Introduction
Portugal's Non-Habitual Resident (NHR) regime has long been a major draw for expats, remote workers, retirees, and investors seeking a tax-friendly relocation option. In 2024, the Portuguese government introduced significant reforms to the program, now referred to as NHR 2.0, or the International Fiscal and Investment Center (IFICI). These changes aim to attract professionals in science, technology, and innovation sectors while adjusting benefits for other income types.
In this article, we break down the details of NHR 2.0, its implications, and what it means for foreigners considering a move to Portugal.
What Was the Original NHR Program?
Introduced in 2009, the Non-Habitual Resident (NHR) regime was designed to attract highly skilled professionals, investors, and pensioners by offering tax breaks for a period of 10 years.
Key Benefits of the Original NHR:
- Foreign-sourced income (such as dividends, rental income, or pensions) was often tax-exempt in Portugal, depending on the tax treaty between Portugal and the source country.
- Pensions were taxed at a flat rate of 10%, significantly lower than in most European countries.
- Employment and self-employment income from "high-value" professions (e.g., engineers, doctors, IT specialists) was taxed at a 20% flat rate, compared to the progressive tax rates of up to 48%.
- No wealth tax and no inheritance tax for direct relatives.
However, due to growing political pressure and concerns about tax inequality, the government decided to phase out the original NHR and replace it with a revised version starting in 2024.
What is NHR 2.0 (IFICI)?
The Portuguese government has overhauled the NHR program, introducing the International Fiscal and Investment Center (IFICI), commonly referred to as NHR 2.0. This new regime is designed to attract professionals in specific sectors and adjust taxation on various income types.
Key Features of NHR 2.0 (IFICI):
- Stricter Qualification Requirements: NHR 2.0 prioritizes professionals in sectors such as science, technology, and innovation. To qualify, individuals must submit their application by January 15 of the year following their establishment of tax residency in Portugal. For those who became tax residents between January 1 and December 31, 2024, the application deadline is March 15, 2025.
- 20% Flat Tax on Qualifying Income: NHR 2.0 offers a 20% flat tax rate on qualifying Portuguese-sourced employment and self-employment income.
- Exemption on Foreign-Sourced Income: Under NHR 2.0, foreign-sourced business profits, employment, dividends, interest, royalties, rents, and capital gains are tax-exempt in Portugal.
Who Benefits the Most from NHR 2.0 (IFICI)?
1. Expats Moving for Work
Professionals moving to Portugal in sectors prioritized under NHR 2.0, such as science, technology, and innovation, benefit from the flat 20% tax rate on qualifying Portuguese-sourced income.
2. Retirees
Under NHR 2.0, pension income is no longer exempt and is subject to Portugal's standard tax rates.
3. Investors and Business Owners
Foreigners generating foreign-sourced business profits, dividends, interest, royalties, rents, and capital gains can benefit from tax exemption on these income types under NHR 2.0.
Final Thoughts
Portugal's NHR program has been a significant incentive for expats, but NHR 2.0 introduces a more targeted tax regime. While Portugal remains an attractive destination for its climate, culture, and quality of life, the new tax structure provides benefits for high-value professionals and foreign income, offering tax exemptions on qualifying foreign-sourced income and a flat 20% tax rate for Portuguese employment and self-employment income.
If you're considering moving to Portugal under the new NHR, consult a tax professional to ensure that you understand how these benefits apply to your specific situation.
