In October this year, Portugal’s prime minister António Costa announced plans to end a tax regime that many Irish nationals have availed of on relocating to the country. Although Costa resigned as Prime Minister in November, the current caretaker government promised to proceed with abolishing the regime. This week (on 29 November), they voted in favour of the State Budget for 2024 effectively terminating the tax regime, but with a potential window of opportunity remaining to avail of the regime.
How will this latest development impact those thinking about moving to Portugal or those already in the process of moving to Portugal? And are there any other jurisdictions that remain attractive from a tax perspective for those looking to relocate abroad? Aodhán Dean, Tax Specialist – Wealth Management, tackles some of the 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 among 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%.
- A 20% flat rate of tax on certain Portuguese-source income.
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.
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 by 31 December 2023, they should then be eligible to register with the Portuguese authorities for NHR status.
Are there transitional arrangements available to individuals who would not meet the conditions for the NHR regime by 31 December 2023 but who have already started the process of moving to Portugal?
Yes. A week after Costa resigned, the caretaker government announced fresh amendments to the State Budget for 2024 such that the original proposed changes to the NHR regime were amended and this revised version was voted in favour of by the Portuguese caretaker government on 29 November 2023. In the original proposal, an individual would need to meet the criteria for the NHR by 31 December 2023. However, in the revised version approved by government an individual who has already started the process of moving to Portugal this year and does not necessarily meet the criteria by 31 December 2023 will be given more time to avail of the NHR regime, provided they meet the criteria by 31 December 2024. To avail of this transitional period, they must be able to provide proof that they have already started the process of relocating to Portugal in 2023.
What proof is required? The governing party has indicated that this could include having entered a lease or any other contract for a property in Portugal by 10 October 2023 or having enrolled dependents at a Portuguese educational establishment by 10 October 2023. As such, it appears generally to be the position that the wheels would need to have already been in motion in terms of moving to Portugal to avail of the additional time to meet the conditions by 31 December 2024.
In summary, an individual either needs to meet the conditions for the regime by 31 December 2023 or, to avail of the extension to meet the conditions to 31 December 2024, they would need to have proof that they have already started the process of moving to Portugal in 2023.
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, each of these should be examined in turn, as, for example, the Labour party in the UK has signalled that they intend to abolish their favourable regime for non-UK domiciled persons should they get into government. It appears that changes may also take place to the favourable regime in place in Italy.
It is important to bear in mind that 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.
This article was originally published on 19 October 2023. It was updated on 4 December 2023 to reflect recent developments.
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