Non-Habitual Residents: changes on the regime after the 2020 State Budget

Non-Habitual Residents: changes on the regime  after the 2020 State Budget

 

The state budget for 2020 was discussed and voted on the 6th of February and some changes were approved. Please note that these changes will take effect only after publication of the new law, which should occur within the next few days and before the end of February.

 

The Non-Habitual Residency scheme was created several years ago and has proved very successful at attracting individuals of independent means, pensioners and certain skilled professionals to establish residency in Portugal for tax purposes, while not being subject to any minimum or maximum stay requirements.

 

A major feature of the NHR regime lies in its interaction with the double tax conventions signed by Portugal or with the OECD model tax convention in the absence of one. Under these rules, these pensioners have been exempted of tax on their pensions from foreign source, both in Portugal and in their home country.

 

In view of the above, some countries like Sweden have complained to Portugal and threatened of start taxing these pensions at source in case Portugal would continue with the tax exemption.

 

The alterations that were approved were the following:

 

  • 10% IRS tax, on all pension earnings of who, in the future, acquire the NHR status. This means that if you are already Non-Habitual Resident, you shouldn’t be affected by this new law.

 

  • If you are already a resident at the time the new law is published, or if you are able to prove that you were a resident, you can still become NHR and pay 0% tax. If you became resident in 2019 the deadline to apply for the NHR is 31-03-2020 if however, you became resident in 2020, you have until the 31-03-2021, to apply for the NHR.

 

  • With this new law anyone that is already an NHR may continue to be taxed at 0%, or choose to pay 10%.

 

  • It’s important to mention that his alteration to the law, will also allow all the NHR pensioners, that currently pay 0% tax, to be taxed at 10%, once the 10-year exemption finishes.

 

The 10% tax is per pensioner; however, it is given the option of using a tax credit, in case it is more favourable to the taxpayer. This means, in case your pension is taxed in a foreign country, these pensioners can deduct that tax on the 10% they would pay here.

 

If you wish to register as a tax resident, in order to apply for the NHR, our team will be glad to assist you. Contact us, in case you need support to change your residency with a retrospective date. As soon as the State Budget is voted, and the law is finally published our team will let you know and advise you accordingly.

 

For further information, please get in touch through +351 281 029 059 or [email protected]