January 29, 2024

Portugal’s 2024 budget law, approved on 30 November 2023, has repealed the NHR regime with effect from 1 January 2024

Nevertheless:

  • Individuals who became tax resident in Portugal until 31 December 2023 can apply for the NHR regime until 31 March 2024
  • Individuals who are tax resident in Portugal until 31 December 2024 may apply for the NHR regime until 31 March 2025, provided they meet the conditions of the grandfathering regime clause established in the law (for instance, promise of employment contract, residence visa or permit,…)

Please bear in mind that the existing regime continues to apply for those benefitting from it (i.e. until the end of the 10 year period set out in the Portuguese tax code).

New tax incentive for “high” added value activities

Taxpayers from specific activities (e.g. role in higher education, specific high value sectors or start-ups) and who will become tax residents in 2024 while not being tax residents in Portugal in any of the previous five years, may benefit from a special tax rate of 20% on their net income during a period of 10 consecutive years from the year of registration as a resident in Portugal.

Cannot benefit from the provisions of this scheme, taxpayers who:

  • benefit or have benefited from the non-resident regime
  • have opted for taxation under Section 12-A (Programme Return/Regressar) of the IRS Code

=> This new tax incentive can only be used once.

Activities eligible under the new scheme

  • teaching in higher education and scientific research, including scientific work in entities, structures and networks dedicated to the production, dissemination and transfer of knowledge, integrated into the national science and technology system, as well as jobs and members of governing bodies in entities recognised as technology and innovation centres, within the scope of Legislative Decree No 126-B/2021, of 31 December; or
  • research and development of personnel whose costs are eligible for the tax incentive system for research and business development, in accordance with subparagraph (b) of paragraph 1 of Article 37 of the Investment Tax Code; or
  • qualified jobs posts and members of Statutory Bodies, in entities carrying out economic activities recognised by the Agency for Investment and Foreign Trade of Portugal, E. P. E. or by IAPMEI – Agency for Competitiveness and Innovation, I.P. as relevant to the national economy, especially in the context of attracting productive investment, as well as reducing regional asymmetries.

By way of exception, the law provides that taxpayers receiving foreign income from a non-resident entity without a permanent establishment in Portugal and located in a country, territory or region subject to a “more favourable tax regime” (i.e. a blacklisted tax haven) are subject to certain tax rules (for capital income and capital gains) that provide for an autonomous rate of 35%.

To conclude

Notwithstanding our expertise in the legislation in the markets where we operate and corresponding tax matters, our core business of course remains life insurance, and we are therefore pleased to report that now that the NHR regime has largely been revoked for new applicators, a life insurance makes still more sense.

There is no inheritance tax applicable, no wealth tax or gift tax, no exit tax or local stamp duty tax. Moreover, Wealth Portugal, our product for the Portuguese market, is tax neutral – the applicable tax rules are those of the client’s country of residence – and offers tax deferral, meaning that no capital gain tax arises from sales and switches of underlying assets[1], as well as a preferential tax scheme on surrenders, with up to 60% tax deduction depending on the contract seniority and a favourable tax regime for NHR.

And even for those who still benefit from the NHR regime, life insurance certainly continues to have its perks, as not all income is exempt under the Portuguese NHR regime (e.g. capital gains or distributions from fiduciary structures) and life insurance is therefore advantageous to defer tax altogether if, for example, clients hold portfolios that generate significant capital gains as a result of “high rotation” (buying and selling).

Want to know more about the opportunities offered by Luxembourg life insurance?

[1] only in case of partial or total surrender and even then, the applicable tax is digressive depending on the holding period from the time of issue. Indeed, if the policyholder holds the policy for a period of more than 8 years, the tax rate applicable in the event of surrender would be 11.2%, which is more attractive than the ordinary rate of 28%

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