Portugal has long been a popular choice for expatriates, attracted by its climate, culture, and favourable tax conditions. However, major changes are transforming the financial landscape for those considering making Portugal their home. The government has officially ended its well-known Non-Habitual Resident (NHR) tax regime – widely known as “NHR 1.0” – a scheme that offered significant advantages for over a decade.
At the same time, a new, more focused incentive has been introduced. This change marks a significant milestone for both current and future residents. Understanding these updates is crucial for effective financial planning, whether you are already living in Portugal or considering relocation.
An era ends for the NHR scheme
The NHR regime was a significant attraction for foreign nationals moving to Portugal. It provided appealing tax incentives, including exemptions on most types of foreign-derived income, such as dividends, interest, and rental income, provided certain conditions under double taxation agreements were met.
For those working in Portugal, the regime was particularly advantageous. It provided a flat 20% tax rate on income from employment or self-employment linked to a list of specified ‘high-value-added’ activities. This rate was considerably lower than Portugal’s standard progressive income tax rates, which can increase significantly.
Introducing the new tax incentive for scientific research and innovation
The Portuguese State Budget for 2024 confirmed the termination of the NHR programme for new applicants. From 1 January 2024, by replacing NHR, the government has introduced a new, more targeted programme: the Tax Incentive for Scientific Research and Innovation (often abbreviated as IFICI).
This scheme aims to attract and retain highly qualified professionals in specific fields deemed vital for Portugal’s economic growth.
The focus is exclusively on individuals involved in scientific research, higher education, technology, and business development within certain recognised entities. Although now commonly referred to as “NHR 2.0” it is not a direct substitute for NHR 1.0, but rather a new tool with a narrower scope; offering similar and potentially far greater tax benefits.
Comparing the benefits of IFICI to the former NHR
The IFICI offers advantages similar to those of the previous NHR regime for qualifying Portuguese-source income. Successful applicants will enjoy a 20% flat tax rate on their employment or self-employment income from these particular activities.
Additionally, they may be exempt from tax on foreign-sourced income, including dividends, interest, and rent, similar to the NHR rules, but in addition overseas capital gains. The incentive is also available for a ten-year period.
Who qualifies for the new IFICI programme?
Eligibility for the IFICI is strict. It targets individuals who become tax residents in Portugal, whose income must come from specified roles, such as teaching in higher education, scientific research, or positions within certified technology and innovation centres.
It also applies to qualified jobs and board members in entities recognised as contributing to the national economy, especially in productive investment and startups. The criteria are detailed and require formal recognition of roles and employers.
The regime is applicable to taxpayers who:
- Were not resident in Portugal in the 5 years preceding the move;
- Become tax residents of Portugal;
- Did not benefit from NHR 1.0 or other current tax regimes;
- Carry out a qualifying activity in Portugal, for an eligible Portuguese based entity.
In order to be granted access to the new tax regime, taxpayers have to:
- Be members of the board or carry out a qualified job position (as defined by law), for the benefit of companies carrying out economic activities considered relevant for the national economy.
- Be members of the board, or being employed, by entities certified as start-ups
- Carry out qualified job positions for companies with relevant investments benefiting or having benefited from the Investment Support Tax Regime (“RFAI”), as well as for certain industrial and service companies which export at least 50% of their turnover.
- Carry out one of various other activities such as: teaching in higher education and certain scientific research entities; qualified job positions and members of social bodies within the scope of contractual benefits for productive investment; R&D activities that qualify for Portugal’s R&D tax credit regime.
Whilst the Portuguese entity needs to be a qualifying entity, there are no limitations in relation to its shareholding structure – the Portuguese entity can therefore be owned by foreign (non-Portuguese), or by Portuguese based shareholders, corporate or individuals.
Importance of residency and timelines
When considering taxes in Portugal, the first essential step is to establish your tax residency. This is typically determined by either spending more than 183 days in the country within a calendar year or by having your primary residence there.
Timelines are essential. The regime will be valid for 10 consecutive and non-renewable years, as long as both the Portuguese tax residence is maintained and the individual keeps carrying out an eligible activity in each of the years of residence.
Careful planning is essential to ensure your move complies with all relevant legal and financial requirements.
Charting your financial future in Portugal
The changes to Portugal’s tax system for expatriates are significant, but they do not reduce the country’s appeal. Instead, they necessitate more detailed and personalised financial planning.
Whether you are a current NHR holder planning ahead, a professional seeking to qualify for the new IFICI, or a retiree reassessing your plans, expert advice is more important than ever.
Navigating the complexities of residency, sourcing income, tax treaties, and asset structuring requires a clear and informed strategy. With the right professional guidance, you can confidently adapt to the new environment and build a secure financial future in Portugal.
If you require further information or wish to discuss how these changes might impact your personal circumstances, please do not hesitate to contact us. RZ Financial Planning is here to offer the specialised advice you need to guide you through your journey.
Why choose RZ Financial Planning?
At RZ Financial Planning, we provide bespoke wealth management and private office services designed for UK expatriate individuals and families interested in relocating to Portugal. Founded by Raoul Ruiz Martinez, our firm is built on a foundation of trust, discretion, and a profound commitment to our clients’ legacies.
Built for Portugal. Connected to Europe
We address a crucial need for financial guidance that blends deep local Portuguese insight with a sophisticated global perspective. Whether your assets are under €1m, between €1m and €10m, or exceed €10m, we help you navigate the optimal platforms to align your tax and investment strategies. Our extensive European network ensures you receive a service defined by freedom, simplicity, and excellence.
Your Private Office
Functioning as your dedicated private office, we provide a single, trusted point of contact for your financial world. We manage complexity so you can focus on what truly matters. We are not just advisors; we are long-term partners, dedicated to protecting and enhancing your wealth for generations to come.
Contact us – Email: hello@rzfinancialplanning.com – to provide the clarity and support you need to build a secure financial future in Portugal.
