with substantial assets.

The Prime Minister's Justification for Ending the NHR Regime

The government of Portugal and the Prime Minister has cited several reasons for the decision to end the NHR tax regime. Primarily, the move is seen as an effort to address growing concerns about tax avoidance and wealth inequality. Critics argue that the NHR regime disproportionately benefits the wealthy, allowing them to pay little or no tax on their income and assets.

Additionally, the Portuguese government aims to streamline the tax system by removing the complexities associated with the NHR regime. Ending the program would foster greater tax equity among residents and ensure a fairer distribution of the tax burden.

​​Planning for the Future

There is still time to apply, for some people, even if the NHR regime ends at the end of 2023. According to the budget proposal, NHR ends on December 31, 2023. People who meet certain conditions on or before that date should still be able to apply before March 31, 2024.

For those who want to benefit from the NHR regime, it is essential to seek professional advice as soon as possible. There are many Portuguese attorneys that offer this type of legal and immigration service. Given that the changes will come into effect in 2024, individuals still have some limited time to evaluate their options and make the necessary adjustments to their financial plans. 

It is also important to note that while the NHR regime is set to end, Portugal still offers many other advantages as a place for residency or retirement. These include a favorable climate, affordable cost of living, excellent healthcare, and a high standard of living. Individuals should consider these factors alongside the changes to the tax regime when making their decisions.

Carefully Consider all Your Options!

The Portuguese government's decision to end the Non-Habitual Residents (NHR) tax regime in 2024 will undoubtedly have a significant impact on individuals who have already taken advantage of the program and those considering a move to Portugal.

​The move is seen as an effort to address tax avoidance and promote greater tax equity among residents. While the changes may present challenges for NHRs, Portugal still offers many appealing qualities that make it an attractive destination for residency or retirement. Seeking professional advice and considering alternative tax planning strategies are advisable to navigate the new tax landscape.