10/10/23

CITIZENSHIP: Portugal likely to abolish non-habitual tax resident regime in 2024

As published on: step.org, Tuesday 10 October, 2023.

The regime currently grants a special tax rate to individuals engaged in 'high-value-adding activities of scientific, artistic or technical nature', such as architects, doctors, engineers, artists, managers, self-employed contractors and technicians. Their qualified Portuguese-source employment and self-employment income is taxed at only 20 per cent. Full tax exemptions are granted on various foreign-source incomes, including employment income, rental income, dividends and others, provided it can be taxed in the source state under a double tax treaty or has been effectively taxed in a non-low-tax jurisdiction. Pensions from foreign sources are taxed at a flat rate of 10 per cent.

Individuals becoming tax resident in Portugal were eligible to apply if they had not been tax-resident in the previous five years. Once accepted into regime, the tax benefits lasted for ten consecutive years.

However, a prime ministerial announcement has now indicated the special regime will shortly come to an end. Prime minister Antonio Costa said that the regime is 'a biased way' of contributing to real estate speculation and expressed concern about its supposed inflationary effect on the residential property market.

Full details have not yet been announced, but are expected in the 2024 budget that will take place tomorrow (10 October 2023). It is not yet clear whether the regime will be terminated entirely, although the 20 per cent 'impatriate tax' regime is likely to be revoked.

If the regime is fully abolished, experts say it is likely that those who already subject to the regime and applicants accepted to it before the end of 2023 will be grandfathered into the regime. ‘This should also cover nationals of non-EU countries with visa procedures pending as of 31 December 2023, which will keep the opportunity to request non-habitual tax resident status once their visa is granted’, Nuno Cunha Barnabé TEP, Partner at law firm Abreu Advogados, tells STEP.

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Citizenship Portugal CBI