Unlocking the Benefits of NHR in Portugal for 2024

NHR Portugal in 2024

Finance

Portugal's Non-Habitual Resident (NHR) program has been a cornerstone in attracting global talent and investment. However, as 2024 approaches, this program is set to undergo significant changes. The termination of the current NHR regime is driven by a strategic shift in Portugal's economic focus, targeting more specific sectors like scientific research and innovation.

The recent resignation of the Portuguese Prime Minister has added a layer of complexity to this transition, raising questions about the continuity and future direction of fiscal policies. This political change could have implications for the implementation and specifics of the NHR 2.0 regime.

The current NHR program will officially end on December 31, 2023, marking the closure of a chapter that has significantly influenced Portugal's expatriate and professional landscape. This deadline is crucial for potential beneficiaries to align their plans and applications accordingly, ensuring they maximize the existing program's benefits before the transition.

What is the NHR?

The NHR program, introduced by the Portuguese government in 2009, was designed as an attractive tax regime for wealthy foreigners and investors. It aimed to rejuvenate Portugal's economy by enticing foreign investments and reducing unemployment, particularly in the wake of the global financial crisis. The NHR offered substantial tax breaks, contributing to revitalizing industries like real estate and technology. It has been a significant factor in placing Portugal as a prime destination for foreign investors and businesses.

Under the NHR regime, non-habitual residents enjoyed a flat income tax rate of 20% on Portuguese-sourced income and were exempt from taxation on foreign-sourced income, provided it could be taxed in the country of source under an applicable Double Tax Treaty. This regime made Portugal an attractive destination for retirees, professionals, and investors, thanks to its favorable tax conditions compared to many other countries.

Can I Still Apply for NHR in 2023?

Yes, applications for the current NHR regime are still accepted in 2023, but time is of the essence. With the end date set for December 31, 2023, applicants need to initiate their processes promptly to avail themselves of the existing benefits.

Requirements for Applying for NHR in 2023

To be eligible for the Non-Habitual Resident (NHR) status in Portugal in 2023, applicants must meet several important criteria. These are divided into residency and tax requirements:

Residency Requirements

  • Stay Duration: Applicants must reside in Portugal for more than 183 days per year. This establishes their status as a tax resident in the country.
  • Property Ownership: Alternatively, owning property in Portugal can also satisfy the residency requirement.
  • Residence Permit for Non-EU/EEA/Swiss Citizens: Non-EU, EEA, or Swiss citizens need a residence permit, obtainable through various visas such as the Golden Visa Program or passive income routes.
  • EU/EEA/Swiss Citizens: These citizens can register for residency at their region’s city hall with a passport and EHIC Card.

Tax Requirements

  • Portuguese Tax Number (NIF): Applicants must obtain a NIF, a nine-digit tax identifier in Portugal.
  • Proof of Residence: Documents such as utility bills, rental contracts, residency certificates, visas, and passports are necessary to obtain a NIF and establish tax residency.
  • Previous Tax Residency: Applicants cannot have been tax residents in Portugal for the five years preceding their application. This ensures the program targets new residents.

Additional Steps

  • Register as Tax Resident in Portugal: The first step towards applying for NHR status involves registering as a tax resident, which includes having a NIF registered to a Portuguese address.
  • Proof of Habitual Abode: Applicants need to provide proof of habitual residence in Portugal. This can be a tenancy agreement for at least 12 months or property deeds if the applicant has purchased property.
  • Application Deadline: The deadline for NHR applications is March 31 of the year following the year in which the applicant becomes a tax resident. For instance, if tax residency is established in December 2023, the NHR application deadline would be March 31, 2024.
  • Application Process: Register as a resident, apply for a NIF, register with the online Finanças portal, and then apply for NHR status through the portal.

How to Apply for NHR Status via the Finanças Portal

  1. Log in with NIF and Password: Access the Finanças portal using your NIF and the password sent to you.
  2. Navigate to Application Section: Go to the “Entregar Pedido > Inscrição Residente Não Habitual” section.
  3. Fill Required Fields: Provide details like the year of registration and country of foreign residence.
  4. Declaration: Confirm that you have not been a resident in Portugal for the five years prior to the year of starting your status as a non-habitual resident.

Following these steps carefully and ensuring all documentation and registrations are correctly completed by the deadlines is crucial to successfully apply for NHR status in Portugal in 2023

In 2024, Will It Be Possible to Apply for the Old NHR?

As of 2024, the opportunity to apply for the old Non-Habitual Resident (NHR) regime in Portugal will no longer be generally available. The existing NHR program, as known for several years, is set to conclude on December 31, 2023. This means that for new tax residents, the old NHR regime will not be accessible from January 1, 2024, onwards.

However, there is a transitional provision for individuals who become Portuguese tax residents in 2024. They may still access certain benefits of the previous NHR regime under specific conditions. These conditions include having employment contracts, property agreements, or other qualifying criteria in place by certain dates in 2023.

Transitional Provision Criteria

To potentially qualify for the old NHR regime under the transitional provision in 2024, applicants must meet one of the following conditions:

  1. Initiated Residence Process: Have started the process for obtaining a Portuguese residence visa or permit by December 31, 2023.
  2. Valid Residence Permit or Visa: Hold a valid residence permit or visa until December 31, 2023.
  3. Employment-related Agreements: Possess a signed employment contract or agreement that is active by December 31, 2023.
  4. Property-related Agreements: Have finalized a lease contract or a contract for the acquisition of real rights over property in Portugal by October 10, 2023.
  5. Educational Enrolment: Have dependents enrolled in a Portuguese educational institution by October 10, 2023.

Important Considerations

  • Limited Scope: This transitional provision is narrow in scope and applies only to those who can fulfill these specific criteria.
  • Registration Requirements: Eligible individuals must register as non-habitual residents with the Portuguese Tax Authorities by the specified deadlines.
  • No General Applications: The general application process for the old NHR regime will not be open in 2024, and these provisions represent exceptional cases.

Thus, while the general applicability of the old NHR regime ends with 2023, a limited transitional opportunity exists in 2024 under specific conditions, allowing some individuals to access certain benefits of the old regime.

Key Changes in 2024

End of the Current NHR Regime

The existing NHR regime will end on December 31, 2023. The significance of this end date is profound, as it marks the closure of one of Portugal's most attractive tax regimes for a broad range of professionals. Up until this date, applicants must ensure their processes are underway to qualify under the current law, which has been a lucrative opportunity for many.

Transition to NHR 2.0

Starting January 1, 2024, the new NHR regime, termed "NHR 2.0", will commence. This regime aims to continue attracting foreign talent, albeit with a different focus. It will mirror many of the NHR's benefits but shift towards specific professional categories, especially those related to scientific research and innovation. The new NHR is expected to have a broader application, especially for those becoming tax residents in regions like Madeira or the Azores and engaging in business or investment activities therein. For those relocating to mainland Portugal, the program may have a narrower scope, with emphasis on employment in start-ups, research and development-oriented companies, or qualified jobs recognized by the Portuguese government

Eligibility for Grandfathering Provisions

For those desiring continued access to the “old NHR” beyond December 31, 2023, determining eligibility for one of the grandfathering provisions is critical. These provisions include having a residence process underway, holding a valid residence permit, or possessing a signed employment contract by the end of 2023. Additionally, property-related agreements and enrollment of dependents in Portuguese educational institutions by specific dates in 2023 also play a role in eligibility. This consideration is crucial for those who wish to maximize the benefits of the existing NHR regime before it evolves.

Continuation of Benefits

Current NHR beneficiaries as of December 31, 2023, will retain the regime’s benefits for ten years. This provision ensures a smooth transition for those already under the NHR umbrella, safeguarding their tax advantages for a significant period.

Features of the New NHR Regime

Tax Incentives

The new NHR regime will impose a 20% tax on specific categories of employment and freelance income, alongside exemptions on various types of foreign-sourced income. This structured approach aims to maintain Portugal's attractiveness for international professionals while focusing on its strategic economic sectors.

Regional Variations

The Autonomous Region of Madeira is expected to offer broader benefits, particularly for business and investment activities. In contrast, mainland Portugal will target its benefits more narrowly, focusing on start-ups, R&D companies, and other qualified occupations recognized by the government. These regional variations demonstrate Portugal's commitment to diversifying its economic appeal across different regions.

Planning Your Move

As 2024 approaches, understanding the deadlines for the old regime's benefits and familiarizing yourself with the criteria of the new regime is essential. This knowledge will be crucial in making informed decisions and optimizing the benefits available under Portugal's evolving tax landscape.

Conclusion

The NHR program's transformation in 2024 reflects Portugal's changing priorities and challenges in the global economic landscape. While the program's termination may pose risks to Portugal's economic momentum, the new regime aims to continue attracting global talent and investment, albeit with a more focused approach. Understanding these changes and planning accordingly will be crucial for anyone considering Portugal as their destination under the new NHR regime.

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