Are you considering moving overseas or searching for a beneficial tax regime? Portugal has long attracted global citizens thanks to its Non-Habitual Resident (NHR) Program. While the original regime was officially discontinued for new applicants starting in 2024, a new scheme commonly known as NHR 2.0, officially termed the Incentivised Tax Status (ITS) or Tax Incentive for Scientific Research and Innovation (IFICI), has been introduced by the Portuguese government to succeed the original NHR.
This comprehensive guide outlines the most current information about how the new ITS/IFICI (or NHR 2.0) works, details regarding existing NHR benefits for current holders, and explains how recent changes may affect your plans. If you’re a high-value professional looking to benefit from the Portuguese tax climate, understanding these updates is crucial.
Important Update: Termination of the Original NHR Program
Portugal officially ended the original NHR regime for new applicants on January 1, 2024. Transitional measures were available for those who made concrete relocation plans by the end of 2023, including the crew of Portuguese-registered ships/aircraft and persons returning from public functions/commissions abroad, with a final application deadline of March 31, 2025. These individuals retained full ten-year benefits under the previous rules.
- Existing NHR holders remain unaffected until their 10-year eligibility concludes.
- No brand-new NHR applications outside the transitional provisions are now accepted.
Introducing the New “NHR 2.0”: The ITS/IFICI Scheme
The Portuguese government has launched a successor to the old NHR program, commonly referred to as “NHR 2.0” in media circles but officially titled the Incentivized Tax Status (ITS) or Tax Incentive for Scientific Research and Innovation (IFICI). The following summarizes the main aspects of this new scheme aimed specifically at attracting high-value sector employees:
1. Stricter Eligibility Criteria:
- You must become a new tax resident in Portugal on or after January 1, 2024.
- You must not have been a Portuguese tax resident in the previous five years.
- Applicants must be involved professionally in high-value sectors such as scientific research, technology, engineering, academia, or innovation-related fields.
- Eligible professionals must hold either a doctorate (PhD) or a bachelor’s/master’s degree coupled with at least three years of relevant professional experience.
2. Tax Benefits under ITS/IFICI:
- A flat 20% tax rate on qualifying Portuguese-sourced income.
- Exemptions on most types of foreign-sourced income, except foreign pensions, which revert to standard Portuguese tax rates.
- Benefits last for ten consecutive years, after which normal Portuguese tax rules apply.
3. No Double-Benefit Overlaps:
- Individuals who previously benefited from the original NHR program cannot apply for the new ITS/IFICI.
4. Implementation and Deadlines:
- The ITS regime started in early 2024 alongside the closure of the original NHR.
- Applications must be filed by January 15 of the year following residency establishment (extended initially until mid-March 2025 for 2024 residents).
How to Qualify and Register for the IFICI (NHR 2.0) Program
To register for the new IFICI program, follow these steps:
1. Confirm Eligibility
- Become a tax resident in Portugal on or after January 1, 2024.
- Not have been a tax resident in Portugal in any of the five years preceding the application.
- Engage in high-value-added professional activities.
- Possess relevant academic qualifications or experience.
- Not have previously benefited from the former NHR regime or tax benefits for former residents.
2. Establish Tax Residency in Portugal
- Spend more than 183 days in Portugal within a 12-month period, or
- Maintain a habitual residence indicating intent to reside permanently.
3. Obtain a Portuguese Tax Identification Number (NIF)
- Apply through the Portuguese Tax Authority (Autoridade Tributária e Aduaneira).
- Provide identification documents and proof of address.
4. Register with Portuguese Tax Authorities
- Update your tax address to your Portuguese residence.
- Register as a tax resident.
5. Fill in the IFICI Application
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Visit the Portal das Finanças and log in with your credentials. If you don’t have an account, you’ll need to register.
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Once logged in, use the search function or navigate through the menus to locate the IFICI application section.
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Fill out the online application form, ensuring all required fields are completed accurately.
- Submit by January 15 of the year following residency establishment (March 15, 2025, for 2024 residents).
6. Prepare and Submit Required Documentation
- Proof of academic qualifications.
- Verification of relevant work experience.
- Employment or service contracts.
- Employer declaration confirming professional activity alignment with IFICI.
- Proof of social security registration, if applicable.
7. Await Confirmation
- Authorities review and notify decisions typically by March 31 of the application year.
8. Maintain Compliance
- Submit annual personal income tax returns.
- Ensure ongoing compliance to maintain benefits for the full 10-year period.
What if I Already Have NHR Status?
If you already hold NHR status, your benefits remain intact until your ten-year period concludes. Existing NHR holders will continue to benefit from:
- The flat 20% tax rate on qualifying Portuguese-sourced income.
- Exemptions on various foreign income types.
- The special 10% tax rate on foreign pensions.
- Exemption from inheritance/gift tax to direct family.
- No wealth tax.
- Free remittance of funds to Portugal.
- Portugal’s status as a recognized “white-listed tax environment.”
Additionally, self-employed income remains subject to Portuguese social security contributions after an initial one-year exemption unless already contributing elsewhere. Passive income taxation rates under the original NHR also continue unchanged:
- 28% (35% for black-listed jurisdictions) on royalties, dividends, and interest.
- 28% on rental income.
- 50% of real estate capital gains are taxed at progressive rates.
No further actions are required unless significant changes occur in your personal circumstances.
Start Your Tax-Smart Journey in Portugal
Portugal’s Non-Habitual Resident Program has evolved into the new “NHR 2.0” (ITS/IFICI), reflecting updated priorities and economic strategies. Existing NHR beneficiaries retain their advantages, while the ITS regime offers attractive incentives for specific professionals in targeted industries. To fully benefit from Portugal’s tax opportunities, always consult with a professional to navigate individual circumstances and compliance requirements.
Consider applying for Residency by Investment in Portugal to take advantage of the NHR 2.0 tax regime for expats. Contact us at Next Generation Equity for a free consultation to discuss your investment options.
FAQ’s
Can I Still Apply if I Miss the Initial Deadline?
Yes, you can submit a late application. However, the IFICI benefits will only apply from the year you submit your application and will last for the remaining portion of the ten-year benefit term.
Are There Tax Exemptions for Foreign-Sourced Income Under ITS/IFICI?
Yes. Generally, foreign-sourced income is exempt from Portuguese taxation, provided it can be taxed in its source country under a tax treaty or the OECD model convention.
How are Foreign Pensions Taxed Under the New Program?
Unlike the original NHR regime, foreign pension income does not receive preferential tax treatment under ITS/IFICI. Instead, pensions are taxed at standard Portuguese progressive rates.
Are Dividends From Favorable Tax Jurisdictions Treated Differently?
Yes, dividends received from companies in jurisdictions with favorable tax regimes (such as the United Arab Emirates) are specifically subject to a higher Portuguese tax rate of 35%.
Do University Professors Qualify if Employed Under a Service Contract?
Yes. University professors engaged under service contracts qualify for the ITS/IFICI Program, provided they meet all other legal and eligibility requirements.
Are Employment Contracts Mandatory for All Qualifying Activities?
Certain qualifying activities specifically require formal employment or service contracts under the ITS/IFICI Program. Always confirm the contractual requirements relevant to your professional activity.
How is “NHR 2.0” (ITS/IFICI) Different from Traditional NHR?
The new “NHR 2.0,” or formally, the Tax Incentive for Scientific Research and Innovation (IFICI), differs notably from the traditional NHR program in several ways. Primarily, ITS/IFICI features stricter eligibility criteria, targeting highly qualified professionals actively engaged in high-value sectors such as scientific research, technology, engineering, academia, and innovation-related fields. Applicants must clearly demonstrate relevant academic qualifications or significant professional experience.
Another major change is the taxation of foreign pensions: while the original NHR offered a favorable flat rate of 10% on foreign pensions, the new scheme taxes these pensions at Portugal’s standard progressive rates, potentially as high as 48% for higher income brackets. Lastly, ITS/IFICI narrows its professional scope significantly, emphasizing innovation-driven roles and sectors critical to Portugal’s ongoing economic development, contrasting with the original program’s broader range of accepted professional backgrounds.
