For expats enjoying the benefits of Portugal’s NHR tax regime, an urgent decision is looming, and time is running out.
As the 10-year NHR tax benefit period approaches its end for many, a harsh reality is setting in. NHR tax holders must act now to mitigate future tax burden when their current tax status expires, or risk being caught off guard by Portugal’s progressive tax system, where rates can reach up to 48%.
The lack of understanding around how to manage foreign income and assets before the NHR tax period ends is creating a ticking time bomb for those who delay. Failing to restructure finances in time could lead to significant tax liabilities.
“Too many NHR tax holders are sitting on a financial time bomb without realising it,” says Steve Philp, Director at Portugal Pathways. “Waiting until the last minute can leave them scrambling to manage their finances, and by then, it’s often too late to mitigate the heavy tax consequences.”
Philp highlights a worrying trend among NHR tax holders, a lack of awareness or action when it comes to restructuring their foreign income and assets. Once the NHR tax period is over, without proactive planning, they are automatically moved to Portugal’s progressive tax system – resulting in much higher taxes.
One stark example is a Swedish couple who recently faced an unexpected €180,000 tax bill after their NHR tax status expired. The couple left it too late to restructure their finances, illustrating how inaction can turn into a costly mistake.
According to the recent ‘Wealthy Expats in Portugal 2024’ survey, 73% of NHR tax holders are unaware of the tax risks they face once the NHR period ends. Many believe they have more time, while others assume they can handle the situation later. However, these assumptions often lead to steep tax bills and financial strain.
Philp urges NHR tax holders to take control early: “The earlier you plan, the better your chance of avoiding a major tax headache. By working with an expert to restructure non-Portugal income and assets within the first seven years of NHR, you can significantly reduce the taxes you’ll face when NHR status expires.”
Jess Richman, a UK expat and NHR tax holder, shared her story: “I didn’t realise just how high the taxes could be once my NHR status ended. I was shocked to learn my pension and income could be taxed up to 48%. Fortunately, I sought advice from Portugal Pathways, and while I managed to avoid the worst, I still wish I’d acted sooner.”
The key to dealing with this financial time bomb is early action and professional advice. NHR tax holders should speak to cross-border tax experts who can guide them through restructuring strategies, ensuring they remain tax-efficient when the NHR tax regime ends.
The message is clear: NHR tax holders face a ticking tax time bomb due to a lack of learning, but by acting now, they can defuse it and secure their financial future.
Portugal Pathways is offering an initial no-obligation discovery call to help assess personal situations before engaging with cross-border tax and wealth management experts.
Don’t wait until it’s too late – take action now, or you’ll pay the price later.
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