It was a move that was bound to happen sooner or later! Portugal has just announced the end of Non-Habitual Resident status, which gave tax breaks to foreigners moving to the country.
On Monday, Prime Minister António Costa made an announcement that the special tax benefits for non-resident foreigners in Portugal will be discontinued starting next year. He cited that maintaining tax advantages for non-habitual residents is no longer justifiable.
The Non-Habitual Resident (NHR) Status, which has been in place since 2009, grants a 10-year reduction in income tax (IRS) for both new foreign residents, regardless of their nationality, and Portuguese citizens who have resided abroad for over 5 years.
This regime offers tax advantages to foreign citizens, which include a 20% reduced tax rate on income earned from high-value-added activities for a period of 10 years. It also allows for a 10-year tax exemption on income generated abroad, including for retirees.
Portuguese emigrants, in contrast, receive a 50% tax exemption on income from dependent work, business, and professional activities for a 5-year duration.
During an interview with TVI, António Costa acknowledged that this measure was sensible in the past. He pointed out that during the first decade of its implementation, "59% of the beneficiaries continued to reside in Portugal even after the tax benefits expired." However, he now believes that maintaining this regime is no longer justifiable.
According to CNN, he argues that continuing this measure would perpetuate an unwarranted fiscal inequity and further inflate the housing market in a biased manner. Nevertheless, António Costa stressed that the existing beneficiaries of this regime will continue to receive its benefits.
As per the information available, individuals who apply for and secure Non-Habitual Resident (NHR) status before December 31, 2023, will be allowed to retain their tax advantages. New applications for NHR status will not be accepted after this date.
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