Discover the new NHR 2.0 tax regime replacing the former Non-Habitual Resident status in Portugal. Understand the rules.
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Have you heard about the changes to the Non-Habitual Resident Tax Regime(NHR Portugal)? The program has introduced new rules and is now called the Tax Incentive for Scientific Research and Innovation(IFICI) or NHR 2.0. As a result, Portugal remains a highly attractive destination for those seeking not only a new life but also tax advantages. It is particularly beneficial for investors with robust portfolios, as it allows for the maximization of returns through tax exemptions on certain passive income earned abroad.
In this guide, we clearly and thoroughly explain what has changed in the new NHR, who can benefit from this regime, what incentives are currently offered, and how the transition rules work for those who were already eligible before the changes. An essential and simplified guide to understanding the new rules!
If you want to understand how these changes may impact your tax situation or how to take advantage of new opportunities, schedule a consultation with one of our specialists by filling out our contact form.
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What is the Non-Habitual Resident status? In short, the NHR Portugal is a special tax regime offering advantages to foreigners or Portuguese nationals who have not been tax residents in Portugal for the five years prior to applying.
Who can be considered a tax resident in Portugal? To qualify, you must have stayed in the country for 183 days or, if you stayed for a shorter period, have Portugal as your main residence and be able to prove a residential connection.
Why was the original NHR ended in December 2023? The Portuguese government concluded that regimes like the NHR contributed to rising housing prices and made it harder for people, especially young adults, to access real estate. The revocation was part of the 2024 Budget. Note that in November and December, the government faced a political crisis that led to resignations and the calling of new elections for March 2024. At the end of December and early January, the 2024 Budget was approved, detailing the revocation of the NHR and its transition rules, later clarified by the Tax Authority.
So, did the NHR end or not? In its original form, the Non-Habitual Resident (NHR) regime in Portugal was revoked by Law 82/2023, on December 29, 2023. However, a new version of the regime, “NHR 2.0,” was introduced, bringing new benefits which we will explain below.
Transition rules: Who can benefit from the old model?
Those who already had active NHR status in 2023:
Will continue to enjoy the benefits of the regime until the end of the initial 10-year period.
Those who met the conditions for NHR by December 31, 2023:
It was possible to apply for NHR until March 2024.
Required to have been registered as a tax resident in 2023.
Who can become a resident in 2024:
Must apply for NHR by March 2025.
Must prove they meet local tax residency conditions in 2024.
Need to provide evidence of intent to become a tax resident in 2023 and keep appropriate documents for potential audits.
The NHR grant will be valid for 10 years, starting in 2024 and ending in 2033.
One detail: the applicant must declare under oath that they meet the tax residency conditions, with retroactive effect to 2024.
NHR for Individuals Becoming Residents in 2024
If you plan to become a tax resident in Portugal in 2024 and want to qualify for the Non-Habitual Resident (NHR) regime, you will need to prove certain conditions that were in place until 2023. Here’s what you’ll need:
Required Documents and Evidence:
Employment Contract: A signed employment contract or transfer agreement dated by December 31, 2023, with the obligation to work in Portugal.
Lease Agreement: A lease agreement or other contract for the use of a property in Portugal, signed by October 10, 2023.
Property Purchase Agreement: A reservation or purchase agreement for a property in Portugal, signed by October 10, 2023.
Dependent Enrollment: Enrollment of children in a school in Portugal, completed by October 10, 2023.
Visa or Residence Permit: A valid visa or residence permit by December 31, 2023.
Visa Application Process: Visa or residence permit application process started by December 31, 2023.
Family Member: Being a family member of someone who meets the above requirements.
If you become a tax resident in 2024 and declare that you meet these conditions, but register after March 25, you can still qualify for the NHR Portugal. However, the first year of applying the regime will be the year you registered.
The New Non-Habitual Resident Regime (NHR 2.0) in Portugal retains much of the characteristics of the previous regime, such as the access conditions, the 10-year duration, and the application of a special 20% tax rate for qualified employment income earned within Portuguese territory. In addition, tax exemptions for certain types of passive income from abroad remain in place. However, one of the key changes is the exclusion of pensions from tax advantages, which are now subject to taxation according to the progressive income tax table.
A significant new feature of NHR 2.0 is the inclusion of most capital gains within the scope of tax exemptions, which was previously more restricted. This adjustment makes the regime more appealing to investors. On the other hand, it narrows its focus to activities related to innovation, research, and entrepreneurship, making it more selective in granting benefits.
Key Benefits:
Fixed Rate: 20% for 10 years on personal income from employment and self-employment.
Tax Exemption: On passive income, such as dividends, interest, royalties, capital gains, and rental income from properties outside Portugal. It also exempts income from employment in other countries.
To qualify:
You must be a tax resident in Portugal, as defined by Article 16 of the IRS Code.
You must not have been a resident in Portugal in the five years prior to the start of your new tax residency.
The regime cannot be combined with the old NHR or the “Return Regime.”
Individuals who have previously benefited from the NHR are not eligible.
Being a highly qualified professional, namely: teaching careers in higher education or scientific research, working in the field of entrepreneurship, doctors, engineers, consultants, producers and directors, administrators, among others.
Eligible Roles and Professions:
Teachers and Researchers
Teaching and Scientific Research: Professionals working as university professors or researchers in government-recognized scientific entities. These individuals are essential for advancing science and education in the country.
Qualified Jobs in Productive Investment
Legal and Executive Directors: Professionals in leadership roles within companies receiving tax benefits for productive investment. These positions are strategic to ensure that investments have the maximum impact on the national economy. See here the complete list of high value-added activities for the purposes of the provisions of paragraph 6 of Article 72 and paragraph 4 of Article 81 of the IRS Code, i.e., activities subject to special tax regimes, such as the Non-Habitual Resident (NHR) regime.
Highly Qualified Professions
Innovative and Exporting Companies: Professionals in technical and management roles in start-up companies (up to 5 years of activity) that have benefited from tax incentives. It also includes professionals in industrial or service companies that export at least 50% of their revenue.
High Value-Added Professions: Positions requiring high qualifications, developed within companies or entities recognized by the government as highly relevant to the Portuguese economy.
Research and Development (R&D)
R&D Employees: Professionals whose work is directly related to research and development activities and whose roles are eligible for specific tax incentives. These positions are crucial for innovation and competitiveness in cutting-edge sectors in Portugal.
Start-Ups
Employees and Directors in Start-Ups: Professionals working in start-ups certified by the Portuguese government, recognized for their growth potential and innovation. These roles are encouraged to promote the entrepreneurial ecosystem in Portugal.
Activities in Madeira and the Azores
Qualified Regional Positions: Professionals working in eligible roles in the Madeira and Azores islands, as defined by specific regional legislation. These positions are important for regional development and are recognized for their contribution to the local economy.
Advantages of the New NHR 2.0
Benefits for Large Investors: NHR 2.0 offers especially favorable conditions for investors with solid portfolios, allowing them to maximize their returns through tax exemptions on certain passive income earned abroad, such as dividends, interest, royalties, capital gains, and rental income.
Focus on Innovation and Research: NHR 2.0 is more advantageous for professionals linked to scientific research, technological innovation, and high-level education, offering significant tax exemptions in these sectors.
Continuation of Tax Benefits: It still offers attractive tax benefits, such as tax exemption on foreign-sourced capital income, which can be advantageous for international investors.
Transition Rules: For those who are already tax residents in Portugal in 2024 and who meet the criteria established by December 31, 2023, there is a possibility to continue applying the previous regime, which can mitigate the impact of the new rules.
Disadvantages of the New NHR 2.0 Regime:
More Restrictive Eligibility Criteria: The new regime is less accessible as it requires beneficiaries to be involved in specific activities, such as research or leadership positions in innovative companies, limiting the target audience.
Taxation of Pensions: A downside is the change in the tax treatment of pensions, which will now be subject to the progressive income tax scale instead of a fixed 10% rate, potentially resulting in a higher tax burden for pensioners.
Loss of Benefits for Non-Compliance: If an individual fails to meet the required criteria during the validity period of the regime, they will automatically lose the right to the tax benefits of NHR 2.0.
How to apply for Non-Habitual Resident (NHR) status?
If you meet the mentioned requirements, you must also:
Register as a resident in Portugal at a Tax Office or a Loja do Cidadão (Citizen’s Shop);
After obtaining your Tax Identification Number (NIF), apply for the non-habitual resident status. This can be done online via the Finance Portal or in person at a Tax Office or Loja do Cidadão;
Provide proof of exercising a “high added value” activity, if requested by the Tax and Customs Authority.
When to apply for NHR status in Portugal?
The request to obtain non-habitual resident status must be made by March 31 of the year following your change of residence to Portugal.
To benefit from the regime, when submitting your tax return (IRS form 3, between April 1 and June 30) on the Finance Portal, you must include the completed Annex L, indicating the code of the activity considered to be of “high added value” and the amounts received.
If you have income earned abroad, you must also specify the method chosen to avoid double international taxation.
Documents to prove a high added value activity:
Declaration issued by the employer;
Employment or service contract detailing the functions performed;
For self-employed workers, a declaration of business start-up with the CIRS or CAE code, along with a description of the invoices issued;
If the activity requires registration in a Professional Order, proof of this registration must also be attached;
For management positions, a power of attorney confirming the authority to bind the company. For senior executives, a power of attorney with joint powers is sufficient;
Other documents that demonstrate the effective exercise of the claimed activity.
What About the Portuguese Golden Visa?
For those seeking greater international mobility, the Portuguese Golden Visa is a strategic alternative. This residence permit allows you to invest in Portugal and obtain residency without the requirement to spend 183 days per year in the country. Additionally, the Golden Visa provides immediate access to Europe, offering flexibility to reorganize your assets before becoming a tax resident in Portugal.
To benefit from the tax advantages of NHR 2.0, you must become a tax resident in Portugal. With the Golden Visa, you can move freely between countries while preparing to maximize tax benefits when you decide to reside in Portugal.
New Non-Habitual Resident Tax Regime: Is It Worth It?
The NHR Portugal underwent significant changes in 2024. Although the traditional regime has ended, the country continues to offer attractive tax incentives for those seeking a new life and wishing to contribute to Portugal’s scientific and technological development.
For professionals or investors operating in the areas promoted by NHR 2.0, such as scientific research and innovation, the new regime can be quite advantageous. However, for pensioners and those who benefited from tax exemptions on foreign-sourced income without being involved in specific activities, the new regime may be less attractive.
If you would like the support of a specialist to assess your tax situation, fill out our form and schedule a tax consultation.
*This article is for information purposes only, and is not intended to exhaust the subject or to be used to make decisions of its readers on the subject.
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