NHR 2023 Year-End Tax Review
As year-end approaches, taking some time to review your tax affairs may yield considerable tax savings. Here is a summary of Kore tax issues:
Review your tax residence ties
As a resident for tax purposes, it is important to review your ties to Portugal. These include the days of presence and having a home with an intention to use as the habitual residence in Portugal. Factors such as habitual abode (where one spends more time throughout the tax year) and the location of personal economic relations are also relevant. Monitoring links to other jurisdictions is key because, when deemed tax residents of two countries, a tax treaty will set factors to “break the tie” and the winning country.
For further reading on the topic, see our briefing on tax residence.
Examine active income sources derived
The end of the year is an opportunity to review the tax and social security implications of active income (including any bonuses) sourced throughout the year. This includes a review of all documentation and proof of any withholding tax. The exercise covers employment income (including directorship roles) or business income from advisory and contractor roles. For self-employed individuals billing service fees to companies outside Portugal, the NHR tax treatment depends on (i) whether these fees are effectively subject to tax in the source/foreign country; and (ii) whether the services qualify as high-value added activity according to the official list. The application of the flat 20% rate is hence critical to review.
For further reading on the topic, see our briefing on digital nomads and NHR.
Beware of capital gains changes for 2023
As of January 1, 2023, a distinction based on the holding period determines that short-term gains (less than 1 year) from shares and other securities will be taxable above certain thresholds at the highest progressive rates, while long-term gains and other gains on financial investments will be taxable at the flat rate of 28%. It is important to review the impact of a tax loss harvesting strategy (and its limits) and consider other long-term options such as Unit-Linked life insurance, a shift to distributing or accumulation funds, Lombard loan strategies, or trusts or donations to family members.
For further reading on the topic, see our briefings on the Budget measures for 2023 and also technical issues of capital gains and NHR.
Scrutinize passive and tainted income
Despite dividends and interest income being generally exempt under the NHR, there are several pitfalls to be attentive to, namely if there is tainted income derived from blacklisted jurisdictions. The non-application in certain cases of the NHR exemption is subject to some controversy. We recommend carefully examining the financial portfolio and evaluating the types of income derived and the source of the underlying income. Recognize that other solutions are available to maintain investment flexibility.
For further reading on the topic, see our briefings on tainted income and NHR and a more recent overview of court decisions.
Look out for crypto tax changes for 2023
For Portuguese tax purposes, crypto assets are treated, as of January 1, 2023, as property for income tax purposes. Gains arising from the disposal of crypto assets (that do not constitute securities) held for 365 days or more are exempt from taxation. Outside the 1 year holding period, gains are taxed at a flat rate of 28%. Since 2023 is the first year of reporting crypto gains, it is important to review which situations constitute a taxable event and if any transactions before year-end need to be implemented.
For further reading on the topic, see our briefing on the topic of crypto taxation as from 2023 onwards.
© Kore Partners, 2023
This briefing provides for general information and is not intended to be an exhaustive statement of the law. Although we have taken care to provide accurate information, this should not replace legal advice tailored to your specific circumstances. This briefing is intended for the use of clients and selected recipients. Queries or comments regarding this, including joining our mailing list, can be directed to kore@korepartners.com