The end of an era: Portuguese Non-Habitual Residents regime to end

The Portuguese Government has announced the end of the Non-Habitual Residents regime from 1 January 2024 onwards, with individuals looking to relocate to Portugal no longer being able to access the special tax regime, unless they meet the relevant conditions and hold a valid residence visa as at 31 December 2023. The announcement was made as part of the State Budget Law Proposal for 2024 and, although not yet definite, is highly likely. Individuals considering relocation to Portugal should take advice immediately. In this article, we discuss the impact of this change and what this might mean for UK resident non-UK domiciled taxpayers, in particular does this swift and radical envisaged removal for the regime pave the way for a similar change to the UK’s ‘non-dom’ regime in 2024?

In recent years, Portugal has proved a popular destination for taxpayers looking to relocate due to its sunny climate, central European location, and its favorable Non-Habitual Residents (NHR) regime. 

The NHR regime is a special tax regime originally introduced after the 2008 financial crisis as a means of attracting global talent and investors to Portugal. The NHR applies for a period of 10 years to individuals who effectively relocate to Portugal (subject to meeting certain residence conditions) and did not reside in Portugal in the last five years. Subject to the fulfilment of certain legal requirements, the NHR regime provides a reduced level of taxation of pension income and of employment and self-employment income deriving from ‘high added value’ activities, as well as a tax exemption over non-Portuguese income received. This is subject to the individual applying to the Portuguese Taxation Authorities.

The announcement shared by the current leader of the Portuguese Government was that the regime was no longer beneficial and would end in 2024. It was received in early October 2023 with surprise, as it was made without consultation and with no early warning signs that the regime would be subject to change.

Further detail was later provided in the Portuguese State Budget Law Proposal for 2024, published on 10 October 2023, which confirmed the intention of the Portuguese Government, as it foresees that the regime will cease to apply for those who relocate to Portugal as of 1 January 2024. However, the regime should remain applicable to taxpayers who:

• Are already registered in Portugal as NHR, and still within the 10-year period foreseen for the regime to be applicable; and
• On 31 December 2023 meet the conditions to obtain the status as a NHR and hold a valid residence visa on that date, as long as they complete the correspondent registration, as such, until 31 March 2024.

Since the Portuguese Government holds the majority of the Portuguese Parliament, no significant changes are expected to be introduced in this respect in the final version of the State Budget Law Proposal for 2024 to be voted on 29 November 2023 and enter into force on 1 January 2024.

Clearly this announcement will be of great concern to individuals who are in the process of relocating to Portugal or were considering a move to Portugal ahead of the end of the UK tax year. If these changes impact you, please contact your usual KPMG in the UK contact or the authors immediately who can work with KPMG in Portugal to understand how these proposed changes may impact your position. 

It is also interesting to consider the announcement in light of the UK’s current uncertain tax environment and particularly Labour’s recent Party Conference which made clear that the UK’s equivalent regime, the ‘non-dom’ regime, would be abolished if they were to be in government after the next election, which is due to take place during 2024. Portugal’s removal of the NHR certainly reduces the ability to argue the UK is an outlier in seeking to reform its own non-dom regime and perhaps paves the way for changes in 2024.  

For further information please contact:

• Hannah Keens
• Matthew Coplestone-Gourlay