NHR (non-habitual resident) status may be spending its last days, at least in its current version. This tax status allows foreign retirees to be granted full exemption from taxation on private sector pension income. This sometimes leads to situations of double non-taxation, with pensioners not being taxed either in Portugal or by their country of origin, drawing some criticism. The Portuguese government, as part of the 2020 State Budget, has admitted studying the possibility of terminating the NHR status on January 1, 2020 and applying an IRS tax to foreign retirees who enjoy the status of non-habitual resident of 15% to 20%. The subject is even on the table of the Portuguese Council of Ministers and a final decision should arrive soon. What is the detail of this upcoming change to the NHR status? Is there really a chance that this proposal will pass for January 1, 2020? What impact for current beneficiaries of NHR status? Lisbob, the expatriate assistant in Portugal, tells you all about the end of NHR status.
End of NHR status on January 1st, 2020 for foreign retirees : Portuguese government admits having to take a decision quickly
Foreign pensioners will finally pay taxes
After years of waiting, the possibility of taxing foreign pensioners who are in Portugal under the regime of non-habitual resident is again on the table of the Council of Ministers. The news, issued by Expresso in the middle of the weekend, shows how much more urgent the questioning of NHR status is. After an in-depth modification of the NHR status for working people and the list of eligible professions, the Portuguese government decided to tackle the NHR scheme for retirees.
Foreign retirees who are in Portugal under the NHR regime currently benefit from a double exemption from the IRS: they do not pay tax here, because the Portuguese state exempts them, nor do they pay tax in the country that pays them the pension, because the tax treaties concluded with Portugal blocks such an assumption.
Left side politics pushes to end NHR status
Since 2016, the Portuguese Ministry of Finance has been advocating a change to this NHR regime, but the Prime Minister and the Ministry of the Economy have always had the last word and have taken the case personally. This year, the proposal to end this total tax exemption is under review and, according to Expresso, the left parties will have the guarantee that the measure will progress from 2020 or at the latest by the end of the legislature by Antonio Costa, that is to say in 2023. Lisbob recalls that it is already the left and in particular the Bloco de Esquerda which had already made the proposal to eliminate NHR status last year. Mentalities are changing and there are now many who are calling for the end of NHR status.
15% to 20% IRS for new foreign pension
The Portuguese government's idea is to fix a tax rate of 15% or 20% on the income of foreign pensioners, subjecting them to a minimum tax. The government had already considered a similar proposal in 2017 and had envisaged a rate of 5% to 10%. It should be noted that at the end of last year there were around 27,500 retirees with non-habitual resident status in Portugal.
As for retirees already enjoying NHR status in Portugal, there is nothing to fear. The end of this tax status is not retroactive and will only affect newcomers at the time of validation of the Portuguese State Budget. For those who are thinking about acquiring NHR status, it is time to also make a decision. As a reminder, you have until March 31 of the year following your installation in Portugal to be able to request it. Lisbob and his team could take care of the procedures for you.
