The Non-Habitual Residents (NHR) program, which essentially consists in the granting of certain tax incentives on income to foreigners, especially those who develop a High Value Added (HVA) activity, is coming to an end in 31December 2023.
With the approval of the State Budget Bill for 2024, the derogation of this regime was approved and shall come into force in 1 January 2024. The original Budget Bill proposal laid out that the NHR regime would come to an end in the end of 2023, with no exceptions other than the guarantee that those who already benefit form the NHR, or those who were still able to register until the end of the year, would not lose their NHR status.
The discussion of the Budget Bill proposal in Parliament brought about a number of changes to this original proposal, including a set of exceptions to this abrupt ending of the regime. I would highlight the transitory rules that allow for people from non-EU countries to still be able to register as an NHR in 2024 of they started their Visa process in 2023. It is basic common sense: Visa applications in Portugal are a lengthy and awfully bureaucratic procedure, and such an abrupt termination of the NHR regime would heavily affect those who had already made their application but still had received no answer from the Immigration Authorities.
Other exceptions according to which a person can still register as an NHR in 2024 are those cases where someone signs an employment agreement (or a promissory employment agreement) in 2023 but starting only in 2024, those who rent or sign a promissory purchase agreement for a house until 10October 2023, amongst others.
I would also stress the clarification that was made (even though this rule would always be of an elementary applicability) stating that one does not need to register as an NHR in 2023, but merely meet the residency requirements in 2023, and submit the application for the NHR until 31March 2024 (the normal deadline set out in article 16, no. 10 of the PIT Code).
Within the daunting scenario of Portugal irrationally relinquishing an attractive tax incentive program based merely (or for the most of it) on political and ideological considerations, these changes to the original proposal brought, to my mind, more justice to this legal option – nevertheless, this regime may be somewhat incoherent regarding one important matter mostly of a practical nature.
The exception allowing for non-EU citizens to register in 2024 if they start the immigration procedure in 2023 (which may just be a request for an appointment with the authorities) is of basic and elementary justice. However, ultimately, this measure is having the unwanted consequence of placing EU citizens that wish to move to Portugal in a less favorable position that non-EU citizens.
EU citizens do not need a Visa to reside in Portugal, and so the basic procedure to become an NHR in Portugal demands that EU citizens rent/buy a house and then register before the municipality and before the Tax Authorities as a tax resident. Only after all these steps having been taken can the NHR request be submitted, and all this must be completed until 31 December 2023. On the other hand, a non-EU citizen may just submit a request to make an appointment with the Immigration Authorities, which they can do on the last day of the year 2023, and automatically their deadline to become an NHR is extended to 31 March 2025, provided they become a tax resident during the year 2024.
This is collateral damage of this well-intended change in the original proposal, but gravely affecting EU citizens that in early October found out this regime was coming to and end in three months, and that those three months were all the time they had to completely change their life and move to Portugal, as opposed to non-EU citizens whose position was well safeguarded.
This being said, it is practically unanimous that this abrupt end of the NHR regime will not be beneficial to Portugal at all, scaring away highly qualified professionals and putting a dent on our already crippled economy, strictly based on an ill-informed political stance according to which this derogation of the NHR regime will allow for the stabilization and deflation of the housing market (to which the NHR have a residual – not to say inexistant – contribution).
Tow final notes on this matter:
- A surrogate regime was approved – the Tax Incentive for Scientific Research and Innovation (IFICI) – and the tax incentives set out thereof are perfectly identical to those of the NHR (with the exception of the tax benefit for pensions) but with a much narrower scope. This incentive is mainly destined to academics, researchers, start-up founders/workers, amongst other activities that fit within the research and innovation scope.
- Other Southern Europe countries are already taking advantage of the end of the NHR, attracting highly qualified foreigners with similar tax incentives regimes, such as the famous Beckham Law in Spain or the Neo-Domiciled Tax Regime (a.k.a. the 100k regime) in Italy. Our loss, their gain.
José Miguel Saraiva
December 2023