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Reform of the non-habitual resident status is not a bad thing

We've been telling you about it since December, and now in late January 2020, things have come to fruition. The socialist government has made a proposal to 2020 Budget ActThis will definitively reform the non-habitual resident status of foreign pensioners, of course if it is passed.

The origin of non-habitual resident status

The tax regime for "non-habitual residents" is provided for in the IRS Code. It was introduced by Decree-Law no. 249/2009, of September 23, and completed by Ordinance no. 12/2010 of January 7, with the aim of attracting qualified professionals, investors and foreign retirees to Portugal.

It has been 10 years since the RNH was introduced, now it is time to reform the regime. This regime was created with the intention of attracting to Portugal, people with high added value activities, investors and foreign retirees.

By implementing this very attractive tax regime for 10 years, Portugal intended to compete with some of the favorable regimes offered by other countries (e.g., Italy and the UK).

In addition, most of the income earned abroad by "non-habitual residents" can be exempted in Portugal, provided that certain rules are followed. Thus, the income from work obtained by a "Non-Habitual Resident" abroad can benefit from a total or partial exemption, under certain conditions:

  1. are taxed in the respective countries of origin, in accordance with the tax treaty signed by Portugal and the state in question;
  2. are taxed in the other country, territory or region, in cases where there is no convention to eliminate double taxation, provided that the earnings are not considered as obtained in Portuguese territory. As for the income earned, in the abroad, in the activities of providing services of high added value, scientific, artistic or technical, contained in the Ordinance No. 12/2010 of January 7, or intellectual or industrial property, or even provision of information relating to experience gained in the industrial sector, commercial or scientific, as capital income, property income and active increases (capital gains), can be exempted from the IRS in Portugal.

Reform of non-habitual resident status for working people in December 2019

At the end of the year 2019The government has reformed the list of high value-added activities, the old list included several branches of activity, such as architects, engineers, artists, actors and musicians, auditors and tax consultants, doctors and dentists, university professors, investors.

The new list, applicable as of 1/1/2020In order to avoid any confusion, the Portuguese government has eliminated several of these activities and introduced a new list of activities, now based on the Portuguese Professional Classification (CPP). Note, in any case, that the above list remains applicable to "Non-Habitual Residents" previously registered as such.

Why this reform of the non-habitual resident status for foreign pensioners is a good thing

Many will say that foreign retirees have boosted the country's economy, buying houses, consuming, etc. This in itself is not entirely untrue, but the reality is quite different. For the vast majority of them, foreign retirees have not invested en masse in Portuguese real estate On the contrary, they were content to rent their accommodation.

On the other hand, 100 % of foreign pensioners, regardless of their nationality, benefit from and use 100 % of Portugal's infrastructure (public hospitals, road network ...) and in return they do not participate in the collective effort.

The tax rate chosen by the government is very low, as a comparison the 1st tax bracket is 14.5 %As you can see, the government is still giving a very nice gift to foreign pensioners.

Another positive point is that this reform of the RNH will allow you to avoid any risk of requalification of your expatriation for tax purposes by your former country of residence.

It is still possible to take advantage of the total tax exemption

Normally, the 2020 budget should be voted on February 7, 2020, if the government obtains the majority of votes and Europe does not reject the budget. By the time this reform is implemented, we believe that foreign pensioners who will be making the request for RNH in 2020 will be eligible for the tax exemption.

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