NHR and Digital Nomads
The Non-Habitual Tax Residents’ (NHR) regime, created in 2009, is expected to be adapted to digital nomads and all those who carry out remote working activities with a technological nature, boosting Portugal's ability to attract high skilled professionals.
The recent changes in the labour market, only possible with the massification of the communication applications and driven by the pandemic situation, have been attracting human capital to territories that allow a better work/life balance, increasing the quality of life of high skilled professionals.
If this legislative change takes place, it can only have positive effects for Portugal.
The NHR regime, introduced 13 years ago, attracted nearly 30,000 people to Portugal. Although it has attracted pensioners and other taxpayers with passive income that are, as general rule, tax exempted in Portugal or subject to a flat tax rate of 10%, it has also retained in Portugal a large number of professionals in high added-value activities that are subject to a flat rate tax of 20%. Even though digital nomads may be in constant mobility, which, by the way, may not imply a significant contribution to the local business environment, the fact remains that they may create additional tax revenue for the Portuguese State. Obviously, in addition to the 20% tax revenue, there are many other tributes to be paid by these taxpayers, especially indirect taxes and social security contributions.
These professionals may come to settle in the inland regions and establish themselves in the existing co-working spaces, becoming part of the local community and being a key player in internal consumption. On the other hand, taking up the tax residence in Portugal, a consequence if the professional spends more than 183 days in Portugal, should be followed by an analysis in terms of social security contributions.
Introducing a specific tax framework for digital nomads, creating a specific, well-defined and balanced tax treatment, will satisfy Portugal's objective to become competitive in attracting high qualified human resources.
In this context, what about the taxpayers who obtain income from cryptocurrency? Nowadays, although the Bank of Portugal has been supervising entities that carry out this activity in national territory over a year and a half, Portugal is still part of a reduced group of jurisdictions that do not have a specific tax regime for income deriving from cryptocurrencies. According to the understanding of the Portuguese tax authorities, unless gains from the trade of cryptocurrencies arise from a business or professional activity, they are not taxed in Portugal.
In the opposite direction, there are several jurisdictions that have adapted their legislation to framework gains and income arising from cryptocurrencies, although it is not absolutely clear how much tax revenue may be at stake.
In any case, it is imperative that Portugal follows these legislative trends and focuses on adapting the already existing regimes concerning NHR to the challenges that currently arise in the digital ecosystem. This will provide legal certainty and predictability, keystones for Portuguese future competitiveness.
José Guerreiro | TAX
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