Since 2009, the Non-Habitual Residents (NHR) tax regime has significantly enhanced Portugal’s tax competitiveness, attracting thousands of highly qualified professionals, Ultra-High-Net-Worth Individuals (UHNWIs), and their families. However, it was abolished in January 2024.
What does Portugal now offer to those considering a permanent move?
After revoking the NHR regime, Portugal introduced a new special tax regime focused on Research and Innovation (“IFICI”, also called NHR 2.0). The main purpose of the NHR 2.0 is to attract qualified professionals and encourage the establishment of companies in specific sectors in Portugal.
Under this regime, individuals may benefit from a special tax rate of 20% on employment or self-employment income from qualifying activities and an exemption on foreign-sourced income (except for pension income and income from “blacklisted” countries).
This new regime is applicable to taxpayers who become tax residents in Portugal, provided they have not been Portuguese tax residents in any of the previous five years. Additionally, they must not have benefited from the NHR regime or the “former residents” regime, and they must engage in one of the following activities:
- Teaching in higher education and scientific research.
- Qualified jobs and board members within the scope of contractual benefits for productive investment.
- Jobs and board members in entities certified as startups.
- Activities considered as highly qualified professions carried out in companies with relevant applications that benefit or have benefited from the RFAI.
- Activities considered as highly qualified professions, carried out in industrial and service companies that export at least 50% of their annual turnover.
- Qualified jobs positions in entities exercising economic activities recognised by the Agency for Investment and Foreign Trade (AICEP) or by the Agency for Competitiveness and Innovation (IAPMEI) as being relevant to the national economy, namely in the context of the attraction of productive investment and for the reduction of regional asymmetries.
- Research and development of personnel whose costs are eligible for the tax incentive system for research and business development.
- Jobs and other activities carried out by tax residents in the Autonomous Regions of the Azores and Madeira.
The regime is valid for 10 consecutive tax years as from the moment of the individual’s registration as tax resident of Portugal. However, if the individual ceases to be a tax resident of Portugal and then returns to Portugal still within the 10-year period, he will be entitled to benefit from the regime during the remaining period, if he is carrying out one of the eligible activities.
In addition, Portugal continues to have a special tax regime for “former residents”, applicable to those who become tax resident in Portugal, were not resident in the previous five years and were resident before, i.e., that return to Portugal. This regime offers an exclusion from 50% of the employment and self-employment income from any activity during the year of return and the following four years, limited to €250,000 per year.
Portugal also offers other tax advantages. It provides a tax exemption for gifts and inheritances for spouses, descendants, and ascendants. Transfers to other individuals are either non-taxable, due to generous territorial rules, or subject to a flat 10% rate.
Additionally, Portugal does not impose wealth taxes and offers beneficial treatment for crypto assets, stock plans and life insurance products (including unit-linked), which can significantly reduce the effective tax burden. The “Youth Personal Income Tax” offers significant exclusions to taxpayers up to 35 years old.
Beyond its attractive tax regimes, Portugal is a vibrant destination often described as “a garden planted by the sea”. As a member of the European Union, the Eurozone, and the Schengen area, Portugal boasts a stable environment, a skilled workforce, and a high quality of life, making it an ideal location for those seeking an appealing EU destination.
If you combine these aspects with an extremely competitive tax regime, Portugal should not just be on your list of options, but at the top of it.
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