In October 2023, the Portuguese government announced that by January 2024 it would end the Non-Habitual Residency (NHR) tax regime, which has granted tax benefits to many expats in Portugal since 2009. With the NHR program being phased out, the number of people who can still apply has significantly decreased, and those can still apply now have urgent deadlines to meet.
The End of the NHR Program
By the end of March 2025, the program will be completely closed to new applicants. Many expats who established tax residency in Portugal over the past decade or so have been able to make the most of the NHR, which offers favorable tax policies over a 10-year period, such as a flat 20 percent tax rate on income tax as well as 0 or 10 percent rate on pensions.
In October 202, the Portuguese Prime Minister announced his intention to eliminate the NHR, stating that “maintaining this measure for the future is prolonging a measure of fiscal injustice.”
Anyone who is already registered under the program will continue to benefit from the same tax benefits available to them under the existing terms for the entirety of the 10-year period.
Entering a Transitional Period for NHR
While NHR is being has phase out for new applicants, there is now a transitional period that allows certain individuals to qualify for the existing program.
Anyone who registered as a tax resident in the country in 2023 and had not been taxed in Portugal in the previous five years can still apply by March 31, 2024.
It’s also possible for some individuals to apply up until March 31, 2025, but the eligibility requirements for this deadline are more stringent. To qualify, it’s necessary to meet at least one of the following criteria:
- Having an employment contract signed/to be signed by December 31, 2023
- Having a lease agreement or other contract for the use/possession of property signed by October 2023.
- Having a contract to by property in Portugal signed by October 10, 2023
- Having children enrolled or registered in a school in Portugal by October 10, 2023
- Having a residence visa or a residence permit valid from December 31 , 2023
- Having an application for a residence visa or residence permit initiated by December 31, 2023
- Being a member of the household of anyone who meets the above criteria
Anyone who qualifies under these conditions will have NHR status from the date that they become a tax resident — whether that’s in 2024 or in the first quarter of 2025 — until December 31, 2033.
Moving Toward “NHR 2.0”
The NHR tax scheme will be replaced by what some people are calling NHR 2.0, more formally known as Tax Incentive for Scientific Research and Innovation.
As the name suggests, the main difference between the Tax Incentive for Scientific Research and Innovation, and the NHR program is that the new scheme requires applicants to earn income in certain professional categories. Another significant change is that, while the NHR program had uniform policies across Portugal’s entire national territory, the Tax Incentive scheme makes special provisions for the islands of Madeira and the Azores to define their own jobs or activities that the regime will apply to under their jurisdiction.
To qualify, individuals must fulfill the following conditions:
- They become tax residents in Portugal
- They have not been tax residents in the previous five years
- They earn income in certain professional categories
Individuals in the following categories will be eligible for the Tax Incentive for Scientific Research and Innovation program:
- Teachers and scientists
- People with qualified jobs according to the tax code and members of corporate bodies within the scope of contractual benefits for productive investment, such as:
- Activities carried out within the scope of the extractive industry and manufacturing industries
- Tourism, including activities of interest to tourism
- IT and related activities and services
- Agricultural, aquaculture, fish farming, farming and forestry activities
- Research and development and high technological intensity activities
- Information technologies and audiovisual and multimedia production
- Defense, environment, energy and telecommunication
- Activities of shared service centers
- Highly qualified professionals, which will be anyone performing one or more of the above activities and carrying them out in a qualifying entity
- People working for companies recognized by relevant government agencies — AICEP, EPE, IAPMEI, IP — or relevant to the national economy, working with investment etc.
- Research and development personnel who meet the definitions of the tax code
- People working for startups, certified by law as such
- People working in Madeira and Azores who meet the terms set by these regions
Beneficiaries of the NHR program or the Regressar Program will not b able to apply.
Benefits of “NHR 2.0” – the taxation incentive for Scientific Research and Innovation Program
Those who qualify for the “NHR 2.0” will benefit from a flat tax rate of 20 percent on eligible professional income arising from Portugal and possibly an exemption on professional foreign-sourced income. They will also have an exemption on most of the foreign-sourced income, such as dividends, interest, capital gains, and rents. However, unlike under the existing NHR program, this excludes pensions. These benefits will last for a 10-year period.
How Can US Tax Consultants Help You?
In the coming months, it’s likely that we’ll see more detail, particularly about the jobs that will qualify in Madeira and the Azores, and we’ll likely get a clearer indication of the operational characteristics of the program. US Tax Consultants will keep you up to date with any developments related to the end of NHR and the implementation of the Tax Incentive for Scientific Research and Innovation Program.
Frequently Asked Questions about NHR 2.0
1. What kind of exemptions exist under the Portugal NHR program in 2023?
Holders of NHR status may not be required to pay taxes on their worldwide income. For income earned in Portugal, income tax is a flat 20 percent. By obtaining NHR status, foreign investors can minimize their tax obligations when they live in Portugal and avail themselves of significant tax breaks.
2. Is it possible to track my non-habitual residency application in Portugal?
Yes, if you are registered on the Portal das Finanças, you can track the progress of your application.
3. How can I find out if my non-habitual residency application in Portugal has been accepted?
You can check the status of your application through the finanças portal by clicking on Aceda aos Serviços Tributários, then Consultar Pedido, and finally, Inscrição Residente Não Habitual.
4. Do I have to live outside Portugal to qualify for the Non-Habitual Resident tax regime?
No, but you do need to maintain a permanent residence in the country by renting a home or purchasing a property. To avail of NHR status, you must stay for a minimum of 183 days in the country per year or maintain a property as your habitual residence.
5. What is the new NHR for Portugal 2024?
The NHR is being replaced by the Tax Incentive for Scientific Research and Innovation Program, which requires individuals to earn income in certain professional categories, including teachers, scientists, and research and development, to be eligible. The scheme has a flat tax rate of 20 percent on professional income generated in Portugal, as well as exemption on the majority of foreign-sourced income, such as dividends, interest, capital gains, and rents.
6. Is Portugal getting rid of NHR?
Yes, the NHR is ending. Some people are still eligible to apply by March 31, 2024, and others have a deadline of March 31, 2025, depending on their tax residency status and meeting other eligibility requirements. The scheme is being replaced by the Tax Incentive for Scientific Research and Innovation Program, which provides similar benefits but will be applicable to a smaller proportion of expats.
7. What is replacing NHR?
The Non-Habitual Residency (NHR) program is being replaced by a new tax regime known as the Tax Incentive for Scientific Research and Innovation Program, which will provide a flat tax rate of 20 percent on professional income as well as exemption on the majority of foreignsourced income, such as dividends, interest, capital gains, and rents. It will be available to people in certain professional categories who become tax residents in Portugal and have not been tax residents in Portugal in the previous five years.
Edited from ePortugal.gov.pt
what is the tax rate for residents who are not eligible for Tax Incentive for scientific research and innovation Program