Tax Incentives for New Residents

Portugal has emerged as an attractive investment destination for foreign individuals and companies because of its natural beauty, quality of life, and tax incentive programmes for new residents.

With a growing economy and a favourable regulatory environment, Portugal offers a variety of tax regimes designed to attract foreign investors and non-habitual residents. On this page, we briefly explore the advantages and requirements of each.

What tax incentives exist in Portugal?

Portugal has several tax incentive programmes. Below, we highlight the three most popular:

• Tax Incentive for Scientific Research and Innovation - also known as “NHR 2.0"
• Non-Habitual Resident (NHR) Tax Regime
• Return Programme

These tax incentive programmes in Portugal have in common the requirement for the beneficiary to become a tax resident in Portugal.

Who is considered a tax resident in Portugal?

When discussing tax incentives for new residents in Portugal, it's crucial to explain the concept of "tax residence".

Generally, an individual is considered a tax resident in Portugal if they stay 183 days (consecutive or interpolated) in Portuguese territory for 12 months.

A person may also be considered a tax resident if, on any day during those 12 months, they own an abode in Portugal under conditions that suggest that they intend to keep it and occupy it as their habitual residence.

This is a somewhat ambiguous requirement, but it means that even if you don't stay more than 183 days in Portuguese territory but instead simply keep a permanent abode in Portugal, you can still be considered a tax resident.

In any case, the tax residence test is subject to a specific analysis of facts and circumstances.

Tax Incentive for Scientific Research and Innovation - The "NHR 2.0"

The Tax Incentive for Scientific Research and Innovation (IFICI) is a new tax incentive for new residents in Portugal that came into force on 1 January 2024.

This tax incentive resembles the old Non-Habitual Resident tax regime for high-value-added activities. For this reason, it has also been dubbed "NHR 2.0" or "New NHR".

Who can benefit from the Tax Incentive for Scientific Research and Innovation?

Any individual can benefit from "NHR 2.0", the Tax Incentive for Scientific Research and Innovation, provided they earn income from one of the following professional activities:

• Higher education lecturers and scientific researchers;
• Qualified professionals and members of the governing bodies of organisations that have benefited from tax incentives for productive investment;
• Highly qualified professionals working in companies that export (or have exported in the last 2 years) at least 50 per cent of their turnover;
• Qualified professionals and members of governing bodies in entities that carry out economic activities recognised as relevant to the Portuguese economy;
• Professional research and development staff whose costs are eligible for the purposes of the system of tax incentives for research and business development under the terms of the Investment Tax Code;
• Professionals and members of the governing bodies of start-ups;
• Professionals who are tax residents in the Autonomous Regions of Madeira and the Azores under the terms to be defined by regional legislative decree.

We emphasise that companies in which the beneficiaries of the scheme exercise the relevant profession must have effective management and premises in Portuguese territory, carrying out their activity in Portugal.

As described in point g), there will be greater coverage of activities carried out by tax residents in Madeira and the Azores. This point still needs to be legislated, and it is hoped that developments will be made in this direction during 2024.

Considering the entrepreneurial and technological spirit of the Portuguese economy, the certification of a start-up in Portugal as a way of accessing the Tax Incentive for Scientific Research and Innovation is one of the most popular among new residents in Portugal.

Our Guide to Tax Incentives for New Residents in Portugal provides a detailed list of professional activities eligible for IFICI

What are the advantages of the Tax Incentive for Scientific Research and Innovation?

The Tax Incentive for Scientific Research and Innovation has a single tax rate of 20% on income from employment or self-employment earned within the scope of eligible activities, for a period of 10 consecutive years.

New residents in Portugal benefiting from the "new NHR" will also be exempt from tax in Portugal on income earned abroad from various categories of income, namely:

• income from dependent work (Category A);
• self-employment income (Category B);
• capital income (Category E), property income (Category F) and increases in assets/capital gains (Category G).

Disadvantages of "NHR 2.0"

The IFICI does not provide any benefits for pension income, and it should also be noted that income from jurisdictions on the Portuguese list of tax havens will be subject to an increased rate of 35%.

This special regime cannot be extended beyond the initial 10 years and is not available to taxpayers who benefit or have benefited from the NHR regime or the tax regime applicable to former residents (Return Programme).

H2 Tax Regime for Non-Habitual Residents (NHR) - the "old NHR"

The Tax Regime for Non-Habitual Residents (NHR) was created in 2009 to attract qualified professionals and high net worth individuals by creating tax benefits for certain types of income.

This scheme was revoked for new beneficiaries at the end of 2023, except for those who fulfil one of the provisions of the transitional scheme that we'll discuss in the next point. However, current beneficiaries continued to be able to access the scheme until the end of its 10-year period.

Can I still register as a Non-Habitual Resident?

You can also register as an NHR, provided you become a tax resident in Portugal by 31 December 2024 and are covered by one of the following transitional provisions:

1. Have started, by 31 December 2023, a procedure for granting a residence visa or residence permit, namely by requesting an appointment or actually making an appointment to submit an application for the granting of a residence visa or residence permit, or by submitting an application for the granting of a residence visa or residence permit;
2. Have obtained a valid residence visa or residence permit by 31 December 2023;
3. Have signed, by 31 December 2023, a promise or employment contract, promise or secondment agreement, the performance of whose duties must take place in national territory;
4. Have, by 10 October 2023, signed a lease or other contract granting the use or possession of a property in Portuguese territory;
5. Have, by 10 October 2023, entered into a reservation contract or promissory contract for the acquisition of a right in rem over real estate in Portuguese territory; or
6. Have, by 10 October 2023, enrolled or registered their dependents in an educational establishment domiciled in Portuguese territory.

In cases covered by the transitional regime, registration as an NHR should preferably be completed by 31 March 2025, and the benefits will remain valid until 2033 (including).

If registration as an NHR takes place after 31 March 2025, the benefit will only take effect from the year of registration and always up to and including 2033.

What are the advantages of being a Non-Habitual Resident in Portugal?

Obtaining non-habitual resident status gives you access to various tax exemptions and reductions. These are summarised below.

For a detailed analysis of the NHR regime's advantages and the full list of high-value-added activities, see our Guide to Tax Incentives for New Residents in Portugal.

Income from work (dependent or self-employed) is taxed differently depending on the country of origin of the income. Thus:

• Labour income earned in Portugal: is taxed at a flat rate of 20%, provided it comes from high value-added activities of a scientific, artistic or technical nature (these include doctors, university professors, directors and executive managers, scientific researchers, IT specialists, journalists, artists, among others). Income not derived from these activities is taxed at the standard progressive rates.
• Labour income obtained abroad: is exempt from taxation in Portugal whenever it is effectively taxed in another country with which Portugal has signed a double taxation agreement.

 Capital gains, income from intellectual property, interest, dividends and other forms of passive income are exempt from taxation in Portugal if they are obtained and can be taxed in the other country with which Portugal has signed an agreement to avoid double taxation.

If the income is deemed to have been obtained in a "tax haven", an increased tax rate (35%) applies.

Pension income earned abroad is taxed at 10%.

Summary table: Taxation of NHR income in Portugal

[1] For income derived from activities considered to have high added value of a scientific, artistic and technical nature.

[2] This exemption is applicable whenever the income is subject to taxation in another country with which Portugal has signed a double taxation treaty (in the absence of a double taxation treaty, the exemption is also applicable as long as the income is taxed abroad and the source is not considered Portuguese under Portuguese domestic law).

[3] Provided they are obtained and can be taxed in another country with which Portugal has signed a double taxation agreement. If this income is obtained in a country with which Portugal has not entered into a double taxation agreement, it may still be exempt, provided that it can be taxed in the other country, territory or region, in accordance with the OECD Model Tax Convention on Income and on Capital, interpreted in accordance with the comments and reservations made by Portugal; and provided that this country is not on the Portuguese list of "tax havens".

Return Programme

The Return Programme is a tax incentive in Portugal that aims to attract individuals who, although they have been tax residents in Portugal in the past, or even Portuguese citizens, are currently living abroad.

To this end, this tax incentive provides for an exclusion from taxation of 50% of income from dependent work and self-employment up to an annual amount of €250,000.

Who can benefit from the Return Programme?

To benefit from the Return Programme, you must comply with the following access conditions:

1. Become a tax resident in Portugal on 31 December 2026;
2. Not be considered resident in Portuguese territory in any of the five years prior to the year in which you become resident in Portuguese territory;
3. Have been resident in Portuguese territory before the five-year period mentioned in point 2;
4. Have their tax situation regularised;
5. Not having applied for registration as an NHR.

The benefits of the Return Programme are valid for 5 years

The benefit of this regime is automatic and does not require prior recognition.

Sometimes it happens that a former resident of Portugal moves abroad without ever having changed their address to their new country of residence. In these situations, the solution is to apply for a change of tax residence with a retroactive effect. Our team has experience preparing these requests and has worked on several successful cases.

Portugal also offers new residents other advantages, such as exemption from inheritance tax and a favourable regime for setting up businesses - the International Business Centre of Madeira.