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NHR Tax Regime… Why It Should Not End

It makes no sense to me to end the NHR tax regime…

“I can’t accept the government’s decision to end the NHR regime be taken abruptly and without carrying out a study that allows to understand its effects… It is this responsibility that is required and that I urge to be considered!!!”

The State Budget Law Proposal for 2024 provides for the end of the tax regime for Non Habitual Residents (NHR’s) in terms of IRS, and its replacement with an ineffective regime.

Created in 2009, the NHR regime applies to all people who, upon becoming tax residents, have not been resident in Portugal in the previous five years. In other words, it covers both Portuguese emigrated abroad and foreigners.

The tax free status that many criticize is valid for 10 consecutive years, and is based on the granting of tax benefits that are divided between income from a Portuguese source, taxed at a rate of 20% (but only in relation to income from dependent and independent work), and income from a foreign source in which the “menu” ranges from an exemption from IRS, to the application of reduced rates of 10% (pensions) or 20% (in certain cases of income from dependent employment). Even so, there are several passive incomes that are always taxed at general rates or at increased rates of 35%.

Furthermore, the NHR regime does not apply the same way as other taxes such as IVA, IMT, IS, IMI, AIMI, IUC, Social Security, and other fees and taxes.

Critics also point out the growing tax expenditure of NHR’s (1 Billion and 360 Million Euros in 2022). Forgetting that this expense is virtual, and that the tax revenue and the regime's contribution to the economy have never been quantified.

We are, therefore, defining fiscal policy based on an “guess meter”.

There are countless reasons that justify looking at the regime dispassionately.

First of all, there are 28 special tax regimes in Europe that are more or less similar to the Portuguese one. The majority are operated by European Union member states that compete with Portugal. Spain and Italy “rub” their hands with joy at the announcement of the end of the Portuguese regime.

On the other hand, and in a grocery store exercise, it is estimated that the annual tax revenue of the NHR is around 1 Billion and 470 Million Euros. Therefore, it is higher than the virtual expenditure indicated.

Giving up such revenue at a time of enormous uncertainty regarding the evolution of the global economic situation – exacerbated by the Israeli-Palestinian conflict – is, to say the least, a reckless decision. It is contrary to the budgetary prudence that characterizes the 2024 Budget. Someone will have to eventually pay the bill.

It should be noted that part of this revenue comes from the Local Authorities, which will affect the development of Housing policies. Isn’t Housing one of the priority objectives???…

Since we are talking about Housing, it is completely fallacious to say that NHR’s contribute to the problem. Over the 14 years of the regime, around 40,000 property purchase or rental transactions were carried out by NHR’s. When between 180,000 and 200,000 properties are sold per year.

The abrupt end of the NHR regime will further worsen the cooling of the Portuguese economy, with implications for attracting investment, private consumption and, consequently, current employment levels.

In the words of former Finance Minister João Leão are accurate here: “Portugal has had enormous success in providing services in the area of ​​technology, in the area of ​​services, in the “back office” in the financial and accounting areas. We provide these services throughout Europe, and companies also source some of their professionals from abroad.” This is what we are going to lose. Or at least it will become more difficult to attract and settle in the country. Through the end of the NHR, Portugal risks accelerating the export of talent and the future of new generations.

Nor can the demographic challenge and the sustainability of the social system be underestimated. Continuing to attract qualified professionals, and their families, is crucial.

Furthermore, the NHR’s, due to their economic capacity, do not overload the SNS, as most have private healthcare insurance.

Finally, it is unwise to radically end the NHR regime given the delays in regularizing immigration. Tens of thousands of people are desperate to have their residence permits issued, without which they cannot register as tax residents and obtain NHR status. The problem will worsen with the dismantling of the SEF. The opportunity given in the now known Proposal to allow the tax situation to be regularized, when it is known that this regularization is impossible in a timely manner, is perfectly Kafkaesque.

Fast forward… It is perfectly legitimate to review tax benefits and respond to the feeling of injustice of the NHR regime. It cannot be accepted that the decision to end the NHR regime, due to its importance for the country, is taken abruptly and without previously carrying out a study that allows us to understand its effects. It is this responsibility that is required and I urge to be considered!!!

Feel free to call; text or e-mail. But the best way to connect with us is via a Zoom call. I’ll be more than happy to share my experience with you living in Portugal the last 22 years… I’ll also walk you through Portugal using Google Maps, show you the best Cities or communities and neighborhoods that match your ideal lifestyle and budget, and go over the moving and buying process as well as Visa process to establish residency.

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