My Non-Habitual Resident request was denied. What can I do?

Vasco Apolinário Rodrigues

Lawyer

The Non-Habitual Resident (NHR) Tax Regime ended in 2023, as approved by the Portuguese parliament with the final vote of the 2023 State Budget on 29th November. Nevertheless, individuals who met one of the following requirements can still apply for this special tax regime until the end of 2024:

• Promise or employment contract, promise or secondment agreement signed by 31st of December 2023, whose duties must take place in Portugal;
• Lease or other contract granting the use or possession of the property in Portuguese territory concluded until 10th of October 2023;
• Reservation contract or promissory contract for the acquisition of real rights over property in Portuguese territory concluded by 10th of October 2023;
• Enrolment or registration of dependents at an educational establishment domiciled in Portuguese territory, completed by 10th of October 2023;
• Residence visa or residence permit valid until 31st of December 2023;
• Procedure initiated by 31st of December 2023, for granting a residence visa or residence permit, with the competent authorities.

For individuals who already applied to the Non-Habitual Resident Tax Regime within the 2023 time frame, it is not uncommon to have the NHR request denied by the Portuguese Tax Authorities, even though the taxpayer meets the material requirements to benefit from that special tax status.

Typically, the request is denied on the grounds that the NHR request was not filed in due time or the taxpayer was already registered as a tax resident in Portugal without recalling or even knowing, and hence, was not aware the deadline was past due when filing for it.

Either way, a solution may exist to tackle the effects of the denial of the NHR request for failing the filing in due time.

One way to react to the NHR request rejection is to file an appeal to overturn the decision and be granted the NHR tax status for the whole 10-year period.

Another way to respond is to appeal through the yearly tax assessment on any of the given 10-year period duration of the non-habitual resident regime, provided the timeline to appeal is still open.

In the recent past, the Portuguese Arbitral Tax Court (CAAD) issued two decisions (Cases no. 777/2020-T and 188/2020-T), on which the taxpayer appealed through his yearly tax assessment on the grounds that he was entitled to benefit from the NHR regime whilst he did not comply with the filing of the NHR request in due time, and even considering that his NHR request was expressly rejected by the Portuguese Tax Authority.

The Court ruled in favour of the taxpayer and decided that he had the right to have his income taxed in accordance with the non-habitual resident tax regime although he had not complied with the deadline to file the NHR request.

In the view of the Court, the requirement of filing for the request to benefit from the NHR until the 31st of March of the following year in which the applicant became a tax resident in Portugal is essentially a procedural norm aimed at ensuring the organisation of the operational tax system, which aims to guarantee its effectiveness and normal functioning.

For the Court, the only material requirements established by the Portuguese Personal Income Tax Code in order for a taxpayer to be granted the NHR tax status are the following:

• That the taxable person becomes tax resident in Portugal in a given year;
• That the taxable person must not have been tax resident in Portuguese territory in any of the previous five years to which he or she became a tax resident in Portugal.

Hence, in the view of the Court, the failure to file the NHR request in due time does not constitute grounds to deny the taxpayer his or her right to be taxed in accordance with the NHR regime if the latter meets the material requirements.

Given the above, a window of opportunity may have opened for all those whose requests have been rejected, although the results to show for are still a few, and the court’s decisions only bind the tax authority to that specific taxpayer.

As a result, it will most likely be necessary to resort to judicial litigation to ensure that the taxpayer is taxed as a NHR.

If you have further questions regarding this matter, get in touch with Vasco Apolinário Rodrigues, and he will be delighted to assist you.