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January 13, 2020 - No Comments!

REPORTED CHANGES TO THE NHR PROGRAMME GOOD NEWS FOR ITS SUSTAINABILITY

The Portuguese NHR programme has now been running successfully for over 10 years and by the end of 2018 nearly 30,000 candidates had acquired the status, including a significant number of Portuguese nationals. The programme is generally considered as an unqualified success in terms of attracting the investment of these multi-national individuals.

Whilst many NHRs initially rent, it is our experience that the majority end up buying a property. NHRs also spend, investing in the local economies and they are not just individuals looking for a leisurely retirement. They in fact bring knowhow and business success stories, investing in local businesses and businesses organizations.

Given the success of the programme particularly over the last few years it was almost inevitable that it would come under some scrutiny from other EU countries, despite the fact that a significant number of these EU countries have their own programmes designed to attract foreign investment. Both Finland and Sweden successfully negotiated a change to the Double Taxation Treaty by which pension income, previously benefitting from an exemption in both the country of source and Portugal, would be taxed in the source country under certain conditions. As a result, there have been rumours of change for some years now, with most of these rumours focusing on pension income.

Despite that fact that there was no reference at all to the NHR programme in the original draft Budget, there have now been reports filtering through from at least two respected Portuguese newspapers that the government is preparing to move forward with a change to the Draft Budget.

This change would contemplate the imposition of a minimal flat rate of tax on pension income and the objective is also to ring fence existing NHRs, who would continue to benefit from a full exemption. The initial news report was published in a daily newspaper on Friday with a more detailed report being published in the weekend press.
From these reports it would appear that a change to the programme will be tabled during the discussion on the Budget details and this change would result in the following:
• A rate of tax of 10% on foreign pension applying to new NHRs with a minimum tax of €7,500;
• NHRs acquiring the status before the law comes into force would benefit under the existing rules;
• As a result, existing NHRs would be “grandfathered” under the existing legislation; and
• Existing NHRs could choose to have the new rules applied to them.
Therefore these changes are not particularly radical and rate of tax of 10% is in our view still very competitive. The grandfathering of existing NHRs has been a consistent position since changes were initially discussed (and then shelved) to taxation of NHR pension in 2017.

In fact, the respected commentators are largely unanimous in their view that existing NHRs will be grandfathered as tax legislation is constitutionally barred from having retrospective application. In addition, if there is a change now, we feel that the NHR programme could well be protected from more comprehensive future changes and pressure from other EU governments.
It is likely to be some weeks before there is a final definition on any change.

Lisbon, 13 th January 2020

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