One increasingly common way for individuals to limit their tax exposure is for them to go non-resident. Emigration can be particularly appealing for retiring couples who may be planning to move to sunnier climes in any event and a favourable tax regime is just the cherry on top of the cake. There are many jurisdictions, from Dubai to the Cayman Islands, which offer attractive ‘deals’ for individuals looking for a friendly home. A few years ago we issued a Tax Bite entitled “Consider Portugal” which you can see here.
In 2009, the non-habitual resident (‘NHR’) tax regime was introduced in Portugal, which enables individuals to enjoy reduced tax rates for 10 years. Under the NHR regime, most non-Portuguese income will either not be taxed in Portugal or will benefit from a low rate of tax. For example, dividends from UK companies can be received tax-free and pension income is taxed at a flat rate of 10%. There is also a special 20% tax rate on Portuguese-sourced income derived from “high value-added activities”, such as doctors and teachers.
Portuguese citizens who do not benefit from the NHR scheme can be taxed at rates up to 48%.
This regime was often used by taxpayers with significant distributable reserves in their companies. The idea was that they would move to Portugal and then pay themselves a dividend on which they would not suffer tax. In doing this they usually needed to avoid being UK tax resident for at least six years.
The Portuguese prime minister, Antonio Costa, declared this week that the NHR scheme will be closed for new applicants in 2024. This comes after the Portuguese government approved a plan earlier this year to end its ‘golden visa’ programme, which offers visa-free access to the Schengen states for foreign investors. This was announced days after thousands of people took to the streets in cities across Portugal to protest against soaring house prices, reflecting the strong national feeling that the NHR tax breaks can no longer be justified economically. The full impact of scrapping the NHR regime will be unveiled in a national budget next week.
The thousands of individuals who are already in the regime need not fear because Costa has stated that “those who have it will keep it”, which is good news. Also, those who join the regime before 31 December 2023 will still be able to benefit.
Reconsider Portugal – fast!
There may be a small window of opportunity to sign up for the NHR regime and individuals have until 31 December 2023 to do so. The immediate action point for anybody who has been dragging their heels is to work out the feasibility of moving to Portugal by the end of the year and processing the application. Clearly the answer to this will be different, depending on circumstances. We can envisage a flurry of property rental activity!
Individuals who have already moved to Portugal and wish to benefit from the regime should apply as soon as possible, prior to the 31 December 2023 deadline.
Clients who do wish to sign up, need to take the necessary practical steps to achieve NHR status now, in particular, establishing a permanent residence in Portugal, e.g. by renting a property.
Forbes Dawson’s view
Right now we do not know whether those who have not started the process will have effectively missed the boat on this. We would suggest that they seek local advice immediately and if they are still planning to make the move, then they should also take good quality advice on the UK residence rules. This will usually involve them having a clear understanding of the nights that they can spend in the UK to avoid becoming UK resident. Failing that, all lovers of peri peri chicken may need to consider a different dish.
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