In our previous newsletter, “can remote working policies reduce taxes” we highlighted the increasing trend for governments to introduce visa expedition and tax attractive packages for remote workers to attract wealthy digital nomads to their shores. Portugal was a front-runner in this regard, but has recently announced the end of their popular Non-Habitual Resident Regime. Today we unpack this, and also summarise the many changes to Portugal’s Golden Visa regime.
What is the Portugal Non-Habitual Resident Regime?
Implemented in 2009, basically any individual who would like to become tax resident in Portugal, could apply to be taxed under the non-habitual residents’ tax regime. Non-habitual resident individuals are defined as individuals who have become residents of Portugal, provided that they have not been residents of Portugal during the previous five years. A non-habitual resident can be taxed as such for a period of ten years from the year of registration as a Portuguese resident.
Under this regime, non-habitual residents were eligible for a very low 20% income tax rate on their Portuguese-source employment income (Category A) as well as many other benefits such as the exemption of foreign sourced income in certain circumstances. So it’s easy to see why many employees flocked to Portugal under this regime.
The rule was that a request for the application of the non-habitual resident’s regime should have been made electronically before 31 March of the year following the year in which the taxpayer became resident in Portugal for tax purposes.
Why is the Non-Habitual Resident Regime being scrapped?
But alas, Portugal has decided to put an end to this beneficial regime. Perhaps it’s just a case of all good things coming to an end, but according to Portugal’s Prime Minister, back when the regime was announced in 2009 it made economic and commercial sense and served a valuable purpose. It was driven by the 2008 global recession and aimed to attract foreigners and the Portuguese diaspora to Portugal by offering them a very attractive ten-year tax break.
Fast forward to 2023 and the world is operating in a very different post pandemic environment and the regime is arguably no longer contributing to the Portuguese economy in a productive and positive manner.
So what’s next?
Well if you’re one of the lucky individuals who are already taxed under Portugal’s Non-Habitual Resident Regime, grandfathering will apply for the remainder of your ten year period. Instead, the regime will be coming to an end for new applicants in 2024, although no specific date has been provided yet.
What’s going on with the Golden Visa?
Essentially the Golden Visa is a five-year program which allows non-EU individuals to work, live and study in Portugal. The regime was created in 2012 to attract non-EU individuals to Portugal, and thereby expedite foreign investment. The key difference back then was that real estate investment was at an all-time high.
What really lured people looking for a “Plan B” passport to the Golden Visa, was that they only had to spend seven days a year on average in Portugal, and could apply to become a citizen after five years as a legal resident, and the applicant and all her dependents were eligible. Portugal is of course in the EU so the passport was very attractive, so this was a very popular regime.
Circling back to the housing crisis in Portugal, the Portuguese government made a U-turn by announcing the withdrawal of the Golden Visa, causing a huge uproar. So in response to the loudness, on 19 July 2023, it was announced that the Golden Visa would not be ending but that it would rather be restructured, and the qualifying investment criteria amended. The big takeaway is that buying property (i.e. real estate investments) in Portugal will no longer serve as a means to qualify for the Golden Visa. However, there are numerous capital transfer options, investment funds and business routes that could be followed, and like any other visa, the best route will depend on each individual’s personal circumstances.
When is this happening?
Late September 2023 the Portuguese President confirmed that he had enacted the new amendments for the Golden Visa. Of course like any legal procedure, it will first have to be passed in Parliament and signed by Government before it can take effect. In turn, once signed it will take effect so basically, it’s around the corner.
The Takeaway
As economic and commercial realities change across the globe, many countries are reconsidering their tax regimes. This is further influenced by the modern world’s love for remote working and technology. And as can be seen, changes to the tax landscape are happening fast and furiously.
Accordingly, if you are a digital nomad and find yourself working remotely or you’re looking for a Plan B passport, we encourage you to contact us right away to check whether your tax affairs are still in order.
Meet the Author
Today’s newsletter was written by Liané Bouwer, an International Tax Consultant based in Johannesburg. Contact Liané at lbouwer@reganvanrooy.com
