The New NHR: Non-Habitual Residents in 2024

The Non-Habitual Resident Status (NHR) is a special regime that offers a reduction in Personal Income Tax (IRS), for 10 years, to new foreign residents (of any nationality) and to Portuguese citizens who have emigrated for more than 5 years.

To obtain this more favourable tax regime, the non-habitual resident must carry out a professional activity considered to be of "high added value" or be a pensioner. The objective of this incentive is to attract qualified professionals in activities of high importance and beneficiaries of pensions obtained abroad. Pay attention to the news that we explain later.

What does the Law say?
The Statute was launched in 2009 by the Investment Tax Code (Decree-Law No. 249/2009, of 23 September). The Tax Authority has created a guide to the Tax Regime for Non-Habitual Residents, which you can consult here.

A transitional model: what changes and what remains?
Although the Non-Habitual Residents (NHR) regime has been revoked as of the beginning of this year 2024, a transitional situation has been created with the possibility of accessing it until March 31, 2025.

In accordance with the provisions of Law No. 82/2023 of 29 December, this transitional regime allows those who already benefit from the specific tax conditions to maintain them until the ten years foreseen for its validity have expired.

It is also admitted that those who comply with the requirements of article 16 of the IRS code with regard to tax residence in Portugal on December 31, 2023 can register as new beneficiaries of this NHR regime.

For those who meet those conditions by December 31, 2024, additional requirements are required, such as the existence of a lease contract or the existence of an employment contract, among other requirements that you can consult here.

Who can access the Non-Habitual Resident status?
In addition to the professional issue or being a pensioner, to be considered an NHR you must meet two essential requirements:

Be considered a resident in Portuguese territory
Not have lived in Portugal in the last 5 years.

What is required to be considered a resident in Portugal?
According to the criteria established in Article 16 of the Personal Income Tax Code, it is necessary to comply with one of the following conditions:

Stay in Portugal for more than 183 days, consecutive or interpolated, in a period of one year;
Have your own home or rented house, with the intention of occupying it as your usual address;
To perform functions or commissions abroad at the service of the Portuguese State;
Be a crew member of a ship or aircraft, at the service of companies with residence, headquarters or direction in Portugal, on December 31st.

How to apply for Non-Habitual Resident status?
In addition to meeting the requirements to be considered a non-habitual resident, you must also:

Register as a resident in Portugal at a Tax Office or a Citizen's Shop;
Once you have a Tax Identification Number (NIF), register as a non-habitual resident. You can do it online, on the Finance Portal or in person at a Finance service or Citizen's Shop;
Provide proof of the exercise of the "high added value" activity, if the Tax and Customs Authority requests it.

Main advantages of Non-Habitual Resident status
If the amounts resulting from "high added value" activities are received in Portuguese territory, the income falling into categories A (employment) and B (self-employment) is taxed at the special flat rate of 20%.

But if the income is from a foreign source, the following is true:
There is elimination of taxation in Portugal. In other words, the exemption method is practiced for income from activities with "high added value" in categories A (dependent work) and B (self-employment). The exemption method also applies to categories E (capital income), F (property income) and G (capital gains income) as long as they are taxed in the other country, territory or region. Pensions (category H) are not entirely exempt: a rate of 10% is levied on the net amount.

Income not considered to be value-added

Income from a Portuguese source, not considered to be of added value, or that does not fall into the categories of dependent (A) or self-employed (B) work, is taxed in accordance with the general rules established in the IRS Code. Income not considered to be of foreign added value is taxed in Portuguese territory. You may, however, have to pay taxes in the other country. To eliminate the so-called double taxation, you can take advantage of the conventions signed by Portugal that you can consult here. If there is no convention with the other country, the unilateral international legal norm can also be applied for the elimination of double taxation.

You can benefit from this special tax regime for 10 consecutive years, starting from the year of your registration as a resident in Portuguese territory. This period cannot be revalidated. In the event of suspension of this special regime, you can resume the enjoyment of the right in any following year, within that 10-year period, provided that you are considered a resident again for IRS purposes.

When to apply and how to benefit from NHR status?
You must apply for non-habitual resident by 31 March of the year following the year in which you became a resident.

To benefit from the status, when submitting the income tax return (IRS model 3, from April 1st to June 30th), through the Finance Portal, you must attach the Annex L duly completed with the indication of the code of the "high added value" activity and the amounts received.

In the case of income obtained abroad, it must also indicate the desired method of eliminating international double taxation.

Main advantages of Non-Habitual Resident status
If the amounts resulting from "high added value" activities are received in Portuguese territory, the income falling into categories A (employment) and B (self-employment) is taxed at the special flat rate of 20%.

But if the income is from a foreign source, the following is true:
There is elimination of taxation in Portugal. In other words, the exemption method is practiced for income from activities with "high added value" in categories A (dependent work) and B (self-employment). The exemption method also applies to categories E (capital income), F (property income) and G (capital gains income) as long as they are taxed in the other country, territory or region. Pensions (category H) are not entirely exempt: a rate of 10% is levied on the net amount.

Income not considered to be value-added

Income from a Portuguese source, not considered to be of added value, or that does not fall into the categories of dependent (A) or self-employed (B) work, is taxed in accordance with the general rules established in the IRS Code. Income not considered to be of foreign added value is taxed in Portuguese territory. You may, however, have to pay taxes in the other country. To eliminate the so-called double taxation, you can take advantage of the conventions signed by Portugal that you can consult here. If there is no convention with the other country, the unilateral international legal norm can also be applied for the elimination of double taxation.

You can benefit from this special tax regime for 10 consecutive years, starting from the year of your registration as a resident in Portuguese territory. This period cannot be revalidated. In the event of suspension of this special regime, you can resume the enjoyment of the right in any following year, within that 10-year period, provided that you are considered a resident again for IRS purposes.

When to apply and how to benefit from NHR status?
You must apply for non-habitual resident by 31 March of the year following the year in which you became a resident.

To benefit from the status, when submitting the income tax return (IRS model 3, from April 1st to June 30th), through the Finance Portal, you must attach the Annex L duly completed with the indication of the code of the "high added value" activity and the amounts received.

In the case of income obtained abroad, you must also indicate the desired method of eliminating international double taxation

Main advantages of Non-Habitual Resident status
If the amounts resulting from "high added value" activities are received in Portuguese territory, the income falling into categories A (employment) and B (self-employment) is taxed at the special flat rate of 20%.

But if the income is from a foreign source, the following is true:
There is elimination of taxation in Portugal. In other words, the exemption method is practiced for income from activities with "high added value" in categories A (dependent work) and B (self-employment). The exemption method also applies to categories E (capital income), F (property income) and G (capital gains income) as long as they are taxed in the other country, territory or region. Pensions (category H) are not entirely exempt: a rate of 10% is levied on the net amount.

Income not considered to be value-added

Income from a Portuguese source, not considered to be of added value, or that does not fall into the categories of dependent (A) or self-employed (B) work, is taxed in accordance with the general rules established in the IRS Code. Income not considered to be of foreign added value is taxed in Portuguese territory. You may, however, have to pay taxes in the other country. To eliminate the so-called double taxation, you can take advantage of the conventions signed by Portugal that you can consult here. If there is no convention with the other country, the unilateral international legal norm can also be applied for the elimination of double taxation.

You can benefit from this special tax regime for 10 consecutive years, starting from the year of your registration as a resident in Portuguese territory. This period cannot be revalidated. In the event of suspension of this special regime, you can resume the enjoyment of the right in any following year, within that 10-year period, provided that you are considered a resident again for IRS purposes.

What documents prove the exercise of the high value-added activity?

The evidence is as follows:

• Declaration issued by the employer;
• Employment or service contract that identifies the functions performed;
• In the case of self-employed activities, declaration of commencement of activity with the indication of the CIRS or CAE code, as well as the description of invoices issued;
• If the activity carried out requires registration in a Professional Association, you must also attach this proof;
• For management positions, a power of attorney serving as evidence stating that he has binding powers of the legal person. In the case of senior management, a power of attorney with joint powers is sufficient;
• Other suitable documents proving the effective exercise of the invoked activity.

Conclusion

It is essential to consult with legal and tax professionals to understand how these changes may impact your circumstances and determine the best course of action. You will be able to make well-informed decisions regarding your tax residency and financial planning in Portugal by staying informed and seeking professional advice.

Disclaimer: This article provides general information and should not replace personalized advice from tax professionals. The content is based on the information available at the time of writing and is subject to change. Consult with professionals for advice tailored to your specific circumstances.