The Portuguese government’s new tax incentive scheme is designed to attract top talent in key industries and stimulate economic growth. Here we explain how it differs from the original NHR programme and whether you will still benefit.

Portugal is a popular destination for expatriates worldwide, and it is renowned for its favourable tax conditions, great food and relaxed European lifestyle.

The new Fiscal Incentive for Scientific Research and Innovation (IFICI) Programme (NHR 2.0) is based on the Non-Habitual Resident (NHR) programme created in 2009 to boost growth and attract foreign investment. It offered substantial tax benefits to more than 10,000 non-habitual residents in Portugal for more than a decade.

See also: A guide to Portugal’s tax system

The IFICI programme focuses more on professionals in high-demand sectors than retirees but still offers significant tax benefits. It is specifically designed to attract highly skilled professionals who can drive the country’s economic growth and innovation.

See also: Moving to Portugal from the UK – A financial guide

The original NHR programme

The NHR regime was designed to attract a wide range of expatriates, from retirees to high-income professionals, by offering substantial tax benefits.

The key features included:

  • Benefiting from tax exemptions on foreign-sourced income, including pensions, dividends and Capital Gains for up to 10 years.
  • A flat 20% tax rate applied to income earned in Portugal for professionals in high-value-added occupations like doctors, engineers and architects.
  • Foreign pensions taxed at 10%.

To qualify for the NHR programme, applicants needed to ensure they had not been tax resident in Portugal for the previous five years and were required to apply in person after relocating to the country.

New NHR tax regime: NHR 2.0 (IFICI)

Key features:

  • Reduction of your personal income tax (PIT) rate on employment to 20% (plus Social Security) on dependent or independent work-related income for a consecutive period of 10 years
  • The IFICI programme does not offer tax exemptions on foreign pensions.
  • The new NHR tax regime will not cover income obtained in black-listed jurisdictions. Previously, some jurisdictions that were otherwise black-listed under the Portuguese personal income tax code were white-listed to benefit from the NHR.

New residents in Portugal who have not lived there in the past five years can qualify for the new tax regime. You must not have participated in the previous NHR regime or the other “ex-residents” programme.

The IFICI programme is aimed at attracting individuals with expertise in the following areas:

  • Professionals like software developers, data scientists, cybersecurity experts and AI specialists
  • Medical professionals, including doctors, researchers in life sciences and specialists in biotechnology
  • Civil engineers, urban planners and architects
  • Experts in wind energy, solar power and sustainable technologies to help transition to a greener economy.

Key differences between NHR and IFICI

  • The NHR programme targeted retirees, investors and professionals across various sectors.
  • The IFICI programme targets highly qualified professionals in specific, high-demand fields that align with Portugal’s strategic goals.
  • The NHR programme provided a tax exemption on foreign pensions.
  • The IFICI programme retains the flat 20% tax rate on income earned in Portugal by eligible professionals and an exemption on foreign-sourced employment income /self-employment income as opposed to the usual 14%-53% progressive rates, but foreign pensions are notably absent from this exemption.

Both programmes require applicants to have not been tax resident in Portugal for the previous five years.

The IFICI programme specifically targets professionals in sectors like technology, healthcare, and renewable energy, making the criteria more selective.

Consulting with a financial planner familiar with Portuguese tax laws remains essential for understanding the full implications of these changes and making informed decisions about relocating to Portugal.

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