Earlier this month, Portuguese Prime Minister António Costa announced plans to end a tax regime that many Irish nationals have availed of on relocating to the country. When does the regime close to new entrants? And what other jurisdictions remain attractive to those looking to relocate? We sat down with Tax Specialist Aodhan Deane to tackle some of our clients’ most commonly asked questions.
Can you briefly explain the purpose of the Portuguese Non-Habitual Residence (NHR) regime and its main benefits?
The purpose of the NHR regime is to attract investors and professionals who can make valuable contributions to the Portuguese economy. Once eligible to benefit from the regime, the following are the most significant tax benefits that can arise for an individual:
- full exemption from taxes in Portugal on foreign income (such as dividends and interest income).
- foreign pensions subject to a flat tax rate of 10%.
An individual can benefit from the NHR regime during a 10-year period commencing from the year of registration as tax resident in Portugal.
Why has Portugal decided to scrap the NHR regime?
The plans to ditch the tax break are against a backdrop of foreign money driving up Portuguese real estate prices, which has left local residents struggling to find adequate accommodation, particularly in the cities of Lisbon and Porto.
When is it proposed that the Portuguese NHR Regime will close to new entrants?
The Portuguese Government has submitted the State Budget for 2024, and included in that proposed budget is the end of the NHR Regime for new entrants.
While the State Budget submitted will be subject to debates and a vote, given that the governing party holds a majority in the Portuguese Assembly, it would be wise to assume that the abolition of the NHR Regime will proceed as planned by the government. The final vote on the budget will take place on 29 November 2023, at which point there will be certainty as to the changes.
We understand that the proposed change will have the following impact with effect from 1 January 2024:
- Anyone who already has NHR status at the time of entry into force of the end of the regime maintains the status under the same terms until completing 10 years of NHR status.
- Anyone who meets the conditions for registration as a NHR on 31 December 2023 will be able to register within the deadline available (until 31 March 2024) and benefit from the regime until completing 10 years of NHR status.
I want to avail of NHR status before it closes to new applicants, what conditions would I need to satisfy by 31 December 2023?
The main requirement is for the applicant to become a tax resident in Portugal. To this end, we understand that the applicant would need to meet at least one of the following conditions:
- Spend more than 183 days in Portugal in any period of 12 months beginning or ending in the tax year in question.
- Have access to a residence in Portugal by the end of 2023 with the intention of residing in and maintaining it as a residence.
As such, individuals wishing to avail of the NHR regime before it ceases to new applicants will need to satisfy at least one of these conditions. If they do so, they should then be eligible to register with the Portuguese authorities by the deadline of 31 March 2024. We understand it can then take about six months for NHR status to be granted by the Portuguese authorities.
From a tax perspective, are there any other jurisdictions that remain attractive to Irish individuals considering a relocation overseas?
Yes. There are a number of other jurisdictions that individuals could consider and those include Italy, Malta, Cyprus and the UK. However, a decision to relocate overseas should not be based purely on the tax rules of the other country. In addition to Irish tax rules, there are many other factors to consider when contemplating a move abroad.
The above does not constitute tax or legal advice. The full impact of this change if it is relevant to you, should be discussed with your tax advisor.
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