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Non Habitual Resident Regime, Out With The Old And In With The New

Non Habitual Resident regime

The surprise announcement by the Portuguese prime minister that he saw no value for the Non Habitual Resident regime (NHR) and it would cease at the end of 2023 was swiftly followed by the surprise announcement that he would be resigning.  The new rules regarding NHR were to be included in the budget so there was considerable doubt as to whether that budget would pass unaltered or even at all.  It has now been passed and there is some clarity on the situation but many questions remain unanswered.

Written by Howard Bilton a barrister and Chairman of The Sovereign Group

The current NHR regime ceased to be open to new applications as of 31st December 2023.  Those who have done whatever is necessary to establish a residence or a tax residence in Portugal before the end of last year will still be able to apply for, and benefit from, the existing NHR regime.

It was stated that to benefit from the old NHR regime an individual must meet one of the following criteria:

  • Have signed a lease agreement or other agreement granting the use or possession of real estate in Portugal signed by the 10th October 2023;
  • Have enrolled or registered in a Portuguese educational establishment by the 10th October 2023;
  • Have signed a reservation or promissory agreement to acquire real estate in Portugal signed by the 10th October 2023;
  • Obtained a residence visa or residence permit valid until at least 31st December 2023;
  • Have initiated the procedure for granting a residence visa or residence permit by submitting the application and requesting an appointment to submit the application or the booking of an appointment by the 31st December 2023.
  • Have agreed an employment agreement before the 31st December 2023 where the work is to be carried out in Portugal; 

In practical terms, anybody wanting to register for NHR still faces problems.  The official memorandum on all this doesn’t appear to have reached the tax office who are refusing to register anybody for tax even if they have complied with the above requirements unless they have officially been granted permission to live in Portugal through one of the more usual channels such as the golden visa, D7 or other immigration approvals. It is impossible to register for NHR without first being registered for tax.

Many applications under the Golden Visa Scheme have not been processed by SEF (now named AIMA) despite the application being made many years ago.  And SEF have consistently declined to provide any information about when the application might be dealt with.  The current advice is that if the application was made more than two years ago the applicant should pursue the matter through the Portuguese courts.  It appears that many such actions have already been successful in forcing the relevant authority to consider the application and to do so quickly and in most cases with a successful outcome. 

A further issue is that SEF have now handed over all their activities to the Agency for Integration, Migration and Asylum (AIMA), which will replace SEF and the High Commission for Migration. The stated purpose is efficiency. So far there is little evidence of that.

It is assumed and presumed that Portugal will grant NHR status to anybody who has done whatever is necessary to apply to come to Portugal because it would seem harsh and unfair if the inefficiencies of the Portuguese bureaucracy led to applicants being denied the status which attracted them to Portugal in the first place.  It seems this is borne out and confirmed by the list of criteria above.

What has been made absolutely clear is that those who were granted NHR status (or will be granted it under the above criteria) will continue to enjoy the current benefits until the end of the prescribed ten-year period without alteration.  That is right and proper but reassuring that this has explicitly been stated to be the case.

At the same time as abolishing the old NHR regime a new NHR regime was announced which is more limited in scope and the benefits are not as extensive but is still attractive.  The new NHR scheme comes into effect from the 1st January 2024 and applies to:

  • Professors and scientific researchers;
  • Research and development activities;
  • Job positions and members of the board of certified start-ups;
  • Job positions or other activities carried out by tax residents in the Azores and Madeira.

These new NHRs will continue to enjoy exemption from tax on foreign sourced income under the same conditions as before i.e. conditional upon that income being taxed or subject to tax outside Portugal. Income from their employment in Portugal will be taxed at 20% flat rate.  But the 10% tax rate applicable to pensions is removed and pension income will be now taxed as ordinary income at the progressive Portuguese rates of up to 48%.