Portugal | Employment Tax | State budget law proposal for 2024

Employment Tax

State budget law proposal for 2024

Measures requiring special attention from HR professionals

General PIT rates

It is foreseen an increase of around 3% of the lower and upper limits of the marginal personal income tax brackets as well as a reduction of the marginal personal income tax rates up to the 5th bracket.

Youth PIT

It is proposed the reinforcement of the tax regime applicable to employment and self-employment income earned by young employees aged 18 to 26, or up to 30 years in case of conclusion of a PhD, who are not dependents. The proposed amendment consists of the increase of the exempt income and respective limits, as detailed below:
• From 50% to 100% in the first year capped at 40 times (instead of 12,5) the amount of the Social Support Index (“Indexante dos Apoios Sociais” or “IAS”);
• From 40% to 75 % in the second year capped at 30 times (instead of 10) the amount of the IAS;
• From 30% to 50% in the third and fourth years capped at 20 times (instead of 7,5) the amount of the IAS;
• From 20% to 25% in the fifth year capped at 10 times (instead of 5) the amount of the IAS.

Special tax regime applicable to “former” residents (“Programa Regressar”)

It foresees an amendment to the special tax regime applicable to “former” residents, with effects as from 2024, namely, in respect of the conditions of eligibility and the introduction of a limitation to the income excluded from taxation.

In this sense, it is proposed an exclusion from taxation of 50% of employment and self-employment income, up to the limit of 250,000 Euros, earned by taxpayers that meet the following conditions:

1. Qualify as Portuguese tax residents, between 2024 and 2026;
2. Have not been considered as residents in Portuguese territory in any of the previous 5 years;
3. Have their tax situation regularized;

This regime continues to be applicable for a period of 5 years and the limit of the income excluded from taxation is only applicable to taxpayers that become Portuguese tax residents in 2024 or in the following 2 years.

The obligation to have been considered as a tax resident in Portugal in the past no longer applies.

Non-Habitual Residents Regime (NHR)

This regime will be revoked as from January 1, 2024.

Nevertheless, the regime is still applicable to the following individuals:

• The ones already registered as NHR at the time that the State Budget Law enters into force;
• The ones that meet the conditions of access to the regime until 31 December 2023, as well as, the holders of a residence visa valid at that time, provided that the registration process is submitted until 31 March 2024.

Tax Incentive for Scientific Research and Innovation

It is proposed to create a special tax regime for scientific research and innovation, which will be applicable to individuals who become tax residents and have not been residents in Portugal in any of the previous 5 years and who fall into the following categories:

• Academic and scientific research careers, including scientific employment in entities, structures, and networks dedicated to the production, dissemination, and transmission of knowledge, integrated into the national system of science and technology;
• Qualified positions within the scope of contractual benefits for productive investment, as defined in Chapter II of the Fiscal Investment Code;
• Research and development positions for personnel with a Ph.D. qualification, whose costs are eligible for the purposes of the fiscal incentives system for business research and development, as defined in Article 37, number 1, b) of the Fiscal Investment Code.

Registration of beneficiaries with Fundação para a Ciência e Tecnologia, I.P. da Agência para o Investimento e Comércio Externo de Portugal, E.P. E  and with Agência Nacional de Inovação, S.A, as applicable, is mandatory. It is also foreseen the need of communication of this information to the Portuguese Tax Authorities.

This regime foresees:

• Taxation at the special personal income tax rate of 20% on employment and self-employment income earned within these activities, for a consecutive period of 10 years starting from the year of registration as a resident in Portuguese territory;
• Tax exemption on the foreign sourced income from employment and self-employment income, investment income, rental income, and capital gains). The exemption method with progression applies, which means that the exempt income must be added to the other taxable income for the purpose of determining the tax rate to be applied.
• A tax rate of 35% is applicable to the income earned and paid abroad by non-resident entities without a permanent establishment in the Portuguese territory, domiciled in a country, territory, or region subject to a clearly more favorable tax regime, which is part of the list approved by the Minister of Finance.

This regime can only be used once by the same taxpayer, and individuals who are benefiting or have already benefited from the NHR regime or have opted for the taxation of the income under the terms of the “Former” Residents’ regime are not eligible for this Regime.

Housing tax incentive for employees

It is proposed the exemption from taxation for PIT and Social Security purposes of the benefit in kind arising from the use of a permanent residency located in Portugal, provided by the employer. The exemption is applicable during the period from 1 January 2024 to 31 December 2026.

The exemption applies up to the limited value of the rents established under the “Programa de Apoio ao Arrendamento”, approved by the Decree Law n.º 68/2019 of 22 May, in its current version.

The tax incentive will not be applicable to taxpayers that directly or indirectly hold a stake of no less than 10% in the share capital or voting rights of the employing entity.

Incentive on profit distribution paid to employees

It is proposed an exemption of PIT, up to 5 times the Minimum Monthly Remuneration, of payments made to employees as company’s profit sharing, provided the employer’s average fixed salary increase, per employee in 2024, is equal or higher to 5%.

Exempted income should be aggregated to the employee’s annual taxable income for purposes of determination of the applicable tax rate.

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