Portugal’s Transitional Regime Update: The Path Forward for Original Non-Habitual Residents (NHR)

With the passing of Portugal’s 2024 State Budget, the well-known NHR (Non-Habitual Resident) regime, offering numerous tax benefits—including exemptions on income types like pensions and dividends—has been annulled. However, 2024 still presents an opportunity to apply for NHR status, provided that applicants establish tax residency in Portugal within the year and meet specific eligibility criteria.

Application Process and Key Deadlines

To benefit from NHR status, applications must be submitted to the Portuguese tax authorities by 31 March 2025. While this deadline is set, the Arbitration Court (CAAD) has ruled in several cases that the March 31st application requirement is declarative rather than constitutive. Therefore, missing this date does not necessarily preclude NHR status, though applicants may need to challenge an IRS tax assessment should they encounter denial.

Who Qualifies for Original NHR in 2024 Calendar Year?

Eligible individuals include foreigners who:

  • Have not been tax residents in Portugal in the previous five years,

  • Have either a job offer, employment contract, or secondment agreement signed by
    31 December 2023 for positions in Portugal,

  • Have a lease or property agreement in place by 10 October 2023,

  • Enroll dependents in Portuguese educational institutions by 10 October 2023,

  • Hold a valid residence visa or permit as of 31 December 2023,

  • Begin residence visa application processes or related steps by 31 December 2023.

Key Benefits of Original NHR Status

Work Income:

  • Special 20% flat tax rate on high-value-added activity income within Portugal.

  • Tax exemption on foreign labour income is taxed in the source country.

  • Tax exemption on high-value activity self-employment income sourced outside Portugal, depending on tax treaties.

Passive Income:

  • Zero tax on dividends, royalties, and interest sourced abroad, if taxed in the country of origin within Double Taxation Agreements rates (5-15%).

  • Tax on capital gains from Portuguese properties ranges from 24% to 29%; no tax on gains from properties outside Portugal.

  • Capital gains on the sale of shares in Portuguese SMEs taxed at a reduced 14% rate.

Pensions:

  • Flat 10% tax rate on foreign pensions and Private Pension Funds with a tax credit option to prevent double taxation.

Additional Tax Benefits Beyond Original NHR

No wealth tax, except for AIMI on high-value properties above 1 million euros.

  • Exemptions on inheritances and donations for direct family members.

  • Tax-free reinvestment of primary residence sale proceeds within Portugal or the EU/EEA.

  • Crypto asset gains held for over 365 days are exempt, with a 28% rate applied to shorter-term holdings.

  • No exit tax when leaving Portuguese residency, except on crypto assets held for less than a year.

Duration and Application Timing

The NHR status remains active for a continuous 10-year period, during which the benefits persist even if the individual resides temporarily outside Portugal.

Social Security and Original NHR Status

NHR residents working in Portugal must register with Social Security, and self-employed individuals receive a one-year exemption. Contributions are set at 21.4% on 70% of gross income, capped at 12 times the Social Support Index (IAS), or €6,111.12 monthly in 2024.

Double Taxation Agreements

Portugal’s nearly 80 tax treaties generally permit income to be taxed in its origin country with favourable terms. Even blacklisted jurisdictions with tax treaties may see tax-exempt treatment under the NHR regime.

For more details on how you can benefit from Portugal’s NHR regime, connect with HKNH Global Consultants to assess your eligibility and maximise your tax advantages in 2024.