Portugal’s 2024 Tax Overhaul: What It Means for Residents and Global Investors

Even though the year has just started, Portugal’s tax system has already undergone some significant changes. The most important of them is the closure of the Non-Habitual Resident (NHR) initiative for new applicants plus the introduction of tax reductions with the aim to benefit lower and middle-income earners. These changes reflect the country’s efforts to balance its fiscal policy while continuing to attract foreign investment and talent.

Portugal’s income tax rates in 2024

The Portuguese government introduced amendments to the income tax rates for 2024, with a focus on reducing the burden on lower and middle-income earners. The scale rates of income tax were adjusted, with the rates for the first five income bands reduced, and the income bands themselves increased in line with inflation. For your convenience, the personal income tax rates for 2024 in Portugal are provided below:

• Up to EUR 7,703: 13.25%.
• EUR 7,703 – EUR 11,623: 18%.
• EUR 11,623 – EUR 16,472: 23%.
• EUR 16,472 – EUR 21,321: 26%.
• EUR 21,321 – EUR 27,146: 32.75%.
• EUR 27,146 – EUR 39,791: 37%.
• EUR 39,791 – EUR 51,997: 43.5%.
• EUR 51,997 – EUR 81,199: 45%.
• Over EUR 81,199: 48%.

These adjustments are designed to alleviate the tax burden on those whose earnings are within the lower brackets, thereby increasing their disposable income and potentially stimulating the nation’s economic growth.

Investment income: how is it taxed in 2024?

Investment income, which includes interest and income from capital investments (here belong bonds, shares, and securities), continues to be taxed at a flat rate of 28% in 2024. However, residents have the option to pay tax at the scale rates instead if it results in a lower tax bill. It’s important to note that income derived from jurisdictions classified as tax havens by Portuguese authorities is taxed at a higher rate of 35%.

Capital gains tax

For Portuguese residents, when selling property anywhere in the world, 50% of the gain is added to their annual income and taxed at the relevant income tax rate. Yet, we would like to draw your attention to the fact that there is an exemption for those who sell their main home and reinvest the proceeds into buying a new main home in Portugal or elsewhere in the EU/EEA. Please note that retirees or residents aged over 65 can avoid capital gains tax when reinvesting into an eligible insurance contract or pension fund, provided they do so within six months of the sale.

Non-Habitual Residence (NHR) Program closure

The NHR program, which offered significant tax advantages for a period of ten years to non-habitual residents, closed to new applicants on December 31, 2023. Those who already have NHR status will continue to enjoy their tax benefits until the end of the 10-year term. After this period, they will become subject to Portuguese tax on their worldwide income and gains, facing tax rates up to 48% or 28% on investment income.

New tax incentives

From January 1, 2024, Portugal is set to offer a new tax incentive aimed at fostering scientific research and innovation. This initiative is specifically designed for those individuals who become tax residents of Portugal and have not been tax residents in the country for the previous five years. Applicable to a variety of roles, including those in higher education, certain high-value sectors, and startups, it reflects Portugal’s commitment to nurturing growth in strategic areas of its economy.

The tax incentive is part of a broader economic strategy to stimulate innovation and attract skilled professionals and entrepreneurs capable of contributing to the nation’s economic development. This move is expected to bolster Portugal’s position as a hub for innovation and research, particularly in those sectors that are pivotal for the nation’s future growth.

Eligible individuals will benefit from a 50% personal income tax exemption on their employment or freelance income for five years, which may be a significant financial advantage. This tax relief is part of Portugal’s efforts to attract and retain top talent in fields that are crucial for the country to remain competitive in the global market.

What is more, the incentive aligns with Portugal’s economic growth strategy for 2024, which includes a focus on digital transformation and the development of a strong IT services sector. The country has already seen success with the emergence of several unicorns, namely, startups valued at over USD 1 billion demonstrating the potential for further growth and innovation within the Portuguese economy.

In addition to the tax incentive for new residents, Portugal’s 2024 state budget also includes measures to end the previous Non-Habitual Resident (NHR) regime, transitioning to a system that supports active economic contributors, particularly where the matter concerns scientific research and innovation.

Implications for taxpayers

The closure of the NHR program and the introduction of tax reductions in Portugal in 2024 will have significant implications for both current and prospective residents of the jurisdiction. For those who considered joining the NHR program before, International Wealth experts recommend exploring other tax incentives and structures that may be available. In turn, current residents who benefited from the NHR program should prepare for the transition to standard tax rates and seek advice on how to optimize their tax situation.

Planning for the future: what to expect

If you are one of those who are contemplating relocation to Portugal, always keep in mind the nuances of the NHR 2.0 regime. The focus on employment in scientific research and innovation means that potential beneficiaries should align their careers and investments with these sectors to maximize tax benefits. What is more, the political situation in Portugal is likely to influence the implementation and specifics of the NHR 2.0 regime, making the transition more complex.

In this overview, we offered you just a snapshot of the tax benefits you may enjoy in Portugal as of 2024. For a more detailed analysis, you are welcome to consult industry experts at International Wealth who will offer you personalized advice based on the latest legislation and your individual circumstances. Would you like to make it happen the soonest? In this case, contact us without further delay!

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