In October 2023, Portuguese Prime Minister António Costa announced the end of the NHR (Non-Habitual Resident) tax system, which has drawn thousands of retirees, self-employed individuals, and white-collar workers from across Europe since its inception. The NHR system provided tax breaks for expatriates and was instrumental in boosting the Portuguese real estate market and local economy after the 2008 financial crisis. However, in the face of a worsening housing crisis and social protests in the streets, the leftist Bloco de Esquerda party is calling not only for an end to the system but also for more stringent restrictions on real estate purchases by non-residents.
Update from April 2024: New tax rules for non-residents in Portugal: NHR 2.0
Since 2024, the new NHR 2.0 regulation has been in force in Portugal, which brings some significant changes to the NHR program in Portugal. These revised tax benefits are aimed at continuing to establish Portugal as an attractive location for highly qualified specialists and investors. Discover how the new regulation works and what advantages it offers. Find out more.
What is the NHR regime in Portugal?
The NHR scheme, considered one of the most generous tax initiatives in Europe, provided significant tax relief to new non-residents in Portugal for a period of 10 years. This was used as a tool to attract foreign investment and stimulate the national economy. Costa emphasized that, while the program demonstrated its rationale and efficacy in its first ten years, maintaining this tax status is no longer justified given the current socioeconomic landscape.
Impact on the real estate market in Portugal
However, the radical proposal of Bloco de Esquerda goes further: Mariana Mortágua, coordinator of the party, calls not only for an immediate end to the NHR regime, but also for a ban on the sale of houses to non-resident foreigners in order to prevent a real estate buying panic and a further worsening of the housing crisis. In particular, it alludes to the sell-off to investors in the transition period until the NHR program ends next year.
Although experts stress that Portugal will remain attractive with its sunny climate, security and lifestyle, the end of the NHR regime could significantly affect the real estate market and the influx of expats to Portugal.
So the changes not only affect current users of the NHR regime, but also raise the question: How will this affect Portugal’s attractiveness as a haven for foreign investors and expats?
Why does it end and what follows?
Prime Minister António Costa recently revealed plans to end the NHR regime by 2024. The movement, underpinned by concerns about rising housing prices and the cost of living in Portugal, is seen as a response to the real estate market, which has reached an “absolutely unsustainable” high due to the flood of international buyers – especially from China and the United States.
What are the alternatives?
Malta, with its favorable business climate and attractive programs (such as 5% effective tax) for foreign investors and companies, provides a stable environment to drive business and personal investment. Our main expertise is in Malta company formation, but our interest also extends to international matters such as the NHR program in Portugal.
Our team at DW&P supports your plans with specialized expertise and also offers consultations on the NHR program in Portugal to help you make informed and future-proof decisions.
Conclusion
The changes to the NHR regime in Portugal reflect a broader global trend in which many countries are reviewing their tax programs and incentives (such as Dubai). However, it appears that with every change, there also comes an opportunity.
Whether you need assistance in restructuring your international business activities or simply need professional advice on the latest developments in international tax law, we offer legal excellence and business-oriented solutions: https://www.drwerner.com/en/contact/
Disclaimer: The above article is based solely on independent research by Dr. Werner und Partner and cannot constitute legal advice.
If you would like to meet with one of our representatives to obtain further information, please make an appointment with us.
