The Portuguese tax system for non-residents (NHR) has been a major attraction for new residents since its introduction. The NHR program offered a flat tax rate of 20% on personal income for a decade and was particularly beneficial for those earning more than €80,000 a year, compared to the country’s standard tax rate, which can be as high as 48%. However, this lucrative scheme was abolished in 2023, as the Portuguese parliament decided that it no longer served the country’s interests. This development led to the introduction of the NHR 2.0 scheme, which aims to refine and continue some of the benefits under a new framework.
Grandfathering rules: A glimmer of hope
Despite the official termination, there is a window of opportunity for people who started their move to Portugal in 2023. If you have made certain contractual agreements, real estate transactions, school registrations for dependents or applications for residence in Portugal by the end of 2023, you could still fall under the original NHR regime. These grandfathering provisions ensure a smooth transition for those who are halfway to a new place of residence.
NHR 2.0: A new direction
However, there is a glimmer of hope for those thinking of moving to Portugal after 2023 – the introduction of NHR 2.0 from January 1, 2024. This new version aims to retain most of the benefits of the original scheme, except for certain benefits related to pension income, and marks a significant change in eligibility and benefits.
Existing NHRs remain unaffected
Individuals with NHR status will not be affected and will continue to enjoy the benefits of the program until the end of the ten-year period. However, these individuals should take advantage of this unique opportunity and consider tax planning for the future. Even if Portugal is not a permanent resident, there are opportunities to neutralize capital gains or receive lump sums at potentially lower tax rates than in other countries.
Presentation of the NHR 2.0
This revised scheme provides a 20% tax rate for earned or professional income and exempts various categories of income earned abroad, including dividends, interest, capital gains and rental income. However, NHR 2.0 focuses on the promotion of jobs in the areas of scientific research and innovation and thus moves away from the broad applicability of the previous regulation. This change aims to attract professionals from academia, scientific research and technological innovation, thus contributing to Portugal’s development in these sectors.
Significantly, the NHR 2.0 expands its scope of application, particularly in favor of those who become tax residents in Madeira or the Azores and participate in certain employment or investment activities within these regions. Further details are expected from an upcoming regional decree.
Who qualifies?
The eligibility criteria for NHR 2.0 are more specific and focus on individuals working in higher education, scientific research and certain high-value employment. These include professors, researchers and professionals in institutions known for their technological and innovative contributions. In addition, significant investors and persons involved in start-ups that meet certain requirements can also benefit from this regulation.
Obtaining a residence permit: Your gateway to NHR benefits
To become a non-resident (NHR), you must either spend more than half of the year in Portugal, purchase a property or perform public duties for the Portuguese state during the same period. For those who do not meet these conditions, it is essential to secure their stay through long-term visas. The Visa Portugal Golden Visa, D7 and D2 offer pathways to residency, albeit with updated investment criteria that focus on donations, venture capital and business start-ups rather than real estate.
What now?
For those considering relocating to Portugal, it is crucial to understand the nuances between the old NHR and the NHR 2.0. Whether you set your sights on the sunny mainland, enchanting Madeira or the fascinating Azores, the evolving tax regime offers unique opportunities and challenges.
Conclusion
As Portugal transitions to NHR 2.0, it is crucial for potential emigrants and current residents to keep up to date with the evolving tax regulations.
If you have any questions about the status of the NHR, I invite you to contact me and my team for a free initial consultation: https: //philippsauerborn.com/de/kontakt/
