The End of the NHR Regime in Portugal

In October 2023, Portuguese Prime Minister António Costa announced the end of the Non-Habitual Resident (NHR) tax regime. Since its introduction, this system had been a magnet for thousands of retirees, freelancers, and employees from across Europe moving to Portugal. The NHR system offered significant tax relief for expatriates and played a major role in reviving the Portuguese property market and local economy following the 2008 financial crisis. However, with a deepening housing crisis and social protests on the streets, the left-wing party Bloco de Esquerda (Left Bloc) pushed not only for the end of the system but also for stricter limitations on property purchases by non-residents.

Update June 2025: A Tax Successor via Golden Visa Reform?

Following the complete phase-out of the original NHR regime at the end of 2024 and the introduction of the more restrictive "NHR 2.0", a potential tax alternative specifically for Golden Visa holders is now on the horizon. The Portuguese government is currently reviewing a legislative proposal designed to target foreign investors and reposition Portugal as a tax-efficient destination.

Currently under discussion:

• A flat tax rate of 20% on domestic income
• A 10-year tax exemption on foreign-sourced income

These new rules are intended exclusively for investors relocating to Portugal via the Golden Visa programme – meaning those obtaining residency through qualified capital investments of EUR 500,000 or more. This would effectively restore some of the benefits previously available under the NHR regime, but for a much more select group, with a clear focus on generating direct economic benefit for the state.

A Signal to High-Net-Worth Individuals

This planned tax reform is being viewed as a strategic response to the end of the original NHR system. While the old NHR was broad in scope – attracting employees, freelancers, and retirees with moderate wealth – this new model is narrowly targeted at High-Net-Worth Individuals (HNWIs) and institutional investors. It marks a paradigm shift: moving away from blanket tax relief towards residency based on substantial investment with specific tax incentives attached.

Potential Impact and Assessment

If this model is passed into law, it could once again secure Portugal a leading position in European tax competition – particularly as comparable programmes in Spain, Ireland, the Netherlands, and the UK (with the abolition of the non-dom regime) are being discontinued or severely restricted.

At the same time, the Portuguese government remains sensitive to domestic criticism regarding housing shortages and the social acceptance of wealthy newcomers with special status. It remains to be seen in what final form the law will be passed and whether it will prove sustainable in the long term.

We are monitoring these developments closely and recommend that interested parties review their individual structures now to potentially benefit from these new opportunities early on.

For further information on tax planning for relocation, asset structuring, and Golden Visa support, please visit: https://www.drwerner.com/en/portugal-golden-visa-government-plans-new-tax-incentives-for-investors/

Update April 2024: New Tax Rules for Non-Residents (NHR 2.0)

Since the start of 2024, the new "NHR 2.0" regulations have been in force in Portugal, bringing significant changes to the programme. These revised tax benefits aim to keep Portugal attractive for highly qualified professionals and investors, albeit with stricter criteria. Discover how the new rules work and what benefits they offer here: Learn more.

What Was the NHR Regime in Portugal?

The NHR regime was considered one of Europe's most generous tax initiatives, offering new, non-resident individuals in Portugal significant tax relief for a period of 10 years. It was used as a tool to attract foreign investment and stimulate the national economy. Prime Minister Costa emphasised that while the programme had proven its worth during its first decade, maintaining this special tax status was no longer justifiable in the current socio-economic landscape.

Impact on the Portuguese Property Market

The proposal from Bloco de Esquerda went even further: Mariana Mortágua, the party's coordinator, called for an immediate end to the NHR regime and a ban on selling homes to non-resident foreigners. The goal was to prevent panic buying in the property market and stop the housing crisis from worsening due to a final rush of investors before the programme ended.

Although experts argue that Portugal will remain attractive due to its sunny climate, safety, and lifestyle, the end of the classic NHR regime has undeniably shifted the landscape for the property market and the influx of expats.

These changes affect not only current NHR beneficiaries but also raise a broader question: How will this impact Portugal's appeal as a haven for foreign investors and expats going forward?

Why Did It End?

Prime Minister António Costa revealed plans to discontinue the NHR regime by 2024 largely due to domestic pressure. Driven by concerns over soaring housing prices and the cost of living, the move was a response to a property market that had reached "absolutely unsustainable" highs, partly attributed to a surge of international buyers – particularly from China and the USA.

What Are the Alternatives?

As Portugal tightens its rules, investors are looking for stability. Malta, with its pro-business climate and attractive frameworks for foreign investors and companies (such as the effective 5% tax rate through the refund system), offers a reliable environment for structuring business and personal assets. While we keep a close eye on international developments like the NHR programme in Portugal, our core expertise lies in Malta company formation and tax advisory.

Our team at DW&P supports your ventures with specialised expertise and can also provide guidance on how these international shifts affect your planning, ensuring your decisions are well-founded and future-proof.

Conclusion

The changes to the NHR regime in Portugal reflect a broader global trend where many countries are reviewing their tax programmes and incentives (including changes in jurisdictions like Dubai and the UK). However, every change brings new opportunities.

Whether you need support restructuring your international business activities or simply require professional advice on the latest developments in international tax law, we offer legal excellence and business-oriented solutions: www.drwerner.com/en/contact/

Disclaimer: The article above is based on independent research by Dr. Werner & Partners and does not constitute legal advice. If you would like to meet with one of our representatives for further information, please book an appointment with us.