Non Habitual Residency to End in 2024
Portuguese Prime Minister Antonio Costa announced this week that the ever-popular Non Habitual Residency Scheme (NHR) would end in 2024. It’s not yet clear the exact date the change will come into effect.
The NHR scheme was introduced in 2009 and has provided substantial tax breaks for foreign residents of Portugal. Retirees have been able to live in Portugal tax-free, as has anyone with income such as dividends and rental income. Foreign residents working in Portugal benefitted from a lower tax rate of 20% on Portuguese income. This gave them a substantial advantage over the Portuguese, who could be taxed at over 40%.
NHR was valid for ten years. Any Portuguese resident with NHR status already will keep it for the full 10-year period. New residents can still apply for NHR this year and get it for ten years.
Nordic countries, such as Finland and Sweden, had been unhappy with the Portuguese tax regime, which allowed their citizens to live on tax-free pension income in the sunshine. This led to Portugal introducing a 10% tax on foreign pension income.
Portuguese citizens have been concerned about the number of foreigners coming to Portugal to take advantage of HHR and Golden Visas. These schemes have been blamed for pushing up property prices in Portuguese cities and making them unaffordable for locals. Portugal ended the Golden Visa program for property purchases earlier this year. It’s still available for other types of investment.
According to the Portuguese Finance Ministry, Portugal has 89,000 non-habitual residents.
Costa claimed that having a different tax level for foreign residents was unfair and called it an ‘injustice.’
Portugal still has tax benefits over other European countries, such as no wealth, gift, or inheritance tax. New residents who plan their affairs well before moving to Portugal will still have options. Anyone able to move quickly can still get ten years of low taxes in Portugal.
Moreover, Portugal’s advantageous cost of living, coupled with its warm climate and friendly people, continues to draw foreigners in. It’s expected that despite the changes in tax policies, many foreign retirees, especially from Northern Europe, will still choose Portugal as their retirement destination.
Also worth noting is that the changes apply only to future applicants of the non-habitual resident regime. Those who have already secured their status under this scheme are not affected by these changes.
With careful financial planning and advice from tax professionals, new residents can optimize their taxation situation while still enjoying all the benefits Portugal has to offer. While the golden era of tax-free pensions may be over, Portugal remains an appealing destination for those seeking a relaxed and affordable lifestyle in retirement.
