After much speculation based on reports in the newspapers and information from sources close to the government, PS, the government’s party has presented amendments to the 2020 Draft BudgetProposal, including changes to the NHR programme, which were made public on Monday 27th January as originally scheduled.

The proposed changes, which differ in certain key areas from information previously circulated in the press, are as follows:

  1. A rate of tax of 10% on foreign pension applying to new NHRs with no minimum tax;
  2. NHRs acquiring the status before the law comes into force would benefit under the existing rules;
  3. As a result, existing NHRs would be “grandfathered” under the existing legislation;
  4. Existing NHRs could choose to have the new rules applied to them.

The draft also seems to broaden the definition of income which can benefit from the 10% rate. 

The proposal even opens up the possibility of applying under the existing rules if, at the date of entry into force of the new law:

1. the NHR application has been submitted and is still pending; or 2. the applicant can be considered as a tax resident for tax purposes and if this applicant submits the NHR application on or before 31st March 2020 (for the tax year 2019) or before 31st March 2021 (for the tax year 2020).

Finally, the proposal adjusts the treatment of consulting income and certain royalties for NHRs, and the conditions under which this income can also benefit from an exemption, specifically: 

1. where this income is generated in the exercise of a High Added Value Activity and taxed at source; or 2. where this income is generated in the provision of information related to an experience acquired in an industrial, commercial or scientific sector.

Whilst this does give a good deal of clarity and a strong indication on the proposed changes, the final vote will occur next Thursday 6th February, so the text could still be adjusted. But these proposed changes are clearly designed to deflect criticism from other minority parties and EU governments, whilst also making the programme even more competitive for the foreseeable future, in particular, combined with the new automatic enrolment of High Added Value Activities. 

In our view if these proposed changes are confirmed, NHR will gain long-term stability and consolidate its international credibility attracting an even larger number of High Net Worth Individuals and qualified professionals.

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