The Portuguese government set out proposals for the termination of the current version of the Non-Habitual Resident (NHR) regime in the 2024 Budget Bill, which was presented to parliament on 10 October.
According to the draft Finance Bill, the current NHR regime will be closed for new applications on 1 January 2024. The NHR regime will remain unchanged for those who already benefit from it and who meet the conditions by 31 December 2023, but foreigners moving to Portugal (or applying for residency) after 31 December 2023 will no longer qualify.
The Budget Proposal sets out some transitional measures to enable the regime to continue to apply until it is fully phased out in 2034, as follows:
- Taxpayers who benefit from the NHR regime before 1 January 2024, can continue to do so until the end of their 10-year period.
- Taxpayers who meet the conditions for the NHR regime on 31 December 2023, and who hold a valid residence permit, need to apply for the NHR regime before 31 March 2024 to benefit from it for the next 10 years.
Incentive to Scientific Research & Innovation
The Budget Proposal sets out that a new beneficial regime, to be called “incentive to scientific research and innovation”, will be introduced for specific categories of professionals from 1 January 2024.
Individuals who have not been tax residents in Portugal in any of the previous five years, and who earn income from the professional activities listed below, may be taxed at the special rate of 20% on net income from categories A and B (see below) for a period of 10 consecutive years, starting from the year in which they become tax residents in Portugal.
Eligible individuals for this regime will also 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. taxation on any income earned abroad. Pension income and income paid by entities that are domiciled in low tax jurisdictions will not be eligible for exemption.
The relevant professional activities are as follows:
A) Higher education teaching and scientific research careersThese professions must be practiced in entities that appear on the list of Entities of the National Science and Technology System, which includes universities, R&D Centres, laboratories, among others.
B) Qualified professions within the scope of contractual benefits for productive investmentThe eligible jobs must be within the scope of investment projects of an amount equal to or higher than €3 million, relevant to the development of the following sectors
- Mining and manufacturing
- Tourism, including activities of interest to tourism
- IT and related activities and services
- Agricultural, aquaculture, fish farming, farming and forestry activities
- Research and development and technology-intensive activities
- IT and audio-visual and multimedia production
- Defence, environment, energy, and telecommunications
- Shared service centre activities.
These projects also need to create a new establishment, or increase the capacity of an existing establishment, or diversify the production of an existing establishment and/or significantly change the global production process of an existing establishment.
It is important to note that the entities promoting these projects can also have access to tax benefits in respect of Corporate Income Tax (IRC), Municipal Property Tax (IMI), Municipal Property Transfer Tax (IMT) and Stamp Duty (IS).
C) Research and development professions
Eligible individuals are those with minimum qualifications of Level 8 of the National Qualifications Framework (Doctorates), who carry out R&D activities in the service of corporate entities that are subject to Corporate Income Tax (IRC). It should also be noted that in terms of IRC, the costs of these employees will be increased by 120% of their amount.
This regime is accessible to an individual only once. Individuals who have previously benefited under the NHR regime or the ‘Former Residents’ tax regime are not eligible for this new scheme.
‘Former Residents’ tax regime
The ‘Former Residents’ tax regime (Programa Regressar) was introduced in 2019 as an incentive to encourage former residents of Portugal to return home after spending time abroad.
The Budget Proposal extends this regime to taxpayers who become tax residents of Portugal (and who have not been considered tax residents of Portugal in any other of the previous five years) up to 2026. The previous requirement of prior residence in Portugal no longer applies.
Under the regime income from work and other business activities (regardless of the sector) will be tax exempt for 50% up to a maximum of €250,000 annually for a period of five years. Earnings above that threshold will be taxed at the standard progressive tax rates.
With the publication of the Budget Proposal, it is certain that the NHR regime will be closed to new entrants at the end of this year. Those who wish to benefit from NHR status will therefore have to move quickly.
This is only the beginning of the parliamentary process. The proposal will be subject to formal debate in Parliament in late November. The final vote on the proposed legislation and any proposed amendments is scheduled to take place on 29 November.