Non-Habitual Residency
Portugal’s Non-Habitual Resident (NHR) Regime and Its Transition to a New Program
Since its introduction in 2009, Portugal’s Non-Habitual Resident (NHR) regime has been a significant draw for expatriates and investors, offering various tax advantages such as tax-free transactions and reduced taxes on pension income and wealth. When structured correctly, the NHR scheme allowed individuals to enjoy substantial tax benefits for up to ten years.
However, in October 2023, the Portuguese Prime Minister announced plans to end the NHR regime starting in 2024. This decision was solidified with the State Budget Proposal for 2024, which outlined the termination of the program. The final vote on the budget occurred on November 29, 2023, introducing a transitional period before the full cessation of the NHR regime in 2025.
Transitional Provisions
Individuals who registered as tax residents in Portugal in 2023 and had not been taxed in the country during the previous five years, could have still applied for NHR status until March 31, 2024. Additionally, some applicants may still qualify until March 31, 2025, provided they meet at least one of the following criteria:
- Employment contract signed (or to be signed) by December 31, 2023.
- Lease agreement or similar property-use contract signed by October 10, 2023.
- Property purchase contract signed by October 10, 2023.
- Children enrolled in a school in Portugal by October 10, 2023.
- Residence visa or permit valid by December 31, 2023.
- Residence visa or permit application initiated by December 31, 2023.
- Being a household member of someone meeting the above criteria.
Individuals meeting these conditions will maintain NHR status from the date they become tax residents — whether in 2024 or the first quarter of 2025 — until December 31, 2033.
What Replaces the NHR Regime?
The Portuguese government has introduced the Incentivised Tax Status (ITS) Program, also referred to as the Tax Incentive for Scientific Research and Innovation. This program offers a flat tax rate of 20% on eligible professional income earned in Portugal, with potential exemptions on foreign-sourced professional income and other types of foreign income like dividends, interest, capital gains, and rents. Unlike the NHR regime, pensions are not included in these exemptions. These benefits will be available for a period of 10 years.
Eligibility Criteria for the ITS Program:
Applicants must:
- Become tax residents in Portugal.
- Not have been tax residents in the previous five years.
- Earn income in specific professional categories.
Qualifying Professions Include:
- Teachers and scientists
- Qualified professionals in sectors such as:
- Extractive and manufacturing industries
- Tourism and related services
- Information technology and services
- Agriculture, aquaculture, and forestry
- Research, development, and high-tech sectors
- Audiovisual and multimedia production
- Defence, energy, environment, and telecommunications
- Shared service centres
- Individuals working for companies recognized by relevant government agencies (e.g., AICEP, EPE, IAPMEI).
- Start-up employees certified under Portuguese law.
- Professionals in Madeira and the Azores who meet regional requirements.
Note: Beneficiaries of the NHR or Regressor Program cannot apply for ITS.
Key Benefits of the NHR Regime
The NHR program has provided significant tax advantages, including:
- A 20% flat tax rate on most Portuguese-sourced income (employment, rental, and gains).
- Exemption from tax on foreign income, if covered by a double taxation agreement (DTA).
- A 10% flat tax rate on foreign pensions.
- No wealth tax, unlike some other European countries.
- No tax on cryptocurrency gains.
- No tax on dividends from foreign sources.
- Opportunities for remote work with favourable taxation.
The NHR status remains valid for a continuous 10 year period, regardless of temporary relocation abroad.
For more information, please do not hesitate to contact us. We can also help in arranging contact with an accountant or legal advisor fluent in your own language.
