The Portuguese government announced that there was a over €300m ($259m, €347m) increase in tax expense associated with the non-habitual residence (NHR) scheme in 2021, according to local media reports.
The NHR tax rule, introduced in 2009, allows for a flat 20% personal income tax rate for any earnings in Portugal; plus, a tax exemption on all foreign income, including pensions, for 10 years. A scheme that has become even more attractive following the closure of the Portuguese golden visa.
According to data recently released by the Tributária e Aduaneira (AT), tax expenditure from the government on the NHR regime totalled €770m in 2019, increasing to €908m in 2020 and surpassing the €1bn barrier in 2021 for the first time, up to €1.21bn.
Currently, there is no information provided on the number of people who were benefiting from the scheme in that year.
Jason Porter, business development director at Blevins Franks, said: “The NHR regime in Portugal has proved to be hugely successful in attracting wealthy individuals to come and live in Portugal.
“And whilst the latest figures appear to show this costed the state €1.2bn in 2021 in uncollected taxes, the employment, businesses, profits and other taxes this supports and generates may well significantly outweigh the cost.”
‘Good things come to an end’
Rob Webb, senior private wealth manager in Portugal at Chase Buchanan, added: “NHR offers a favourable tax regime to expatriates for a maximum of 10 years. Clearly the system attracts a significant number of HNWIs to Portugal and this trend is likely to continue for the foreseeable future.
“However, like everything else all good things come to an end sometimes and after NHR has finished normal marginal rates will apply to most income sources. That could mean a significant increase in tax, so effective financial planning to cushion that hike needs to take place as soon as possible to help investors.”
