Portugal Non Habitual Residency Program 2024 (New NHR 2.0)

Portugal’s Non-Habitual Resident (NHR) program is a special tax regime designed to attract foreign residents and investment to the country. 

Since its introduction in 2009, the NHR has played a key role in Portugal’s growing appeal as an expat destination, offering advantages such as reduced tax rates on certain types of income and potential tax exemptions on foreign-source income.

As of 2024, the government of Portugal recently announced major changes to the NHR program, with the planned launch of “NHR 2.0”.

In this guide, we’ll cover:

• An overview of the new NHR 2.0 (IFICI) program and its key features
• Details on how these planned changes may affect your move to Portugal
• Detailed explanation of the tax benefits under the new program
• Eligibility criteria for the new NHR 2.0 and how to apply

This guide is provided for informational purposes only and doesn’t constitute tax advice. You should seek advice on your specific situation from a qualified tax professional.

The ‘New NHR 2.0’ (IFICI) – In Brief

The Fiscal Incentive for Scientific Research and Innovation (IFICI) Program, informally known as “NHR 2.0”, represents a significant shift in Portugal’s approach to attracting foreign talent and investment.  

While the previous NHR regime cast a wide net, the IFICI Program has a more focused goal: to draw in highly qualified professionals who can contribute to Portugal’s scientific and economic growth.

Note: The government approved the IFICI program on July 4, 2024 and expects to implement the proposals by the end of 2024.

Portuguese citizens can also access the new NHR program, as long as they have held residency outside of Portugal for the five consecutive years before returning.

The new NHR program grants eligible applicants a flat 20% tax rate on Portugal-sourced income (instead of the usual progressive taxation, which ranges from 14.5% to 53%).

NHR status can also lead to exemption from Portuguese taxation on income sourced from outside of Portugal (subject to certain criteria including double taxation agreements with other countries).

How Will the New NHR Affect You?

Moving to Portugal before the end of 2024

If you can show proof of having had “intent to reside“ in Portugal before December 31, 2023, you may still be able to apply for NHR under the old rules.

Proving ‘intent to reside’

• Issuing of residency visa 
• AIMA appointment 
• Proof of rental agreement 
• Deed of property purchase

When will the new NHR begin?

The process is still subject to parliamentary approval, which we expect to happen by the end of 2024. This timeline may change, and we will update this article accordingly.

Existing NHR holders

If you’re an existing NHR holder under the old program, you don’t need to take any action. You’ll have access to the same tax benefits for the remainder of your ten-year period.

The Tax Benefits of NHR

The new NHR 2.0 (IFICI) program offers significant tax advantages designed to attract highly qualified professionals to Portugal. 

The cornerstone of the IFICI program is a special 20% Personal Income Tax rate. This applies to both employment and self-employment income derived from high value-added activities.

The 20% rate is significantly lower than Portugal’s standard progressive tax rates, which can go up to 53% for high earners. 

This reduced rate applies for a consecutive period of 10 years. It’s non-renewable, meaning after the 10-year period, you’ll be subject to standard Portuguese tax rates.

The IFICI program maintains some of the attractive features of the original NHR regarding foreign-source income, but with some changes:

• Employment Income: Generally exempt from taxation in Portugal if taxed in the source country.
• Self-Employment Income: Exempt if derived from high value-added activities and taxable in the source country.
• Investment Income (dividends, interest, royalties): Potentially exempt if taxable in the source country under a tax treaty or the OECD model tax convention.
• Capital Gains: Similar treatment to investment income.
• Rental Income: May be exempt if taxable in the source country.

Important Note: Unlike the old NHR program, foreign pension income will no longer be eligible for preferential tax treatment under the ‘New NHR’/IFICI program. Under the new NHR, pension income will be subject to standard Portuguese tax rates.

How to Qualify 

• You can qualify for the New NHR if you have not been tax resident in Portugal during the previous five years before applying.
• You must hold legal residency in Portugal, either as an EU/EEA/Swiss citizen or with a residency visa (such as the D7 visa or Golden Visa)
• You must establish tax residency in Portugal. This typically means spending more than 183 days in Portugal within a calendar year, or having a permanent home in Portugal (with a Portuguese address linked to your NIF).

Foreign-Sourced Income Under NHR 2.0 (IFICI)

One of the most attractive features of Portugal’s Non-Habitual Resident (NHR) program has always been its treatment of foreign-sourced income.  The new NHR 2.0 (IFICI) program continues to offer significant benefits in this area, albeit with some changes. 

Here’s how different types of foreign-sourced income are likely to be treated under the new regime: 

Employment Income

If you’re earning a salary from a foreign employer, your situation under the IFICI program is as follows:

• Generally exempt from taxation in Portugal if it’s taxed in the source country.
• This exemption applies even if there’s no Double Taxation Agreement (DTA) between Portugal and the source country.
• You must provide proof that the income was taxed in the source country to claim this exemption.

Self-Employment Income

For freelancers, consultants, and other self-employed individuals:

• Income from high value-added activities (as defined in the eligibility criteria) is exempt from Portuguese tax if it’s taxable in the source country.
• This exemption applies whether or not the income is actually taxed in the source country, as long as Portugal has the right to tax it under an applicable tax treaty.

Investment Income (Dividends, Interest, and Royalties)

Treatment of investment income depends on its source:

• Generally exempt from Portuguese taxation if it’s taxable in the source country under a tax treaty or the OECD Model Tax Convention.
• If the income comes from a country without a tax treaty with Portugal, it may still be exempt if the source country is not on Portugal’s list of tax havens.
• The applicable tax rate is 28% if these conditions aren’t met.

Capital Gains

Capital gains from the sale of securities (stocks, bonds, etc.) are treated similarly to investment income:

• Exempt if taxable in the source country under a tax treaty or OECD Model Tax Convention.
• If from a non-treaty country, exempt as long as the source isn’t on Portugal’s tax haven list.
• Otherwise, taxed at 28%.

Rental Income From Foreign Property 

• May be exempt if taxable in the source country under a tax treaty.
• If no treaty exists, it may still be exempt if the source country isn’t on Portugal’s tax haven list.
• If not exempt, it’s taxed at 28%.

Foreign Pension Income

This is a significant change from the previous NHR regime:

• Foreign pension income is no longer eligible for preferential tax treatment under IFICI.
• It will be taxed at Portugal’s normal progressive rates, which can go up to 53% for high earners.

Key Points to Remember:

• The “Remittance Basis”: Portugal doesn’t apply a remittance basis of taxation. This means that all your worldwide income must be declared in Portugal, even if it’s exempt from Portuguese tax.
• Tax Haven List: Portugal maintains a list of jurisdictions it considers tax havens. Income from these places generally doesn’t qualify for exemptions.
• Proof of Taxation: To claim exemptions, you’ll often need to provide proof that the income was subject to tax in the source country, even if no tax was actually paid due to local exemptions or deductions.
• Double Taxation Agreements (DTAs): Portugal has DTAs with many countries. These agreements can affect how your income is taxed, so it’s important to check the specific DTA if applicable to your situation.
• Annual Declaration: Even if your foreign income is exempt, you must still declare it on your annual Portuguese tax return.

It’s important to note that while these rules provide a general framework, individual cases can be complex. Factors such as the specific source of your income, the existence of tax treaties, and the nature of your work can all affect how your foreign income is taxed under the IFICI program.

Given the complexity of international taxation, it’s highly recommended to consult with a tax professional who specializes in cross-border taxation and is familiar with both Portuguese tax law and the tax laws of your income source country. They can provide personalized advice based on your specific situation and make sure you’re compliant with all relevant tax regulations.

Who is Eligible?

The IFICI program targets highly qualified individuals in specific fields. You may be eligible if you fall into one of these categories:

a) Higher Education and Research:

• Professors and scientific researchers in higher education institutions
• Individuals with a doctoral degree (or equivalent) engaged in R&D projects

b) Technology and Innovation:

• Directors or employees of Portuguese-based organizations focused on producing knowledge or innovation

c) Highly Qualified Professions:

• Professionals employed by companies benefiting from Portugal’s investment support tax regime (RFAI)
• Employees of companies that export at least 50% of their revenue

d) Strategic Sectors:

• Positions within organizations approved by IAPMEI or AICEP (Portuguese agencies promoting economic activity and innovation)

High Added Value Professions List

1. General director and executive manager of a company;
2. Directors of administrative and commercial services;
3. Directors of production and specialized services;
4. Directors of hotel, restaurant, commercial and other services;
5. Specialists working in physical sciences, mathematics, engineering and similar technical fields;
6. Physicians;
7. Dentists and stomatologists;
8. Teachers at universities and higher learning establishments;
9. Specialists in information and communication technologies (ICT)
10. Authors, journalists and linguists;
11. Creative artists and performing artists;
12. Intermediate level science and engineering technicians and professionals;
13. Information and communication technologies technicians;
14. Market oriented farmers and qualified agricultural and livestock workers;
15. Market oriented qualified forestry, fisheries and hunting workers;
16. Qualified industrial, construction workers and craftsmen, including qualified workers in the fields of metallurgy, metalworking, food processing, wood manufacturing, clothing production, handicrafts, printing, manufacture of precision instruments, jewellers, artisans, electricity and electronics workers;
17. Operators of installations and machines and assembly workers, namely fixed installations and machine operators.

(Source: Newco).

Proof of being suitably qualified may be required, which could be any of the following:

• Level 4 qualification under the European Qualifications Framework
• Level 35 of the International Standard Classification of Education
• 5 years of proven professional experience

How to Apply For NHR

The first step in applying for NHR status is to make sure you’re registered as tax resident in Portugal. That means having a NIF (tax number), which is registered to your Portuguese address.

Also, you need ‘proof of habitual abode’. This can either be a tenancy for at least 12 months, if you’re renting in Portugal, or the deed for a property that you’ve purchased.

The deadline to make your NHR application is March 31 of the year following the year in which you become tax resident.

So if that happens in December 2021, your NHR deadline would be March 31, 2022.

If you become tax resident a month later, in January 2022, you’d have a much longer timeline with a deadline of March 31, 2023.

Be aware of this, because you don’t want to miss the NHR deadline!

Here are the steps to follow

1. Register yourself as a Portugal resident. If you’re an EU citizen, you can do this by visiting your local town hall with your passport. If you’re a non-EU citizen, you’ll need to make an appointment with SEF to apply for your residency card (which you’ll usually do either via the D7 visa pathway or the Portugal Golden Visa program).
2. Apply for a NIF at your local Finanças office. You can do this with proof of address from outside Portugal, for example a bank statement from your home in the UK. But you’ll need to change it to a Portuguese address before applying for NHR status. If you want to apply for the NIF with your address in Portugal, bring your rental contract or property deeds to the Finanças office as proof of address. A utility bill should also suffice. 
3. Next, you’ll need to register with the online Finanças portal. They will send a password in the post to whichever address is registered on your NIF. If you used an overseas address to get your NIF, make sure somebody is there to receive the letter for you, and inform you of the password.
4. Once you have access to the Finanças portal, it’s possible to apply for NHR by yourself.

Apply for NHR via the Finanças Portal

1. Log in with your NIF and password 
2. Navigate to the following website location: Aceda aos Serviços Tributários > Entregar Pedido > Inscrição Residente Não Habitual. (You can search for these words in the search box if you get stuck)
3. On that page, fill in the requested fields with your year of registration (e.g. 2020 if you arrived during that year) and your country of foreign residence (the country where you lived in the last year)
4. Declare that you fulfil the conditions of having been non-resident in Portugal in the five years prior to the year of beginning your status as a non-habitual resident.

FAQs

Next Steps

Portugal’s new NHR 2.0 (IFICI) program represents a significant shift in the country’s approach to attracting foreign talent and investment.

While it continues to offer attractive tax benefits, particularly for highly skilled professionals in innovative fields, the impending changes from the previous NHR regime may affect your decision to move to or stay in Portugal.

Key takeaways include:

1. The IFICI program offers a special 20% tax rate on employment and self-employment income for eligible professionals.
2. Foreign-sourced income still enjoys potential tax exemptions, but with some important changes, particularly regarding pension income.
3. Eligibility criteria now focus more on highly qualified individuals in specific sectors.
4. The application process requires careful planning and timing to ensure you meet all requirements.

We’ve aimed to provide a comprehensive overview of the new NHR 2.0 (IFICI) program. But everyone’s situation is unique and what works for one person may not be the best approach for another.

That’s why professional advice is essential when making significant decisions about your residency and tax status. To help you make the most informed decision possible, we’re offering a free consultation with our recommended tax partner who specializes in Portuguese tax law and international taxation.

They can provide personalized advice based on your specific circumstances, helping you navigate the new NHR 2.0 (IFICI) program and optimize your tax situation.