Portugal Archives - Tax Natives

Non-Habitual Residence (NHR) regime: Losing the habit?

17 October 2023 6:13 pm Leave a Comment

Non-Habitual Residence (NHR) regime – Introduction

The Portuguese Prime Minister announced an intention to terminate the “Non-Habitual Resident” taxation regime (‘NHR Regime’).

This has been an attractive and popular tax regime that provided tax benefits to non-residents moving to Portugal.

On 10 October 2023, the Draft State Budget Law proposed the end of the NHR Regime from 1 January 2024.

This means that individuals acquiring tax residency in Portugal or holding a Portuguese residence permit until 31 December 2023, can still apply for the NHR Program.

The final draft law is expected to be available by the end of November 2023.

Practical Issues

The practical issues are perhaps, refreshingly simple.

Those individuals wishing to benefit from the NHR Regime must establish tax residency in Portugal before December 31st, 2023, and submit the NHR application promptly.

As such, there is a feel of an ‘Everything Must Go’ style fiscal sale in the offing.

The 2024 Draft State Budget Law

Under the 2024 Draft State Budget Law, individuals relocating to Portugal between 1 January 2024, and 31 December 2026, who haven’t resided in Portugal in the previous 5 years, are eligible for a 50% deduction on taxable income, up to a maximum of €250,000 for 5 consecutive years.

Standard progressive tax rates apply to the remaining taxable income, and foreign-source income may be taxable in Portugal. Contractors and freelancers may have additional deductions during the first and second years.

In addition, a new taxation regime, available for 10 years, will apply to individuals who have not resided in Portugal for the past 5 years.

It’s limited to university professionals, scientific research, income from companies with contractual tax benefits for productive investment projects, and income from companies under the R&D tax incentives system (SIFIDE) paid to individuals with a PhD.

Under this regime, foreign-source income (except pensions) will be exempt, and a flat 20% tax rate will apply to employment and self-employment income. Those benefiting from the NHR or the 50% exclusion regime are not eligible.

Other Regimes for Tax Residents in Portugal

The Portuguese Personal Income Tax Code offers an attractive regime for income generated through life insurance or pension funds.

Regular investment income is taxed at a flat rate of 28%, with portions of income from life insurance or pension funds being exempt under certain conditions.

Other efficient taxation arrangements can be considered on a case-by-case basis.

Please note that this information is subject to change based on the final draft law.

Other regimes around the world

Of course, there are other jurisdictions around the world happy to accommodate mobile, wealthy, and tax savvy individuals.

Cyprus and Italy both offer attractive ‘non-dom’ regimes for individuals.

Jurisdictions like the UAE continue to offer welcoming low or nil personal tax rates.

If you have any queries about the Non-Habitual Residence (NHR) regime, Portuguese tax, or tax matters in general, then please get in touch.

Will change in wind snuff out the Portuguese crypto tax beacon?

13 August 2022 5:13 pm Leave a Comment

Background

Back in May we set out the reasons why Portugal had become a beacon for crypto investors. However, in that very article, we raised the prospect that a mooted change in the winds might potentially snuff out that beacon.

The 2023 State Budget and Portugal Crypto tax

The ill wind stems from the publication of the 2023 State Budget document earlier in the week. It included a section in respect of the taxation of cryptocurrencies. Thus far, as can be gleaned from our previous article, profits have largely been untouched.

Instead, Portugal’s government is proposing a new 28% tax on capital gains from cryptocurrencies held for less than a year. This is consistent with the statements of the finance minister Mr Medina reported on this blog in May this year.

There is also a proposed income tax from other crypto activities such as mining or trading.

Other proposals include a 4% taxation fee on transfers of cryptocurrencies as a result of death plus stamp duties on commissions charged by crypto intermediaries.

Of course, Portugal’s parliament is still to have its say on whether these proposals are enacted.

Conclusion

Portugal will be aware that it is treading a fine line here. Portugal has become a magnet for crypto enthusiasts because of its benign tax position. Many such individuals are highly mobile and it might be that, if enacted, it causes a flight of crypto capital

If you have any queries about Portugal crypto tax changes, Portugal tax matters, or the matters discussed more generally, then please do not hesitate to get in touch.

The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

For further resource on crypto assets please see www.cryptotaxdegens.com.

Portugal crypto tax: Buying and selling crypto assets in Portugal

18 May 2022 8:32 am Leave a Comment

Introduction – Portugal crypto tax

Portugal is often held up as an attractive place for crypto investors. More generally, it has an attractive regime for migrants moving to Portugal, who might be able to avail themselves of its Non-Habitual Residence (“NHR”) regime.

However, where the NHR regime is clear, the tax law around crypto-assets is more as a result of what the law does NOT say.

Portugal as a growing hub for crypto

As stated above, Portugal has become a popular destination for those seeking a safe harbour for crypto gains.

It is estimated that between March and May 2020, the purchase and sale of cryptocurrencies in Portugal increased by 60% year on year. However, up until now, the Government has not acted to clarify or expand its legislation to cater for this relatively new asset.

Current position

In Portugal, there are three potential categories under which gains on the buying and selling of cryptocurrencies could be caught. These are as follows:

Capital Gains (Category G) – such as sale of an apartment or shares
Capital Yields (Category E) – such as property rental or dividends
Professional Income (Category B) – Consultancy fees etc

In respect of the first of these, the tax code specifies which cases will be subject to tax a as a capital gain. However, the class of items is an exhaustive list. In other words, the law only applies to something which is on the list. As crypto assets are not on the list they are not taxable.

In respect of Category E, this does not apply as the buying and selling of cryto-assets is not a yield on capital.

Category B is the one where we might fall into the tax trap. However, it is only likely to apply to certain cases. This category will apply where any crypto profits are as a resuly of a regular professional activity. Of course, this might be relatively easy to determine in extreme cases, but the lack of certainty for those in more marginal cases is a concern.

A change in the winds?

The current position means that Portugal is on a list of countries that still do not tax profits from this type of asset. Hence, why Portugal has become an attractive destination for crypto investors.

However, nothing lasts forever.

Indeed, on 13 May 2022, finance minister Fernando Medina confirmed that the Government is contemplating how it might tax crypto gains in the future. He did say there were no firm proposals to introduce any such legislation.

If profits from the buying and selling of crypto assets was brought into the tax net in Portugal, then it would seem likely they would be subject to tax at 28%.

However, Mr Medina did acknowledge that an imposition of high levels of tax might “bring revenue down to zero” so he is at least aware of the tight rope his Government might be treading.

If you have any queries about this article, Portugal crypto tax, or the matters discussed more generally, then please do not hesitate to get in touch.