Further government updates to the NHR tax regime and how existing affluent expats and new entrants should act

Thousands of wealthy expats in Portugal are being urged to take action now to ensure they don’t get caught by a sting in the tail of the soon-to-be phased out Non-Habitual Residency (NHR) tax regime.

The sun-drenched nation and its lifestyle has proved hugely attractive to affluent expats who can enjoy the benefits of life in Portugal as well as a range of enticing tax incentives under the NHR – a tax program which was designed to bring wealth and investment to its shores.

More than 53,700 expats in Portugal have taken advantage of the tax regime – first launched in 2009 – but were left unsettled by the recent announcement by Portugal’s Prime Minster, Antonio Costa, that it was to come to an end.

Portuguese government releases first draft

This week, (October 10, 2023) the Portuguese government released its first draft review on how it will bring the curtain down on the NHR tax regime in 2024. It suggested new applicants need to apply before December 31, 2023, and then complete their application/approval by March 31, 2024.

The draft review also gave more insight into the Portuguese government’s new proposed Incentivised Tax Status (ITS) program, which will likely replace the NHR.

It will potentially offer a more limited range of tax benefits to qualifying people and professionals. This includes a flat 20% tax rate and a 50% tax exemption on professional income, up to a cap of €250,000, for five years. It is also envisaged that pensions outside of Portugal will not be charged at 10% tax but 50% of progressive tax rates apply to your drawdown. However, for US citizens it's unlikely that the end of NHR will materially change the credits that they can claim back through the US tax system. This does not constitute advice as it's just guidance notes from the draft bill from government about the changes. Any formal advice would require a qualified professional to be instructed to give tax advice. Talk to us about instructing one of our tax experts.

Current affluent expats already with NHR tax status will keep their benefits for the duration of their 10-year term but need to plan for the end of that period as early as possible to mitigate progressive tax rates.

It comes as a soon-to-be published survey of wealthy expats in Portugal revealed just 27% have planned beyond the 10-year NHR tax benefit.

What the experts are advising

David Vacani, CEO of Beacon Global Wealth Management who advises high net worth individuals based in Portugal, explained: “Many affluent expats are too busy enjoying the fabulous lifestyle Portugal offers that they forget to plan ahead.

“We have always advised people that it’s never too early to start looking at what happens after the 10-year perks expire.

“If you take action within the first two to three years, you can end up paying a much lower tax rate over a prolonged period of time.

“Even if you are entering the last years of the NHR tax scheme, you still have time to take steps – but we would strongly advise you act sooner rather than later.”

David Vacani is also the chairman of FEIFA (Federation of European Independent Financial Advisors)

The advice comes ahead of the launch of the new ‘Wealthy Expats in Portugal Survey Report 2023' which will be launched at a webinar on October 24, 2023 at 10:30am Lisbon and London time which is being hosted by Portugal Pathways.

The webinar will also include a full update on the NHR tax regime and the new ITS scheme.

Steve Philp, a spokesman for Portugal Pathways said: “Portugal’s appeal has not diminished over recent years – with affluent expats drawn to its standard of life, all-year-round sunshine, great investment opportunities and top-quality health care and education.

“But the changes to the NHR tax regime will have an impact. The key is to act sooner rather than later, and that includes people who are already on the scheme based on the findings of the new Wealthy Expats in Portugal Survey Report.’’

Portugal has recently been named as one of the world’s top property hotspots for high net worth individuals as well as the number one place to relocate in the world in 2023.

Upcoming webinar reveals survey findings

The report being unveiled at the webinar comes from the independent research company, World Digital Foundation (WDF).

Paul Stannard, chairman at WDF added: ‘’Our survey of current and prospective wealthy expats highlighted the majority had found Portugal to be a culturally rich, safe and secure haven compared with almost anywhere else in the world to relocate but fail to structure their life and finances in Portugal for the long term.’’

It has polled more than 1,000 current and potential expats – including from the UK, USA, Canada, Brazil and South Africa and Asia – to gauge the benefits and challenges of the move to provide an essential report for those looking for a profitable future in Portugal.

The ‘Wealthy Expats in Portugal Survey Report 2023’ and NHR webinar takes place on October 24 at 10:30am London and Lisbon time. To register click here.

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Disclaimer: The guidance above should not be fully relied upon and does not constitute formal instructed professional advice. In relation to tax advice in Portugal, please engage and instruct a regulated professional for all tax advice and structured financial planning. Please contact Portugal Pathways if you would like an introduction to one of our professional advisors.

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