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Before diving into the upcoming changes, it's important to understand the roots and appeal of the Non-Habitual Residency (NHR) tax regime. Instituted in 2009, the NHR was designed as an initiative to attract individuals and professionals to Portugal by offering them substantial tax benefits.
The allure of the NHR was undeniable. It provided new residents with a flat income tax rate of 20% for specific high value-added professions, such as doctors, artists, architects, and engineers, among others. Moreover, for most foreign-sourced income (like pensions, dividends, royalties, and interest), beneficiaries enjoyed a complete tax exemption.
This program didn't just result in a boost for the Portuguese economy through an influx of affluent expatriates, but also painted Portugal as a prime destination for retirees and professionals alike. With a decade-long duration of benefits and an enticing fiscal environment, the NHR regime established Portugal as a significant player in the global tax planning landscape.
Now, as we move towards 2024, Portugal is shifting gears, signaling the end of this era and ushering in a new phase of tax incentives.
Effective January 1, 2024, the NHR tax regime that many have come to know and benefit from will no longer accept new applications. If you're currently an NHR beneficiary, fear not – your benefits remain untouched for their 10-year duration. However, if you're still contemplating applying, you should do so before December 31, 2023, ensuring all application procedures wrap up by March 31, 2024.
Replacing the NHR is the Incentivised Tax Status (ITS) program, which is strategically crafted for certain professionals:
For these professionals, who shouldn't have been Portuguese tax residents in the last five years, a flat 20% rate on professional income earned within the country is available. They can also benefit from exemptions on various foreign-sourced incomes, from employment to real estate.
The Portuguese government also unveiled a more universal tax incentive. Anyone obtaining Portuguese tax residency starting January 1, 2024, (and having abstained from such status in the past five years) will receive a 50% personal income tax exemption on their employment or freelance income for five years. But there's a catch: this generous exemption maxes out at €250,000 annually.
With the “Incentive to Scientific Research and Innovation”, Portugal is sending a clear message: it values scientific research and innovation. Furthermore, the country is also supporting its startup ecosystem with a commendable 12.5% CIT rate for the initial €50,000 of taxable income of qualifying entities.
If you're already benefiting from the NHR, it's imperative to strategize for the post-10-year period. Financial experts emphasize the importance of long-term planning, extending up to 20 years, to mitigate potential progressive tax rates.
For hopeful newcomers, swift action is the order of the day. With the December 31, 2023, application deadline looming, it's advisable to get a headstart and also seek counsel on the optimal financial strategies under the new tax structure.
Despite the NHR changes, Portugal remains a hub for affluent expatriates, offering superior living standards, stellar investment avenues, and unparalleled healthcare and education services. Its global recognition as a prime property hotspot and a sought-after retirement sanctuary only cements its esteemed status.
Portugal's tax landscape is evolving, but its appeal remains steadfast. While the NHR undergoes a metamorphosis, opportunities abound, both for current beneficiaries and prospective applicants. Stay informed, seek expert guidance, and leverage Portugal's myriad tax advantages.
With all these transformative changes surrounding the NHR regime in Portugal, it's understandable if you're feeling a tad overwhelmed or uncertain. That's where we step in to provide clarity.
AnchorLess offers an exclusive 40-minute consultation session with an expert lawyer well-versed in the intricacies of the NHR tax scheme and its upcoming changes. This is a golden opportunity to have all your pressing questions addressed, from understanding the nuanced differences between the old and new regimes, to strategies for efficient tax planning.
Here's what you can expect:
Updated at 10-25-2023 by AnchorLess
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