In 2009, during the financial crisis, the Portuguese government introduced the Non-Habitual Residency (NHR) program to encourage foreigners to move to Portugal. This initiative offered some remarkable tax incentives, including a 20% flat tax rate on employment and self-employment income, while income from foreign sources remained mostly tax-exempt. The NHR program became increasingly popular among expats, but its success brought about some unforeseen challenges.

The influx of newcomers led to rising property prices and overcrowding in certain areas, creating concerns for the Portuguese government. The current socialist government, led by Prime Minister Antonio Costa, has voiced its worries about the NHR program's impact on the housing market and other aspects of the economy. Two weeks ago, they made a significant announcement: the decision to discontinue the program due to what they have called a 'fiscal injustice' in favor of foreigners.

It's important to note that the decision to eliminate the NHR program is not finalized. If the government proceeds with this plan, it's likely to affect those intending to move to Portugal in 2024, with 2023 still being a safe year.

Portugal determines your tax residency based on the date when you change your fiscal number (NIF) to a Portuguese tax address. For example, if you updated your NIF to a Portuguese address in July 2022, you would be considered a tax resident in Portugal from that point onwards. Another critical date to remember is the application deadline for NHR. Continuing with the previous example, if you became a Portuguese tax resident in July 2022, you had until March 31, 2023, to apply for NHR.

While the future of the NHR program remains uncertain, it is anticipated that the Portuguese government will stop accepting new applications for the tax year 2024. Existing NHR holders are likely to be unaffected by these changes. Professionals in higher education, scientific research, and certain related fields may continue to benefit from a 20% tax rate on professional income in Portugal, along with exemptions on various foreign-sourced income categories, provided they haven't been Portuguese tax residents in the past 5 years. However, the scope of these benefits in the "new NHR" is expected to be more limited compared to the previous regime, pending discussions in Parliament.

But there's good news too! Starting in 2024, new Portuguese residents (who haven't lived in Portugal for the last 5 years) might enjoy a 50% tax break on their income, whether it's from a job or freelance work. It would only apply to incomes up to 250,000 EUR per year. If you earn more, you'll pay regular tax rates on the excess part.

For individuals planning to move to Portugal and apply for NHR, here's what you need to know:

Act before December 31, 2023: Portugal is expected to continue accepting NHR applications for the tax year 2023. To do so, update your NIF to a Portuguese address this year. Keep in mind that it is not mandatory to buy property to become a resident; renting a property is also a valid option.

Finalize before March 31, 2024: After becoming a Portuguese tax resident in 2023, you’ll likely have until March 31, 2024, to submit your NHR application.

Stay informed about the evolving NHR program to make the most of Portugal's tax incentives while they are still available. If you have questions or need advice, register at www.tytle.io.

Portugal's NHR: Changes on the horizon in 2024

The UK tax system isn’t always easy, to put it mildly. The rules around tax residence are a good example of that. But before we dive into it: check out this post if you want to know more about the basics of tax residence (and myths surrounding it).

So how is UK tax residence triggered? As in many other countries, time is an important factor. But it’s certainly not the only one. Work, family, having a (permanent) home and your tax residence history (may) also play a role. Let’s try to get a clearer picture by examining them in turn. 

People often think that tax residence is triggered by staying in a country for more than 183 days (six months). Unfortunately, this rule of thumb is (way) too simplistic. And the situation in the UK is a good illustration of that. In fact, under British tax law there are at least 5(!) duration thresholds to consider in relation to tax residence. 

The shortest thresholds: 16 days or 46 days 

Let’s start with the shortest (and easiest) ones: a stay of 16 days or 46 days during the tax year. (Note that the UK tax year runs from 6 April to the following 5 April and does not coincide with the calendar year). If you stayed less than 16 days in the UK, you don’t trigger tax residence for that tax year. Other circumstances are irrelevant. This is called the “(first) automatic overseas test”, since you’re automatically “overseas” / “non-resident” when the criterion is met. You don’t have to go on to the next residency test.  

If you stayed less than 46 days, the picture is largely the same. However, there’s one important exception: if you were a UK tax resident during one of the previous 3 tax years, then you can’t take this shortcut to non-residence (also known as the “second automatic overseas test”). In that case, you’ll have to move on to the next test. And yes, you’re right, that one is called the “third automatic overseas test”.    

91 days: determining tax residence gets trickier

If you keep your stay under 91 days, then there’s still a route to automatic non-residence if you work abroad. However, this should be full-time overseas work. So, what does that mean in practice? 

First of all, this means that you worked at least 35 hours a week. Second, that you had less than 31 working days in the UK – any day with more than 3 working hours is considered a working day. And third, that there was no “significant break” in your full-time work overseas. A significant break is defined as a period of 31 days without working – again: working doesn’t count if it’s less than 3 hours per day. (Annual leave, sick leave and parenting leave are excused.) Does all of this apply to you? Then you’re automatically a non-resident for tax purposes.     

183 days or more: you’re a UK tax resident

If you spent 183 days or more in the UK, then you can safely assume that you’ve become a tax resident. This is called the “first automatic UK test”. 

Inconclusive? Then go to the 30-day threshold

What if all these automatic tests don’t give a result, either in the form of automatic non-residence or automatic residence? Then there’s another automatic test to consider, called (you guessed it) the “second automatic UK test”. 

This one is very tricky as it’s a hotchpotch of calendar years and tax years, days in a row and days not in a row, and homes within the UK and outside the UK. It’s best explained with an example.

In 2022, Alessandra has a UK home where she stayed from 24 March until 1 May, and then again from 20 October until 31 October. On that date she left her UK home because it was sold. She also has an apartment in Milan, Italy, but she doesn’t go there often. She spent a few weeks in it during spring 2023, from 10 March until 24 April.  

So this is what her situation looks like in a visual: 

The first question is: did Alessandra have a UK home for 91 days in a row, with (at least) a 30-day overlap with a tax year? The answer is simple: yes, she had a UK home with a 208-day overlap with tax year 2022/2023. So, that’s the first step towards UK tax residence. 

Next, did she spend 30 days in her UK home during the tax year? The answer is yes again: since the start of the tax year on 6 April she’s been there 35 days: 25 in April/May and 10 in October. Consecutive or not doesn’t matter here.  

If the three automatic overseas tests and the two automatic UK tests have not yet led to a conclusion (of residence or of non-residence) then there is a third automatic UK test, based on work. Briefly put, if you work full-time in the UK for 365 days, then you first have to look at the tax years with which there’s overlap. 

Let’s assume you worked 365 days in the UK, partially overlapping tax year 2022/2023. As a default rule, you’re then a UK tax resident for 2022/2023. But again there are two exceptions.

First exception: if less than 75% of the working days were in the UK. Important: the relevant period is the calendar year, not the tax year. Also, working days only count if you worked 3 hours or more.

Second exception: if there was not one working day within this 365-days period that also fell in the tax year. For instance, your full-time job formally ended 10 April 2022, but you didn’t work anymore since 2 April. As a result, there was not a single working day in tax year 2022/2023, which started on 6 April 2022.  

If either of those exceptions applied, then you do not qualify as a UK tax resident…yet. 

But after three automatic overseas tests and three automatic UK tests there is still another test to consider. Remember: you only move on to the next test if the previous one didn’t lead to an affirmative outcome (tax residence) or a negative outcome (no tax residence). This means that the next test is reserved only for people who had an inconclusive outcome in all 6 previous tests.

So what’s this last, and decisive, test about? It’s called the “ties test” and it’s basically a combination of:

Both “ties” and “days in the UK” contribute to a conclusion of tax residence, but they are always considered together. The principle behind this test is that “more days” can compensate for “fewer ties”. This means that someone who stayed in the UK for several months, can only escape tax residence if they hardly have any ties with the UK.  

To apply this combined test, you should first ask yourself:

Family: do I have a partner (spouse or civil partner) or underage child living in the UK? If so, +1 tie;

Accommodation: did I spend 1 or more nights in a UK home that’s available to me for at least 91 days during the tax year? Or 16 or more nights in a UK home of a close relative? If so, +1 tie;

Work: did I have at least 40 work days in the UK during the tax year (in a row or not)? If so, +1 tie.

90 days: did I spend at least 90 days in the UK in one, or both, of the previous two tax years? If so, +1 tie.

Country: considering all countries where you stayed during the UK tax year, was the UK the country where you spent most time? A day is counted if you were present at midnight. If so, +1 tie if you were a UK tax resident in one or more of the 3 previous tax years - if not, you should disregard this tie. 

Once you’ve done the counting, combine the number of ties with the number of days spent in the UK. 

If you were not a prior UK tax resident during the 3 previous tax years, these are the combinations:

46-90 days + all 4 ties: UK tax resident;

If you were a prior UK tax resident during the 3 previous tax years, the combinations are as follows: 

The UK has a very complicated approach towards tax residence. As has become clear, there are many more factors than “183 days”. Sure, spending 183 days in the UK will automatically make you a tax resident for that year, but this can also happen if your stay is much shorter than that. If you have enough social or economic ties with the UK, a presence of 16 days can already be enough to trigger tax liability on your worldwide income. Therefore, it’s important to go through all tests described above, and only stop when a test leads to a result, either affirmative or negative. And of course, seek assistance when things are unclear. After all, mistakes are easily made and hard to fix.

Tax residence can be a tricky part of international tax law. Especially when countries like the United Kingdom, the United States, or Australia are involved. Before we tell you more about the most common mistakes, and how to avoid them, first a few words on the basics.

Three statuses: none, resident, and non-resident

 Roughly speaking, your tax relationship with a country falls within one of the following three categories:

 	You have no relationship at all with the country in question. Tax residence is not an issue.  	

 	You live in a certain country, either permanently or part of the time. You may be a tax resident of that country, which is the strongest tax relationship there is.  	

 	You don’t live in a certain country, but you still have a relationship with it. For example: you work there part of the year, you have assets there, or you get income from that country. You may be considered a non-resident for tax purposes. This is the “middle position”: there’s no full tax residence, but for certain sources of income you can still be tax liable.

The country of residence has the broadest rights  

When a country considers you a tax resident, the default rule is that you’re taxed there on your entire income, worldwide. Why is that fair? If you live in a country, you’re (in)directly using its public services, like its infrastructure, its hospitals, its army, etc. So it’s basically the country with “the best right” to tax you. As a result, you’ll also get the primary tax bill from that country.

“Non-residence” means “no taxation”, unless…  

On the other hand, if you don’t live in a certain country, you’ll only face a tax claim if there’s a special reason for that. That’s where non-residence comes into play. Think, for example, of a house you may own abroad – let’s say in Greece. You’re not a tax resident there, but this country still has the closest connection with the rental income you get from it. (Think of the Greek roads, or the Greek sewer system, that serve the property.) So for this item, you’ll be paying taxes to Greece as a non-resident.  

For many people, the question of tax residence never arises. They were born in a certain country and they’ve lived there all their lives. So it makes sense that they’re tax residents there. But for people who travel, work or live between countries, this question is of great relevance. After all, it can make quite a difference if your worldwide income is taxed in Switzerland or Sweden, for example.

 In an attempt to (over)simplify the concept of tax residence, many myths, beliefs and “rules of thumb” circulate. Below, we’ll discuss 5 oft-seen misconceptions.

 A common belief is that all tax residence questions can be answered by counting your days of stay in a country. The “magic number” that you’ll often hear is 183 days, or 6 months. Once your presence goes beyond this threshold, you’d get the status of tax resident. And the other way around: less than 183 days means no tax residence. Unfortunately it’s not always that simple.

Staying somewhere 183 days can indeed serve as an indication that you (permanently) live in that country. In quite a few legislations, this number is therefore explicitly mentioned. But you have to carefully check national laws to know what the exact meaning is. Some countries see the days of stay as one of the most important criteria, while others consider it just one factor amongst many others (like having a home there, work, economic ties, or an intention to stay). And not to forget: many different duration thresholds can be found, some of which are much shorter than 183 days.

By the way, the threshold of 183 days does also appear in the context of cross-border workers. Often, cross-border workers will be taxed only in their country of residence, and not in their country of work, if their presence there is limited to 183 days or less. However, this rule is often combined with additional requirements, for instance that the employer should be based outside the country of work. 

You can’t be a tax resident in two countries

 In fact, that happens quite often and it’s called “dual residence”. Of course, this situation is far from ideal for the taxpayer as his worldwide income can then be taxed in two countries at the same time.

Therefore, so-called “tax treaties” exist between countries. In such treaties, you typically find some rules to solve dual residence problems: the so-called tie-breaker rules. By looking at certain facts (for example: where is someone’s permanent home located or where does their social and economic life take place) one of the two countries eventually ‘wins’, meaning that this country may consider the person in question as its tax resident for treaty purposes in case of a double tax claim. However, not all countries have concluded tax treaties with one another. As a result, dual residence (and therefore: double taxation) does occur in practice.

 When you migrate, you’re required to let the authorities know: you deregister in the country you leave behind, and you do the opposite in the country of destination. Although this is often a good starting point to formally change your residence, it doesn’t automatically mean that your tax residence is then changed, too. Why not?

First of all, many countries look at a broad set of circumstances when determining tax residence. Registration can be one of those circumstances, but there are many others as well. We already talked about the number of days that you actually stayed in the country, regardless of registration. But don’t forget things like bank accounts, having a car, insurances, place where your direct family lives, work, or even mobile phone subscriptions.

Second, some countries approach tax residence in a binary way: you have it for the full tax year, or you don’t have it at all for that tax year. For instance, if you leave Italy around September, you’re already a tax resident for the full year, based on your presence so far. Deregistering in Italy, and registering in another country, will probably not change that outcome for the remaining months of the tax year in question.

Permanent travelers have no tax residence

 It’s a popular belief that you can escape paying any taxes if you just keep moving from one country to another. In the (more distant) past this was indeed the case. Assuming, of course, that the “right” countries were chosen and that the permanent traveler planned their stays carefully. But times have changed quite a bit, and authorities around the world have made tax compliance one of their top priorities. This means that the country with the “best rights” (relatively speaking) to make you a tax resident, will most likely step in. This could be the country where you lived before starting the permanent travel or the country from which you hold a passport. Nowadays, the generally accepted policy goal is that “no taxation” should be avoided whenever possible.

Also note that having a residence address is often a requirement in all kinds of other processes, like setting up a bank account or getting health insurance. Here you can find a longer read on the woes and risks of the permanent traveler.

 A day is simply a day, but unfortunately not in the world of international taxation. When you count the number of days for tax residence purposes, there’s more than meets the eye. First of all, the definition of ‘day’ itself can be a source of confusion. Does it mean 24 hours or does a part of a day count as an entire day as well? Also: do days of stay only count when they are consecutive (in a row) or do you count them cumulatively over the year? And what about days that you were in a country while traveling to another destination, so-called transit days?  

Again, the truth is that every country has its own interpretation and that there are no guidelines with universal validity. And in recent years, the situation has become even more complicated. During the COVID-19 pandemic, people were sometimes unable to travel to or from a country because of restricted (air) travel and lockdowns. What to do with such days? Do they count as days spent in the country where you were supposed to be (if no restrictions had been in place)? Or do they count as days in the country where you got stranded?

Although some countries have adopted a flexible approach in this regard, some other countries indicated that days during a “forced stay” also count towards tax residence. Spain and France were notable examples of this second, more stringent approach.

First of all, the concept of tax residence can be fairly complicated. In any case, it’s often not as simple as counting days. And if it comes down to counting days, then you should carefully check what the exact threshold is (not always 183!), what the meaning of that threshold is, and what qualifies as a day.     

Portugal's NHR: Changes on the horizon in 2024

UK tax residence demystified in 3 charts

Tax residence: the basics and 5 mistakes