NHR: Tax Authority Automatically Rejecting Foreigners’ Requests for Fiscal Benefits

Only later, in notifications to applicants, does the Tax Authority (AT) request evidence from individuals to prove their eligibility to NHR regime. This evidence includes documents such as employment contracts, enrollment of children in Portuguese schools, or promises of property purchase, demonstrating eligibility until the end of 2023. Luis Leon, a tax expert and co-founder of the consulting firm Ilya, shared this information with ECO.

From an IT perspective, the AT lacks the means to automatically implement the amendment introduced by the PS (Socialist Party) in the 2024 State Budget, which proposed ending the non-habitual resident regime and establishing a new program focused on certain activities related to innovation and science.

The current NHR model does not require engaging in any professional activity nor restricts it to specific sectors. It uniformly grants tax benefits in terms of income tax (IRS) for 10 years to all foreigners who have not had a residence in Portugal in the last five years. Due to the backlash against ending this regime, the Socialists decided to approve a transitional regime, allowing foreigners moving to the country this year to still benefit from the old regime, provided they can prove plans to live in Portugal by the end of 2023.

Unable to implement this transitional regime, the AT has decided to automatically reject all NHR applications upfront. Subsequently, the individuals concerned are asked to provide documentation proving their plans to live in Portugal by the end of 2023.

This “bureaucratic” process, as described by Leon, may lead to significant delays in the approval of applications. Leon warns, “A few months ago, the AT was still evaluating requests from 2022.”

Leon also highlights two deadlines for submitting evidence: “In the case of employment contracts and visas, documents must be signed, at the latest, by December 31. Enrollment of children in schools or promises to purchase real estate must have been made by October.”

To qualify for the transitional regime for non-habitual residents, foreign workers and retirees, or Portuguese nationals who have been emigrated for more than five years, must meet one of the following conditions:

• – Promise or employment contract until the end of 2023.
• – Lease or possession contract for property in national territory until October 2023.
• – Reservation contract or promise of acquisition of real rights over property in Portuguese territory concluded by October 10, 2023.
• – Enrollment of dependents in an educational institution located in Portuguese territory until October.
• – Residence visa or residence permit valid until December 31, 2023, or a procedure initiated by December 31, 2023, for the granting of a residence visa or permit, with the competent authorities.
• – Member of the family unit of the taxpayers mentioned in the previous points.

In this special regime, foreign workers choosing to reside in Portugal or Portuguese citizens who have been emigrated for more than five years benefit from a reduction in IRS for 10 years, subject to a 20% tax rate on income from categories A and B. Pensioners pay a 10% IRS, having been exempt until 2020.

To access this regime, non-habitual residents must have tax residence in Portugal and stay in the country for more than 183 days, consecutively or interpolated, in a one-year period. They must also have their own residence or rented property with the intention of using it as their habitual residence.

Author: Chris Morris