While many have enjoyed the lower tax the NHR regime offers, a large majority remain unaware of the significant tax liabilities they may face once the initial period draws to a close.

The sting in the tail has prompted specialist advisors to urge all those taking advantage of the NHR tax regime to take early advice on their foreign held assets and passive and professional income well in advance of the 10-year benefit ending.

One Swedish expat couple, unaware of the tax trapdoor, recently captured national attention in Portugal after being presented with a hefty €180,000 tax bill following the expiration of their NHR status though poor tax planning.

They are, experts warn, far from alone in a common misconception, that the NHR tax benefits can be renewed indefinitely.

Why does this happen and how to take early action?

Credits: Supplied Image; Author: Client; Make sure you're protected for the future

“Many affluent expats are lulled into a false sense of security by the NHR tax regime's low tax rates,” explains Steve Philp, Director at Portugal Pathways, an organisation that advises and supports wealthy expats in Portugal.

“Once the NHR tax incentive period expires, a large majority of expats become subject to Portugal's progressive tax system and can end up with taxes at 48%, at the top end, if they don’t seek advice early.

"Too many don’t realise these benefits are temporary and need structuring early on in their tax status life in Portugal.

“These recent cases should serve as a wake-up call for NHR tax holders in Portugal. But the good news is they can mitigate this though better structuring of their income and assets."

According to a recent survey of wealthy expats in Portugal, a staggering 73% of NHR tax holders were unaware of the risk of high taxes if they fail to plan and act early.

What can NHR tax holders do to prepare early and mitigate this?

Credits: Supplied Image; Author: Client; Make sure your income and assets are structured correctly

Experts strongly advise NHR tax holders to take action as soon as possible - ideally within the first seven years of the NHR tax status - to minimise future potential tax burdens through structuring of income and assets to optimise their position for years to come.

Peter Marshall, a UK expat and now resident in Portugal under the NHR tax regime for four years, explains: "I was completely unaware that any tax planning was necessary.

“It wasn't until I realised, I could face potential taxes of 48% on my pension and other foreign assets and income that I sought professional international advice.

“Luckily, I am now set fair for another 10 years, albeit having to pay a bit more tax, but certainly not an amount that would make me have to leave my home in Portugal."

Portugal Pathways and its professional supply chain partners assisted Mr Marshall in restructuring his overseas income and assets in a way that works in Portugal, ensuring a smoother transition and minimising his tax liabilities upon exiting the NHR tax regime.

What strategies can be used to mitigate future tax burdens?

Several strategies can be employed to mitigate future tax burdens, including:

  • Restructuring investment portfolios towards tax-efficient options.
  • Utilising available tax deductions and credits.
  • With the help of qualified professionals, individuals and families can structure their income and assets to potentially achieve minimal annual tax liability after their NHR tax period ends.

Portugal Pathways offers personalised guidance to existing NHR tax holders seeking to structure their income, assets, tax, and investments for the long term.

It offers an initial no obligation discovery call ahead of supporting them with relevant professional advice and structures that allow them peace of mind moving forward.

Contact Portugal Pathways to find out more and arrange an initial call with an advisor.