Portugal’s Non-Habitual Resident (NHR) regime has long been a magnet for foreign investors, digital nomads, and retirees seeking favorable European tax conditions. After much debate and speculation, the regime was reintroduced earlier this year, but with significant changes. For those who applied before the revisions in 2024, the original NHR program’s benefits remain largely intact. However, new applicants will face a much less generous tax regime, leading to a growing divide between long-term residents and newcomers.
The Return of NHR: How We Got Here
The NHR program was introduced in 2009 to attract foreign talent and investment by offering tax incentives, including 10 years of foreign income exemption and a flat 20% income tax on Portuguese-sourced income for individuals in high-value professions. For more than a decade, Portugal became a hub for global ex-pats20% income tax seeking to optimize their tax burdens while enjoying the country’s quality of life.
However, due to growing domestic criticism that the NHR and other programs, like the Golden Visa, were inflating property prices and exacerbating inequality, the government suspended the program in 2023 to reassess its structure. In early 2024, the NHR regime returned, but with key changes that made 10 years of foreign income exemption and a flat 20% income tax on Portuguese-sourced income for individuals in high-value professions. For more than a decade, Portugal became a hub for global ex-pats it less appealing to new applicants.
Key Changes in the New NHR Regime
While the NHR program is still available, the new version has scaled-back benefits, particularly for foreign retirees and global nomads seeking tax efficiency. Some of the most notable changes include:
- 10% Tax on Foreign Pensions: Under the original NHR regime, foreign pensions were completely exempt from Portuguese tax, making the program highly attractive to retirees. In the 2024 version, foreign pensions are now subject to a 10% tax, significantly reducing the program's appeal to new applicants who plan to retire in Portugal.
- Reduced Exemptions on Foreign Income: New applicants will find fewer exemptions on income such as dividends, interest, and royalties, which were previously tax-free for 10 years. These changes complicate the financial planning of digital nomads and entrepreneurs who rely on passive income streams from abroad.
- Less Flexibility in Tax Planning: Previously, expats could rely on Portugal’s extensive double tax treaties to avoid double taxation on foreign income. While these treaties still exist, the reduced exemptions on foreign-sourced income mean that new applicants will likely need to engage in more complex tax planning to maintain their tax efficiency.
Better Conditions for Existing NHR Residents
For those who applied for NHR before the 2024 changes, the benefits of the original regime remain intact. These individuals are shielded from the increased taxes on foreign pensions and other income. For example:
- Full Exemption on Foreign Pensions: Existing NHR residents continue to enjoy zero tax on their foreign pensions, a significant advantage over those applying under the new rules.
- Broader Income Exemptions: The original NHR applicants still benefit from broad exemptions on foreign-sourced income, including dividends, royalties, and interest, making their tax obligations much lighter compared to new applicants.
- 10-Year Benefit Period: The original 10-year tax holiday on foreign income remains unchanged for existing NHR holders, providing long-term stability in their financial planning.
Why the Changes?
The reforms to the NHR regime are part of Portugal’s broader attempt to address social inequality and combat the perception that foreign residents were disproportionately benefiting from the country’s public services without contributing fairly to its tax system.
Critics within Portugal have argued that the NHR regime, along with the Golden Visa program, has driven up real estate prices in major cities like Lisbon and Porto, pricing out local residents and leading to greater socio-economic divides. The government, in response, aimed to scale back the benefits of the NHR program to curb these issues while maintaining its ability to attract high-net-worth individuals and global talent.
Impact on Global Tax Optimization
For those involved in global tax optimization, the changes to the NHR regime have made Portugal a less attractive option for those looking to minimize taxes on foreign income. Previously, the NHR regime offered one of Europe’s most favorable tax landscapes for expats, especially retirees and digital nomads. Now, with reduced exemptions and new taxes on foreign pensions, applicants will need to reassess their strategies.
However, the NHR regime still remains relatively competitive compared to other European countries. The flat 20% income tax on Portuguese-sourced income for certain professions is still significantly lower than in most EU countries. Moreover, Portugal’s no wealth tax, no inheritance tax, and no gift tax policy remains intact, adding to its appeal.
What Should Future Applicants Expect?
For those considering applying for NHR in the coming months, the program can still provide significant tax savings, but not at the level it once did. New applicants should be prepared for higher taxes on foreign income and will need to weigh whether the benefits justify relocating to Portugal compared to other tax-friendly jurisdictions like Malta or Greece.
However, the high quality of life in Portugal, relatively low cost of living, and access to European markets still make it an attractive destination for global citizens.
The NHR regime’s return in 2024 marks a shift in Portugal’s tax landscape. While the program continues to offer benefits for new applicants, those who secured their status before the changes will enjoy far more favorable terms. As Portugal adjusts its tax policies to balance foreign investment with social fairness, new applicants must navigate a more complex and less generous regime. For many, the NHR remains attractive, but the days of extreme tax efficiency in Portugal are numbered.
Check out our other articles in our Global News section for more updates and guides on the latest digital nomad trends.
