What will happen to the Non-Habitual Resident Special Tax Regime with the approval of the 2024 State Budget? What are the potential issues? What can be done about it?
Below we will provide you with a list made by Kore Partners that outlines the potential issues with the new special regime, and what can be done about it.
Regarding the registration procedure, access to the New Non-Habitual Resident Special Tax Regime implies registration with certain public investment entities (which have a monitoring role), and registration with tax authorities. It is yet unclear how this registration process will work out in practice with the approval of the state budget. Thus, it is important to guarantee the effectiveness of the registration process by streamlining it.
When it comes to ‘Listed Activities or Professions’ (which professions and professionals can be eligible for the new NHR?), taxpayers may be eligible under several criteria. It is unclear which entities carry out activities considered relevant for the national economy. It is also unclear which are the ‘highly qualified professions of export-related companies or entities with investment incentives’. Hence, there should be secondary legislation or guidance to clarify.
Furthermore, the introduction of the ‘Sectorial and Territorial’ scope (which sectors and territories are to be considered regarding the new legislation), under ‘Sectorial and Territorial Application’, may induce an issue of selectivity and discrimination. That may be perceived as state aid, which is known to distort competition. For this reason, it is important to consider if a notification on state aid should be made.
Concerning the ‘Foreign Income Exemption’, the new NHR widens the scope of foreign income that is admitted. Capital gains on foreign assets are now included. This may create a legal conflict with existing double tax treaties. This happens if the non-habitual resident is considered a resident for double tax treaty purposes, according to the criteria of the latter.
Finally, when it comes to ‘Tainted Income’ (which basically means ‘bad income’), the new NHR entails a 35% tax rate applicable to certain income that derives from jurisdictions that are blacklisted. It is not clear yet, but the intention is that, even if the jurisdiction is blacklisted, only certain income is considered to be tainted and, for that reason, will be taxed. Hence, it is important to clarify which income is tainted, and how it does not affect the application of the regime.
