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Missed NHR deadline - what can be done?

Fresh Portugal's primary focus is optimising the benefits awarded by the NHR regime to expats coming to Portugal. 

However, the NHR benefits are subject to a harsh deadline imposed by the tax authorities in Portugal. 


The deadline

A tax resident must apply to obtain NHR status until the 31st of Marth, during the year following the year of becoming a tax resident. 

In other words, if someone becomes a tax resident during 2022, they should apply for NHR status until 31/03/2023. Or at least, so say the authorities.

One may remember that the tax residency date is normally based on self-declaration - the date that the person associated an address in Portugal with their NIF. 

However, the tax residency date can be backdated by the authorities if the relevant taxpayer met the legal definition of a tax resident prior to that date - i.e. if the tax resident stayed in the country for longer than 183 days in a prior year or had a primary residence. 

The primary residence rule can theoretically be applied to rental properties, but in practice the authorities normally treat a residence owned by the tax payer where taxes of a primary residence have been paid as an admission that the intention is to occupy the residence is a primary residence.


Deadlines missed due to Catch 22 

Joseph Heller's mythical novel Catch 22 is remembered for multiple paradoxes where you cannot do one thing without doing the other first and you cannot do the other before doing that one thing. 

Since tax residency can be backdated, so can the deadline for NHR, so a sensible strategy would be to apply for NHR as soon as possible rather than wait to the last minute to avoid any risks of backdating.

However, the authorities add a further paradox - they normally do not let people change their address to a Portuguese address before obtaining a residence permit. In other words, they say "you cannot register as a tax resident before you are legally registered as a resident". 

On a first glance, this appears like a reasonable statement, but in fact, this statement is entirely false. Tax residency has to do with the physical presence of a person in a country and that person's duty to pay taxes. Being in a country illegally does not in any way take away the person's duty to pay taxes and it is therefore no coincidence that there is nothing in the tax residency legal definition about legal residency. The two things are unrelated concepts. 

However, in practice, the authorities normally prevent registration from people who are not yet legal residents. Furthermore, the ever growing waiting time for SEF appointments leads to a paradox - it could take many month before legal residency can be registered, but the tax residency could be backdated once this happens.

If is therefore possible for someone to miss the NHR deadline at no fault of their own - simply due to the waiting times at SEF. 


Strategy 1 - set the record straight

One strategy to addressed the said missed deadline is to convince the authorities that the taxpayer's tax residency had in fact began in a later year. This is a common strategy when people arrive in Portugal and register at the end of a calendar year. 

This is better done by disputing the initial refusal of NHR. A further deadline of 15 days is set out for that. 

The golden evidence to shift tax residency is a legalised tax residency certificate from the other country. However, these could take a while so it is often wise to first obtain the certificate and then apply for NHR, so that the negative outcome could be disputed straight away. A further procedure of amending the records is also available. 


Strategy 2 - dispute the legality of the denial

It may come as a huge surprise to readers, but the NHR law does not in fact set any deadline to apply for NHR. The deadline has been set by authorities in separate ordinances which many experts (and us amongst them) argue, is illegal as the executive cannot take away a right given by the legislator. 

One would consider whether taking away a benefit publicly advertised to attract people to Portugal for a mere few days formal delay of submitting an online form presents a reasonable outcome. Even those opposing the NHR regime for ideological or political reasons would normally admit that in-so-far as the regime exists, it is unfair and unreasonable not to apply it consistently to the entire group that it covers, even if such people believe that the rights given to this groups are unfairly given.

And indeed, taxpayers have now disputed tax assessments denying NHR treatment to people who missed the deadline a number of times. Such disputes have been made in arbitration courts, so these were specific tax assessments and may not be respected by the authorities for future years, but the emerging trend is clear - the arbitration courts did not believe that it is acceptable for the authorities to deny NHR status due to the missed deadline.

This understanding of the arbitration center in Portugal can be attested in the decisions of the arbitral pronouncements "Processo nº 188/2020-T"; "Processo No. 777/2020-T"; "Processo No.: 815/2021-T"; "Processo nº 319/2022-T".

The position of the CAAD in these decisions has been consistent - regarding the matters of the tax regime applicable to non-habitual residents, the registration referred to in paragraph 10 of article 16 of the IRS Code assumes a merely declarative nature and does not constitute the right to be taxed under such regime.

This means that the registration does not condition the application of the regime, only the criteria established by Law serve this purpose.

It is unfortunate that the authorities continue to deny NHR treatment due to missed deadlines but taxpayers have a path to resist. Please free to consult us.

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