Portugal, renowned for its attractive tax regime for new residents, is set to make a significant change. Portuguese Prime Minister Costa recently announced the discontinuation of the special tax regime for new "Non-Habitual Residence" (NHR) residents, effective from 2024. This development comes as a response to the program's popularity, with 89,000 foreigners taking advantage of these tax benefits as of July 2023.
But what exactly is the essence of the NHR preferential treatment?
Under the NHR scheme, new residents enjoy a fixed 20% tax rate on income earned in Portugal for a period of 10 years. Notably, income earned abroad is generally exempt from Portuguese taxation, except for pensions, which are subject to a 10% tax rate.
To put this into perspective, ordinary Portuguese citizens are subject to a progressive tax scale ranging from 14% to 48%.
The NHR status has been particularly popular among relocators and digital nomads, leading to an influx of individuals choosing Portugal as their destination. As a result, demand for housing in the country has surged, driving up real estate prices.
In fact, Portugal claimed the title of the highest housing price increase in the EU area in the third quarter of 2023, with a remarkable 8.7% surge, according to Eurostat reports. This rapid escalation in property prices is making it increasingly challenging for locals to purchase or rent homes, contributing to heightened social tensions and prompting policymakers to take action.
The decision to end the NHR tax breaks signifies a shift in Portugal's approach to taxation and residency, potentially impacting the country's real estate market and its desirability as a destination for expatriates and digital nomads. Stay tuned for updates on this evolving situation.
