The end of the special tax regime in Portugal for Non-Habitual Residents (RNH) has a date. On October 3rd, the Prime Minister of Portugal, Antonio Costa, announced the end of the special tax regime for non-habitual residents (RNH) on December 31st, 2023.
Therefore, as of January 1st, 2024, it will no longer be possible to apply it, but it will still be in force for those who have been benefiting from it.
End of the special tax regime in Portugal
The reason given by Antonio Costa for this change is that the regime is negatively affecting the real estate market, inflating the price of housing. The arrival of foreigners with high purchasing power coupled with the ease of obtaining tax residency in Portugal by buying or renting a property was causing this effect.
This regime was created in 2009 to attract both Portuguese non-residents who were qualified with high added value. Under this regime, the taxpayer could benefit, as a general rule, from a flat tax rate of 20%.
And also retirees from other countries, whose pensions would be taxed at the flat rate of 10%. The application of the regime required, among other conditions, not having resided in this country in the previous 5 years. This regime could be extended to 10 years.
With this announcement, those who are interested in opting for this regime will have until December 31st, 2023 to apply for its application, provided that they meet the requirements.
Spain’s Impatriate Regime or “Beckham Law”
This change will have a knock-on effect in Spain, which maintains its beneficial special impatriate regime or “Beckham Law” for new residents. In addition, the new Law 28/2022, of December 21, on the promotion of the startup ecosystem, known as “Startups Law” incorporated new assumptions for its application.
Let’s remember that this special regime is applicable for employees or workers who change their residence to Spain, under certain conditions. It is also applicable to Administrators of companies that meet the requirements. And now also to freelance professionals of “entrepreneurial activity” (certified by Enisa) or highly qualified workers of emerging companies.
This regime basically consists of paying tax as a non-resident during the year of the change of residence and the following 5 years. This normally means doing so at a lower tax rate and taxing only on income generated in Spanish territory. However, all worldwide earned income will be deemed to have been obtained in Spain.
Thus, the general taxable income, employment income, rents, etc, will be taxed:
- The first €600,000 at 24%.
- From 600.001€ onwards at 47%.
The interests, dividends, capital gains of Spanish source will be taxed:
- The first 6.000€ at 19%.
- The following 44.000€ at 21%.
- For the following 150.000€ the taxation will be 23%.
- The following 100.000€ at 27
- The rest at 28%.
Advantages
In addition to the tax rate, other advantages of this regime are the following.
Firstly, Wealth Tax is only taxed on assets located in Spain.
In addition, the Model 720 of declaration of assets located abroad, does not apply to them.
Disadvantages
Taxpayers under this regime cannot apply most of the double taxation treaties.
They are also not entitled to apply tax benefits provided for taxpayers under the normal regime, such as the deduction for social security expenses.
In addition, those who use this regime will also not be entitled to the exemption of severance pay.
Finally, they will also not be entitled to the deduction for the minimum deduction for descendants or family members.
This is why this regime is not always suitable for everyone. It will depend on their personal and professional circumstances, a matter that must be analyzed in each case.
The option for this regime must be requested within a period of 6 months from the date of commencement of the activity that is recorded in the registration with the Social Security in Spain or in the documentation that allows the maintenance of the legislation of the Social Security of origin.
In conclusion, this special regime, together with some tax benefits that the Spanish legislation recognizes for self-employed or companies, makes Spain once again one of the preferred destinations to set up in Spain.
For all these reasons, if you are planning your move to Spain, whether you are a freelance, employee or administrator of a company, do not hesitate to contact our experts in Tax Consulting in Madrid.
