NHR 2.0: Is It Real?

The answer is both yes and no. Let us explain.

History of NHR

The Non-Habitual Resident (NHR) tax status was introduced in Portugal around 2012 as part of a campaign aimed at attracting retirees and individuals with retirement income to the country. The primary concept behind most Double Taxation Agreements (DTAs) is that retirement income is generally taxed in the country where an individual is a tax resident.

Countries such as South Africa and the United States offer tax deductions for pension contributions, recognizing that the tax relief given during the working years is intended to be recouped when the individual draws from their pension fund in retirement. However, if the taxpayer emigrates, the country that provided the tax relief may lose its right to tax those pension funds. The new country of residence then gains the right to tax the individual’s income.

Portugal’s NHR status, however, allowed taxpayers to avoid taxation on their pension income, both in the country of origin and in Portugal. Essentially, under NHR, Portugal would not tax foreign pension income, and neither would the taxpayer’s former country of residence.

In 2019, under pressure from the European Union, Portugal amended the rules, imposing a 10% tax on pension income for individuals who registered for NHR after April 1, 2020. Those who registered before this date retained the previous exemptions for the remainder of their NHR period.

However, while the NHR regime allowed for certain tax-free foreign income in Portugal, this did not mean that the income was exempt from taxation elsewhere. For many, it became clear that “tax-free” in Portugal often referred to “tax-free in Portugal,” not “tax-free everywhere.”

As of January 1, 2025, the NHR regime is no longer available to new arrivals in Portugal. Existing NHR holders will continue to benefit from the regime until their NHR period expires, with the last benefits expiring in 2033.

The Replacement: NHR 2.0

Many individuals and tax consultants are now referring to a new tax regime as “NHR 2.0.” This term is primarily used to attract attention, but it does not refer to a direct continuation of the NHR regime. Instead, the new regime, known as the Tax Incentive for Scientific Research and Innovation (IFICI), which was introduced in the 2024 State Budget.

This incentive is designed to foster the growth of Portuguese businesses and attract qualified talent to the national economy. Immigrants and Portuguese citizens who have lived abroad for at least five years can benefit from a reduced IRS rate of 20% on income derived from dependent or independent work in Portugal.

Eligible Activities

The IFICI regime applies to several specific activities, including:

1. Teaching in higher education, scientific research, or roles in technology and innovation centers.
2. Qualified positions and managerial roles related to contractual benefits for productive investment.
3. Highly qualified personnel with a doctoral degree (or a bachelor’s degree and at least three years of professional experience) working in:
   • Companies eligible for the Investment Support Tax Regime (RFAI);
   • Companies in specific industries or services that export at least 50% of their turnover.
4. Other qualified roles in entities recognized by AICEP, EPE, or IAPMEI, IP that support national economic interests, such as attracting productive investment or reducing regional disparities.
5. Research and development staff whose costs are eligible under SIFIDE II.
6. Jobs in certified start-ups.
7. Roles in the Azores and Madeira under terms defined by regional legislation.

Initially, the following eight highly qualified professions are included in the IFICI regime:

1. General directors and executive managers.
2. Directors of administrative and commercial services.
3. Directors of production and specialized services.
4. Specialists in physical sciences, mathematics, engineering, and related fields.
5. Industrial product or equipment designers.
6. Doctors.
7. University and higher education professors.
8. Information and communication technology (ICT) specialists.

Eligible Sectors for IFICI

The IFICI incentive is available for individuals working in specific industrial and service activities, such as:

• Extractive industries
• Manufacturing industries
• Information and communication activities
• Research and development in physical and natural sciences
• Higher education
• Human health activities

Registration for IFICI

To qualify for IFICI, individuals must apply for registration by January 15th of the year following their arrival in Portugal. For individuals who become residents in 2024, applications can be submitted by March 15, 2025. Registration must be made via an official model, which the Portuguese government will approve in due course.

Benefits Under IFICI

Eligible individuals can benefit from the following under the IFICI incentive:

• A reduced IRS rate of 20% on employment or self-employment income derived from scientific research or technological innovation activities in Portugal (instead of being taxed at progressive IRS rates, which can go up to 53%).
• IRS exemption on foreign-source income, excluding pensions and income from tax havens. This covers employment income, capital income (e.g., interest and dividends), property income, and capital gains (e.g., from the sale of shares, real estate, etc.). This exemption is granted regardless of the tax jurisdiction rules outlined in Double Taxation Agreements.

Registration Deadline

Taxpayers who become residents in Portugal must apply for IFICI registration by January 15th of the year following their arrival. For example, if someone becomes a resident in 2025, the deadline for registration is January 15, 2026. However, due to the late publication of the practical regulations in December 2024, taxpayers who become residents in 2024 have an extended deadline to apply by March 15, 2025.

Key Points of Contact for IFICI Registration

Various institutions are responsible for overseeing the different activities covered by IFICI:

• Teaching in higher education/scientific research or roles in technology and innovation centers: Foundation for Science and Technology.
• Qualified positions related to productive investment: AICEP, EPE.
• Highly qualified professions in eligible companies: Tax and Customs Authority.
• Other qualified roles: AICEP, EPE, or IAPMEI, IP.
• Research and development staff under SIFIDE II: National Innovation Agency, SA.
• Roles in certified start-ups: Start-up Portugal.
• Activities in the Azores and Madeira: Autonomous Regions of the Azores and Madeira.

This new regime offers a structured framework for attracting top talent to Portugal and incentivizing innovation, marking a new chapter in Portugal’s tax landscape.