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Copy Right – THE PORTUGAL RESIDENT – By Michael Bruxo – 16th November 2023. Photo: Bernardo Lorena/Unsplash

Government launches ‘transitory NHR tax regime’ in 2024; proof that move to Portugal was being planned in 2023 must be presented

The Portuguese government has announced the launch of a ‘transitory NHR tax regime’ for non-habitual residents in 2024.

This temporary scheme will allow foreigners to still benefit from the NHR regime (which was to be scrapped starting in 2024) until December 31, 2024, so long as they are able to prove they were already planning their move to Portugal in 2023 (i.e., documents proving that a property has been purchased, that a residence visa has been requested or that children have been enrolled in a Portuguese school).

This ‘transitory regime’ has been created following an amendment to the State Budget (OE) proposal for 2024 presented on Tuesday in Parliament by the Socialist Party (PS).

According to the government’s official statement, there are six ways to benefit from the transitory regime:

• Promise of employment or work contract, or promise or secondment agreement celebrated until December 31, 2023, with work duties having to be performed in national territory;
• Lease contract or another contract granting the use or possession of property in Portuguese territory concluded until October 10, 2023;
• Reservation contract or promissory purchase contract with rights over property (contrato-promessa de aquisição de direito real sobre imóvel) in Portuguese territory concluded until October 10, 2023;
• Enrolment or registration of dependants in an educational institution located in Portuguese territory, completed until October 10, 2023;
• Residence visa or residence permit valid until December 31, 2023;
• Procedure initiated with the competent authorities for the granting of a residence visa or residence permit, until December 31, 2023.

Justifying the scrapping of the scheme earlier this year, PM António Costa said the NHR regime was “a measure of fiscal injustice that is no longer justified and is a biased form of inflating the housing market, which has reached unsustainable prices”.

However, now PS believes that a transitional period is required.

“It is important to create a transitory regime that safeguards the legitimate expectations of individuals who have already made the decision to immigrate or return to Portugal,” the party says. It adds that failing to create this transitory scheme could “harm the confidence” of those who chose Portugal to live.

What’s certain is that the announcement of this new transitory regime comes one week after Costa’s resignation and the calling of early elections for March 10, 2024.

PS has already been criticised by opposition parties for changing its tune about some of its most divisive measures after President Marcelo Rebelo de Sousa announced the early elections, namely the scrapping of its IUC vehicle circulation tax hike.

In essence, however, what this new transitory NHR regime does is extend it for another year, leaving the door open for the next government to either move forward with its abolishment, maintain it or alter it.

The Non-Habitual Residence regime came into effect in Portugal in 2009, enabling individuals to enjoy reduced tax rates on income for a duration of 10 years.