So, whilst some people who made steps to move to Portugal before 2024 may still qualify for NHR, it is gradually opted out.
Its successor is called theTaxIncentive Scheme for scientific Research and Innovation(we call itTISRI).
Here we will explain the new scheme and how it compares with NHR.
We also recorded a video which you can see below:
What is TISRI – new a scheme of benefits for people moving to Portugal?
After an announcement of the imminent end of NHR with a short notice, the government of Portugal has been heavily criticised for removing a scheme that had done so much to support the Portuguese economy.
In response, the government created TISRI, a new scheme which in many ways resembles NHR and in other ways resembles schemes in other countries such as Spain. Like NHR, TISRI is meant for people who have not been tax residents in Portugal in the last 5 years and is a status that can be maintained for up to 10 years.
Essentially, TISRI mimics many of the benefits of NHR but unlike NHR which was a tax status that anyone could obtain, TISRI depends on continuously meetings a qualification criteria, as will be explained below.
What are the benefits?
The primary benefits of the TISRI are a reduced tax rates on certain types of income and a full exemption on other types.
Qualifying employment and self-employment income may elect to benefit from a special tax rate of 20%. Under the new scheme, foreign sourced income derived from employment and self-employment will be exempt from tax in Portugal, as long as they do not come from a black-listed jurisdiction.
In addition, foreign sourced income from sources that are supposed to be passive - capital gains, capital income (dividends, royalties, interest) and property, are fully exempt from tax in Portugal, so long as they do not come from a black-listed jurisdiction.
How does TISRI compare to NHR? Who are the winners and losers?
It has been extensively highlighted in the media that TISRI does not include any benefits covering pension income. Indeed, pension income is not covered by TISRI and is subject to full progressive taxation. The pensioners are therefore the main losers of the TISRI scheme.
On the other hand, TISRI, unlike NHR, does not include a condition for the exemption of foreign income requiring such income to be potentially taxable in the other country. This means that capital gains from a foreign source, including in relation to securities, are fully exempt in Portugal under TISRI (or at least, so says the law).
The primary winners are therefore both investors who hold a portfolio of securities and anyone holding shares in a foreign company who expects a liquidity event in the future.
Who qualifies?
To qualify for TISRI, a new taxpayer should have not been a tax resident in Portugal in the last 5 years. In addition, anyone who benefits from NHR status cannot apply for TISRI.
The original proposal for TISRI included only a few narrow groups, including research workers with a Ph.D., certain senior roles in the financial industry, professors in university.
However, following criticism, the government extended the eligibility criteria to include two additional groups:
- Those working in Madeira/Azores, with the criteria for eligibility to be defined by the respective local autonomous governments.
- Those who work for or members of the statutory bodies ofcertified startup companies.
People who move to Madeira/Azores
At the time of writing this article, the autonomous governments of Madeira and Azores are yet to define a criteria but considering the political orientation of these governments and the different approach that the islands have taken, historically, it is likely that the criteria will be wide and may include anyone living and working on the islands, including remote workers. In other words, the most likely outcome is NHR-alike benefits for anyone living on the islands and not retired. We will continue to follow this matter and update this guide accordingly.
People working for / members of the statutory bodies of certified startup companies
This rather broad criteria seems to include anyone working for a startup company, regardless of the role and this is in contrast to NHR that only exempted certain types of activities.
However, the main difficulty is that the startup needs to be “certified”. Otherwise, the benefits do not kick in.
This may sound like a rather high bar, but in fact, we believe that it is more than possible to meet the criteria.
There are a number of routes for a startup to be certified. Firstly, any startup who received an investment from acertified VCor acertified angel investor or angel groupis automatically a certified startup. The VC or the angel need to be certified in Portugal, so qualifying under this criteria requires some external investment.
However, the startup can also elect to be certified directly by one of two different bodies – one of them is Startup Program and the procedure for startup certification is already working.
We believe that with careful planning and some creativity, many of our clients will be able to form Portuguese companies and obtain startup certification and we expect to submit the first applications in the near future.
Furthermore, we believe that many startups in Portugal that are already certified will take advantage of this opportunity and seek investment from well-off expats with relevant experience in exchange to a board seat. Since the law grants status not only to employees but also to members of the statutory bodies,it will be possible to access the benefits by making an angel investment in a certified startup and taking a board seat in that startup. Needless to say, FRESH is happy to support the facilitation of said process.
Most people do not have angel investment experience but will find supporting Portuguese startups and taking an active role in them to be a fantastic experience and that is very much what the government is looking to encourage.
Importantly, notall the incomeof the taxpayer needs to come from the certified startup. It is sufficient that the startup would pay minimum salary and the remaining income of the taxpayer can come from other sources.
And what about the pensioners?
We urge pensioners not to panic. Whilst social security (US) / state pension (UK) will indeed be taxed using the progressive rates system, savvy expats who would switch their portfolio from pension products to investment products that are not pension, alongside meeting the qualification criteria of TISRI will be able to enjoy a full exemption of their foreign-sourced income.
Indeed, although it is now more complicated, the door of Portugal remains wide open and with excellent VISA opportunities, TISRI is an attractive tax scheme that for some people can be even better than the old NHR.
