Changes to the tax regime for new Portuguese residents in 2024

The tax regime applicable to new Portuguese residents (NHR) expires in 2024. Current NHR status holders will preserve their benefits for another ten years, but they must plan ahead of time to avoid progressive tax rates.

The Portuguese government has released its first draft review of the NHR tax regime’s possible demise in 2024. According to this draft review, new applicants must apply by December 31, 2023, and must be approved by March 31, 2024.

The draft review, which was presented on October 10, 2023, also revealed further information about the Portuguese government’s planned Incentive Tax Status (ITS) program, which is expected to replace the NHR tax regime and may give a more limited range of tax incentives to qualifying persons and professions. This includes a ten-year flat tax rate of 20% and a five-year professional income tax exemption of 50% (up to €250,000).

What should existing NHR status holders do?

Current NHR status holders should consult with a financial and tax advisor to fully understand the consequences of losing tax status if they do not organize their situation within the 10-year term of NHR benefits.

Many rich expats, according to financial advisers, are unable to plan and manage their affairs for up to 20 years, not just the first 10-year tax relief period under the NHR. Every year they fail to act during their NHR status, they could increase their long-term tax burden and expose themselves to the possibility of progressive tax rates.

What should new  Portuguese residents do?

New members who wish to apply for NHR status prior to the deadline should do so as soon as possible. The application deadline is December 31, 2023, and the application procedure can take several months. According to the draft review, they have until March 31, 2024 to secure NHR tax status as well as the related residence visa application.

New members should also obtain professional advice to fully understand the NHR tax regime and how to manage their finances in the most tax-efficient manner.

Conclusion
Changes to the NHR tax regime will have an important effect on both existing and new wealthy expats.

Those who are already on the system should aim to finish their 10-year grace period as soon as feasible, and those who are still considering applying should do so as soon as possible.