Portugal Non-Habitual Resident Tax Regime 2024 Updates for Skilled Foreigners

The new Portuguese government has announced plans to reinstate a modified version of the non-habitual resident (NHR) tax regime, which was abolished by the previous Socialist administration last year. Portugal’s non-habitual resident tax regime offers reduced income tax rates for foreign workers but would not include exemptions on dividends, capital gains, or pensions.

Finance Minister Joaquim Miranda Sarmento revealed that the revived NHR regime proposal is part of a broader package of economic reforms that the government aims to pass in parliament, where it holds a minority of seats.

If approved, the new NHR scheme would allow foreigners or Portuguese citizens who have not been tax residents in the country for the preceding five years to benefit from a flat 20% income tax rate on employment or self-employment income for ten years. Social security charges of 11% would also apply, resulting in an effective tax rate of 31%.

The government's decision to exclude tax exemptions on dividends, capital gains, and pensions from the new NHR regime is an attempt to address concerns raised by Sweden and Finland, whose governments had complained about Portugal attracting their retirees with favourable tax rates.

While acknowledging that the new measures may not attract capital to the same extent as the previous version, the government expects the scheme to help large companies attract highly skilled foreign workers. However, the government recognises the need to balance attracting high-earning foreigners with resolving the country's housing crisis.

The reintroduction of the NHR would see Portugal re-enter the European competition to attract high-earning tax residents through preferential regimes, joining countries like Italy, Greece, Cyprus, Malta, and Ireland. The government will need the support of either the Socialists or right-wing Chega to pass the legislation in parliament.