Excessive spending on taxes due to non-permanent residents inflating expenses
In 2024, the Portuguese government shuttered the Non-Habitual Resident (NHR) tax regime and ushered in a fresh one, only to abandon it by year's end. Contrary to its intended purpose of streamlining personal income tax, the revised NHR tax expenditure soared by 34% in '24, resulting in a whopping €1.741 million loss for the state.
Targeted reports by idealista, grounded in the 2024 General State Account, reveal that total personal income tax expenditure climbed to €2.622 million, up an astounding 26.9% compared to the previous year, with the hike primarily attributable to the NHR expenditure surge. The same media outlet explains that Portugal endured its most significant NHR tax loss since the regime's advent in 2009.
The report concludes that if NHR had merely paid the Inland Revenue Service (IRS) rates common among taxpayers, the state could've gathered a solid €1.741,2 million in 2024, had the IRS rates been applicable.
The 2024 increase in tax expenditure may be rooted in several potential factors, as per idealista. On one side, existing NHR beneficiaries could still enjoy their benefits for the full 10-year tenure, despite salary boosts. On the flip side, a transitional NHR regime persisted for those who could validate their connection with Portugal until the end of 2023.
At the moment, Portugal only offers a tax incentive for those desiring to dwell there, whether foreign or residential, who haven't resided in the country for five years and engage in high-value professions. The solitary tax advantage for this group is the tax subsidy for scientific research and innovation.
Transitional phases, fresh regimes, and administrative complexities can all play a role in the escalating tax expenditure for the NHR program, as the state opts for new strategies to manage its financial affairs following the changes.
- In light of the 2024 General State Account, idealista reported that the surge in Portugal's Non-Habitual Resident (NHR) tax expenditure, reaching €1.741 million, was the highest loss since the regime's inception in 2009.
- The escalating tax expenditure for the NHR program in 2024, according to the same report, might be attributed to factors such as existing beneficiaries enjoying benefits despite salary increases, the persistence of a transitional NHR regime until the end of 2023, and the administrative complexities that come with implementing new regimes.
