The announcement by the Government of Portugal to reform the Tax Regime for Non-Habitual Residents (RNH) has provoked special interest among high-income and wealthy Spaniards in exploring what to do with their tax residence. Tax professionals who work in important law firms acknowledge that they have received queries and requests for information from clients of two types in the last week, essentially: some who have already transferred fiscally to the other side of the border, worried about what may happen; and others who, affected by the tax on large fortunes implemented in Spain, were studying the option of locating their taxation in Lisbon, Porto or the Algarve. Now the tax horizon is not at all clear. These prosecutors advance that one of the countries benefiting from the decision of Antonio Costa’s Executive could be Spain.
“There have been clients already installed in Portugal who have contacted us to find out the consequences that the decision of the Portuguese Treasury will have,” explains José Luis López Hermida, director responsible for the private client and family business area at KPMG. The tax advisory giant points out that those “taxpayers “who exercised the option [to transfer their tax residence to Portugal]” are “concerned about what may happen. “The reflection that we have conveyed to you is that, while waiting for Lisbon to specify the scope of the announcement, we do not expect it to have retroactive effects.”
The Portuguese RNH has been in force since 2009 and allows individuals with high incomes, essentially specialized professionals, not to pay taxes on income generated outside the country for a decade. Remote work triggered transfers. Furthermore, if the foreign taxpayer decides to settle in Portugal, his national income is currently taxed at 20%. In the case of retirees, their pensions are taxed at 10%. The beneficiaries of this favorable tax regime are, generally, remote workers who have contributed to raising the price of housing in the neighboring country. In recent days there have been social protests in different areas of the country.
A second type of taxpayer who has consulted tax experts is one with a high net worth who had explored the possibility of moving his residence to Portugal next year due to the new taxation in Spain. “We have also received inquiries from estates affected by the tax on large fortunes and concerned about the possibility of it becoming a permanent tax,” adds KPMG. Luis Manuel Alonso, professor of Financial and Tax Law at the University of Barcelona, ??also confirms that these profiles interested in moving to the neighboring country have emerged since the announcement of the new tax on high net worth. Now, with the end of the tax advantages and waiting for the decision to be finalized, these movements have entered quarantine. Stella Raventós, president of the Spanish Association of Tax Advisors (AEDAF), recommends that these taxpayers “wait for the ruling of the Constitutional Court” on the tax on large fortunes, which could be made public at the end of the year.
Therefore, the “less bad thing that we have in Portugal” in the tax field is over and tax experts are already pointing out that Spain could benefit from a transfer of taxpayers thanks to the so-called Beckham regime. The former English soccer player for Real Madrid was one of the first to benefit from a regulation still in force that allows taxpayers who have resided abroad for five years (previously there were ten) to be able to pay Non-Resident Income Tax (IRNR) during the tax period in which the change of residence is made and during the five following tax periods. The applicable rate is 24% for an income limit of 600,000 euros, so it does not affect the big sports stars. This modification, which came into force in 2021, “could open the door to the return of certain incomes,” says López Hermida, from KPMG. The tax benefit does not affect pensioners.
Spain would increase its attractiveness, therefore, to attract taxpayers not only because of this favorable regime for certain expatriates. The “legal security scenario that it offers,” explains Professor Alonso, is also essential for a taxpayer to establish his tax residence. He gives the example of large Latin American fortunes who decide to move to Europe in search of security for their finances. The partner at Fuster-Fabra Abogados, however, disagrees with the statement that Spain is an attractive country on a fiscal level for taxpayers who decide to leave or not move to Portugal. “We pay a harsh wealth tax in Catalonia, for example, and now a tax on large fortunes,” he remarks.
The Tax Agency does not have statistics on how many taxpayers benefit from the special regime applicable to workers posted to Spanish territory. In the report of tax benefits that accompanied the 2023 Budgets, a cost of 105.78 million for the Public Treasury does appear.
