Portugal State Budget 2024: The future of the NHR tax regime and more

We have an updated article on this subject.

On Monday, October 10th, the Portuguese Government presented the 2024 Budget Bill.

This is only the beginning of a process in the Parliament that has the following key dates:

• General discussion: October 30th and 31st
• Parliamentary discussion: between November 23rd and 29th. This is a phase where political parties (including the party supporting the Government) file proposals of amendment to the initial version of the Bill. There is a strong track record of approval of several amendments.
• Final global vote of the document, with the amendments arising from the parliamentary discussion: November 29. The document becomes final on this date.

Regardless of the above and potential amendments, the fact is: that the initial draft of the 2024 Budget Bill foresees the termination of the current and well-known version of the NHR for new applications starting 1 January 2024.

Any current beneficiaries of the status (and anyone who still manages to register as NHR until its termination) will maintain all the benefits with the exact same features. Having said this, we highlight that only new applicants becoming tax residents in Portugal still in 2023 or with a residence visa issued valid on the 31st of December will be able to apply.

Starting January 1 January 2024, an amended “new NHR” regime called “incentive to scientific research and innovation” is proposed for specific categories of professionals:

• Higher education professors and scientific researchers;
• Qualified employment within the specific scope of contractual benefits for productive investment;
• Research and development jobs, for personnel with minimum qualifications equivalent to a doctorate, to the extent such costs are eligible for specific R&D tax incentives.

To anyone falling within any of the categories above (and not having been a tax resident of Portugal in the previous 5 years), a 20% rate on professional income obtained in Portugal will be available. In addition, these professionals will be able to access an exemption on several categories of foreign-sourced income, such as employment or freelance income, dividends, capital gains, real estate income or interest. Further analysis will be done by our team, but the scope of this “new NHR”, at least in this initial version that will be discussed in the Parliament, is clearly narrower.

More interesting to note is a new tax incentive for anyone who, starting on 1 January 2024, becomes a Portuguese tax resident (without having been considered as such in any of the previous 5 years) -  a 50% personal income tax exemption for employment and freelance income will apply for 5 years, regardless of the field of expertise of the beneficiary (i.e. there will be no more high added value criteria as it was in the NHR). The exemption is capped at 250,000 EUR per/year of annual income, meaning that any income above this threshold will be taxed according to the general tax rates.

All in all, these are the key takeaways. Always keep in mind that the Budget Bill remains subject to amendments and that this is a preliminary assessment:

1. In case you are in a position to take Portuguese tax residency before 31 December 2023, you should strongly consider going ahead until the end of this year in order to lock you in the current NHR regime rules for 10 years;
2. In case you are not in a position to take Portuguese tax residency before 31 December 2023, there are still interesting options going forward. Apart from a broader transitional regime regarding the current NHR rules that may be created in the discussions in the Parliament, employment and freelance income obtained by new tax residents of Portugal will have a 50% tax break for 5 years (up to 250,000 EUR of annual income).

In a nutshell…

Assuming the current version of the 2024 Budget Bill will be ultimately adopted in the Parliament, Portugal will keep plenty of other tax incentives at a personal income tax and corporate income tax level and remain particularly attractive for investors and expatriates whose main source of income is from employment or freelance activities.

Moreover, the intention of fostering innovation and the start-up ecosystem is reinforced with a 12.5% CIT rate for the first 50,000 EUR of taxable income of qualifying entities and a unique stock option tax regime.

On the other hand, for those that mainly have foreign-sourced passive income (dividends, interest, royalties, pensions) and that do not qualify for the “new” NHR, the proposed amendments will be seen as disappointing, but other tax features (e.g. absence of general wealth or inheritance taxes, crypto-friendly tax), combined with specific regimes will keep attracting newcomers.

Photo: Stefan Didam - Schmallenberg