Hey there, fellow adventurers and soon-to-be expats! If you’ve been dreaming of trading your daily grind for sun-soaked beaches, charming cobblestone streets, and a slice of the good life in Portugal, we need to have a little chat. Don’t worry; it’s not all bad news, but there have been some big changes in the world of Portuguese taxes that you’ll want to know about before you pack your bags and say “olá” to your new life. From the end of NHR to get to know the replacement (ITS) and what it means for you. Check all the details in this blog post.

The End of an Era: Goodbye NHR

Remember that super sweet Non-Habitual Resident (NHR) tax scheme that had expats flocking to Portugal ? Well, as of 2024, it’s gone the way of the dodo – extinct. But before we dive into what this means for you, let’s take a quick look at what we’re saying goodbye to.

What Was NHR?

For those who missed the boat, NHR was like a 10-year tax holiday for qualified expats from paying double taxes. You still need to pay your home country taxes, but many forms of income are free from double taxation in Portugal. Introduced back in 2009 (ah, simpler times), it offered some pretty sweet perks:

• A flat 20% tax rate on Portuguese income for certain professions
• Tax exemptions on most foreign income (pensions, rental income, dividends, you name it!)
• No wealth tax
• Freedom to bring your cash into Portugal without extra fees
• Special treatment of individual income tax for a 10-year period
• The opportunity to achieve tax residency within the EU in a white-listed country
• Tax exemption on gifts or inheritance to family members

No wonder it had expats packing their bags faster than you can book a flight to Lisbon!

So, What’s the Deal for Expats Now?

While the Portuguese government hasn’t entirely replaced NHR, they’re not slamming the door on expats. They’re just changing up the game a bit. Here’s what you need to know:

1. Residency Matters: If you’re in Portugal for 183 days or more a year, congratulations! You’re considered a tax resident, which means you’ll pay taxes on your worldwide income.
2. Progressive Tax Rates: Portugal uses a progressive tax system. In 2024, rates start at 13.25% for income up to €7,703 and go up to 48% for the big earners (over €81,000). Ouch, for most of the US population!
3. The Solidarity Surcharge: If you’re raking in over €80,000 a year, there’s an additional 2.5% to 5% solidarity tax. Think of it as your contribution to keeping those beautiful Portuguese beaches clean!
4. Self-Employed? No Problem!: If you’re a digital nomad or freelancer, you’ll pay personal income tax rates rather than corporate ones. Plus, there are some sweet deductions available.
5. Property Owners, Listen Up: There’s a municipal property tax called IMI, ranging from 0.3% to 0.45% in urban areas. Own a place worth over €600,000? You might need to pay an additional wealth tax (AIMI).

What Is The Impact of NHR’s Discontinuation?

Now, I know what you’re thinking – “This doesn’t sound as rosy as before!” And you’re right, there are some changes to consider:

1. Tax Liabilities on Foreign Income: With NHR gone, that foreign-sourced income (like your pension or rental income from back home) will now be subject to Portuguese taxes. This could hit retirees and international earners pretty hard.
2. Time to Reassess Your Finances: If you’ve been planning your Portuguese adventure around those NHR benefits, it’s time to go back to the drawing board. You might need to explore new tax planning strategies to keep your finances optimized.
3. Real Estate Market Shifts: The property market might see some changes. With the tax incentives gone, some expats might reconsider their investment plans, which could impact property values.
4. Rethinking Residency: Some folks might start looking at other countries with similar tax incentives. Portugal’s still awesome, but it’s worth weighing your options.

What Can You Do About The Portugal NHR Laws?

But hey, it’s not all doom and gloom! Portugal still has some tricks up its sleeve:

• Double Taxation Treaties: Portugal has agreements with many countries to ensure you’re not taxed twice on the same income.
• Startup-Friendly: If you’re thinking of starting a business, Portugal offers reduced corporate tax rates for startups.
• Quality of Life: Remember, taxes aren’t everything. Portugal consistently ranks high for quality of life, safety, and all-important work-life balance.

What Will Replace NHR?

Now, I know what you’re thinking – “Is this the end of tax benefits for expats in Portugal?” Not so fast, my friends! The Portuguese government isn’t leaving us high and dry. They’re introducing a new program called the Incentivised Tax Status Program (ITS), also known as the Tax Incentive for Scientific Research and Innovation. 

Key Features Of ITS

1. Tax Benefits:
   • 20% flat tax rate on eligible professional income from Portugal
   • Potential exemption on professional foreign-sourced income
   • Exemption on most foreign-sourced income (dividends, interest, capital gains, and rents)
   • Note: Unlike NHR, foreign pensions are not exempt under ITS
2. Duration: 10-year benefit period
3. Eligibility Criteria:
   • Must become a tax resident in Portugal
   • Cannot have been a tax resident in Portugal for the past five years
   • Must work in specific professional categories
4. Target Professions:
   • Teachers and scientists
   • Qualified professionals in manufacturing, tourism, IT, agriculture, R&D, and more
   • Highly qualified professionals in specified fields
   • Employees of companies recognized as important to the Portuguese economy
   • R&D personnel
   • Startup employees
   • Certain workers in Madeira and Azores
5. Application Process:
   • Expected to be streamlined compared to NHR
   • Apply through the Portuguese tax authority’s online portal
6. Compatibility:
   • Cannot be combined with NHR or Regressar Program benefits

What Is The Difference Between ITS And NHR?

• Targeting. ITS is more selective, focusing on specific professions and high-value individuals
• Tax Benefits. While both offer significant benefits, ITS introduces more refined criteria.
• Pension Treatment. ITS does not exempt foreign pensions, unlike NHR
• Application. ITS aims for a simpler, more accessible application process

What Are The Benefits For Certain Groups?

1. For Professionals: Attractive tax rates for qualified individuals in targeted sectors
2. For Investors: Potential tax exemptions on foreign-sourced investment income
3. For Digital Nomads: Possible benefits for those in IT and startup sectors
4. For Retirees: Less advantageous compared to NHR due to lack of pension exemptions

For personalized advice on how ITS might affect your specific situation, it’s recommended to consult with a tax professional familiar with Portuguese tax law.

How To Deal With This NHR Change?

1. Seek Professional Advice: Now more than ever, it’s crucial to chat with a tax professional who knows the ins and outs of expat taxes in Portugal.

There’s this awesome company called Moviinn that can be your personal moving hero. They’ll help you tackle all the tricky stuff like:

• Visas (because nobody likes paperwork)
• Taxes (ugh, am I right?)
• Real estate (finding your perfect new place)
• Essential services (getting you hooked up with all the basics)
• Business incorporation (for you entrepreneurial types)
• Investment advice (making your money work for you)
• Citizenship (if you’re planning to stay for the long haul)
• Employment (because we all need to pay the bills)

Just fill out this super easy form . You’ll get personalized guidance and assistance tailored just for your move. Feel free to email me at leslie@americanfamilyinportugal.com if you have any questions.

2. Stay Informed: Keep an eye out for any transition periods or grandfather clauses the Portuguese government might introduce. These could give you some breathing room as you adjust to the new system.

Key Points To Remember

Alright, future Portugal residents, let’s wrap this up with some key points to remember:

1. NHR is No More: As of 2024, the Non-Habitual Resident tax regime is history. Pour out a little vinho verde in its memory!
2. New Tax Reality: Expect to pay taxes on your worldwide income if you’re a resident (that’s 183+ days in Portugal). Tax rates range from 13.25% to 48%, depending on your income.
3. Foreign Income Changes: That sweet tax exemption on foreign income? Gone with the NHR. Your global earnings are now on Portugal’s tax radar.
4. Property Taxes Still Apply: Don’t forget about IMI (0.3% to 0.45% in urban areas) and possibly AIMI for properties over €600,000.
5. Self-Employed? You’re Covered: Freelancers and digital nomads pay personal income tax rates, not corporate ones. There are still some nice deductions available!
6. Seek Expert Advice: With these changes, it’s more important than ever to consult a tax professional who knows the ins and outs of expat taxes in Portugal.
7. Quality of Life Wins: Remember, Portugal still ranks high for quality of life, safety, and work-life balance. Sometimes, it’s not all about the taxes!
8. Stay Informed: Tax laws can change faster than you can learn to pronounce “Saudade”. Keep yourself updated on any new developments.
9. Plan Ahead: These changes might affect your financial planning. Take some time to reassess and adjust your strategy if needed.
10. Portugal Still Rocks: Despite the tax changes, Portugal remains an incredible place to live. The beaches, the food, the people – some things are priceless!
11. The ITS program is more targeted than NHR, focusing on attracting specific talent and investments
12. Existing NHR beneficiaries may have the option to transition to ITS if they meet new eligibility criteria

Alright, future Portugal residents, here’s the deal: While the tax landscape has changed, Portugal is still an incredible place to call home. The key is to be informed and plan ahead.

Remember, while the tax landscape has shifted, the Portuguese sun still shines just as bright. With a little planning and the right advice, you can still make your Portuguese dream a reality. Boa sorte, and see you on the beach!

Additional Reading

How To Obtain A Portuguese D7 Visa For Your Family: Everything You Need To Know

Moving to Portugal Checklist

Obtaining a Portuguese Health Number, SNS Number, or Número de Utente de Saúde, As An American Expat