By Moustafa Daly
Less than a week after introducing long-debated golden visa restrictions, the prime minister of Portugal, António Costa, announced his government’s intention to end a favorable tax regime for foreigners in 2024.
“The PM announced the intention to terminate the Non-Habitual Residents (NHR) tax regime in Portugal in 2024,” says Raquel de Matos Esteves, founding partner at RME Legal. “There have been no other details shared, except that any changes will not affect current NHR holders.”
The NHR regime allows foreigners who are tax residents of Portugal to enjoy reduced income and capital gain taxes for a 10-year duration, be exempt from tax on overseas income, and only be subjected to a flat rate of 20% tax on their locally generated income.
Prime Minister António Costa made the announcement during a televised discussion. Sara Sousa Rebolo, partner at Prime Legal, views the statement as politically motivated. “At this point and seeing the damage that the process of Golden Visa change of policy did to the market, it’s hard to even believe that the government will make the exact same mistake regarding NHR, but it seems like a Deja-Vu,” says Rebolo.
The PM made clear his government's view of the tax regime as unjust to locals who must adhere to stricter taxations and said the regime has had negative impacts on the availability of housing – the same motive behind the recently introduced golden visa real estate restrictions through the More Housing bill.
Rebolo explains the government’s stance is unjustified because the percentage of non-EU foreign buyers of real estate property hasn’t reached 3% over the past two years, limiting their potential impact on property prices.
Instead, she urges the government to investigate the real culprit behind the housing crisis.
“It is the easiest solution to attack these programs because the general population is not aware of the specificities of the programs, requirements, and benefits for the country. These programs [like NHS regime and golden visa] are easy to criticize due to their technical nature,” the attorney explains.
“It is also a good strategy to divert attention from issues that could cost the next elections,” adds Rebolo.
Potential impact of ending NHR on Portugal’s popularity among digital nomads and investors
Since its 2009 launch, the NHR regime has helped make Portugal a favorable destination for foreign investors and digital nomads. “In Portugal, there is no type of visa with tax benefits associated except NHR, which is the only favorable tax regime for individuals,” says Esteves.
Official action has yet to be taken towards ending the regime. In the meantime, the lawyer recommends investors and remote workers, or any foreign residents who mainly live in Portugal, to promptly pursue registering for NHR as unanticipated delays could prolong the process.
“Applicants considering applying for the NHR status should seek advice very soon to understand the timing, and this is particularly important for those who have already initiated an immigration process,” says Esteves. “Everyone living in the country – Golden Visas who live in Portugal (others cannot apply), Digital Nomads, Entrepreneurs, D7 visa holders, etc.– is eligible for the NHR tax status and should consider applying.”
“We expect the government to understand that due to Immigration Office delays, applicants may not have enough time to get the NHR status, therefore we hope there will be a grace period for these applications,” she adds.
Rebolo, on the other hand, expects the government to learn from the negative impacts of the More Housing bill.
“Considering the previous experience, we believe that it shall not be a hard stop of the program, but definitely some changes will be introduced,” predicts Rebolo.
Could ending NHR raise another golden visa dilemma for Portugal?
Much like the golden visa debate, which has deterred foreign investors’ and remote workers' interest in Portugal, legislation affecting the NHR regime is expected to go through an industry and nationwide debate before making it to the government-majority Parliament.
Esteves hopes things will be different this time: “We hope that this announcement will be followed by concrete and clear proposals so that we will not have misleading information about this topic.”
As per the due legal process, the Portuguese government would have to include NHR-related proposals in the forthcoming state budget if it intends to end the tax regime in 2024.
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