Portugal’s New NHR: The Scientific Research & Innovation Regime

The small print: Portugalist may generate a commission from mentioned products or services. This is at no additional cost to you and it does not affect our editorial standards in any way. All content, including comments, should be treated as informational and not advice of any kind, including legal or financial advice. The author makes no representations as to the accuracy, completeness, suitability, or validity of any information on this site and will not be liable for any errors or omissions or damages arising from its display or use. Links to external websites do not constitute an endorsement. [Disclaimer Policy]

Written by: | Last updated on March 1, 2024 | Est. Reading Time: 4 minutes
This article is available in: en_US

Portugal, known for its captivating landscapes and rich culture, has long been a magnet for expatriates seeking a new home. However, in a significant shift, the country is phasing out its Non-Habitual Resident (NHR) tax regime and ushering in a new era with the introduction of a new Portuguese tax regime, which some are calling the Inpatriate Regime, the new NHR regime, NHR 2.0, and others are calling the incentive to scientific research and innovation.

This new tax structure is set to take effect from January 1st, 2024 and is aimed at attracting talent and foreign direct investment (FDI) [1 & 2].

Those familiar with the NHR tax regime will note many similarities including the 10-year length and the 20% flat-rate, however, there also some differences as well.

Key Eligibility Criteria for the Inpatriate Regime

To qualify for this new regime, individuals must meet the following criteria:

  • Prior Residence: Must not have been a tax resident in Portugal for the last 5 years [1 & 2].
  • Acquisition of Tax Residency: Need to acquire tax residency in Portugal [1].
  • Type of Employment: Must obtain income from either employment or self-employment that falls within the scope of the new regime. This encompasses roles in:
    • Higher education teaching [2].
    • Scientific research [2].
    • Technology positions or startups (including board members) [2].
    • Highly qualified professions in companies with significant investment applications [2].
    • Jobs in industry and service companies generating at least 50% of turnover from exports [2].
    • Activities conducted by tax residents in Madeira and Azores (subject to specific regional legislation) [2].

What about Pensions & Social Security?

One of the major draws of the old NHR tax regime was that pensions and social security were typically taxed at 10%, and at one point 0%. However, this new regime doesn’t cater to pensions and social security.

According to the Sovereign Group, “Pension income and income paid by entities that are domiciled in low tax jurisdictions will not be eligible for exemption” [3].

Benefits of the New Regime

The new Inpatriate Regime offers several appealing benefits:

  • Flat Tax Rate: A favourable flat tax rate of 20% on income from employment or self-employment within the scope outlined above [1 & 2].
  • Exemption on Foreign-Sourced Income: This includes income from employment/self-employment, dividends, interest, royalties, rental income, and capital gains from selling real estate [1 & 2]. The tax exemption is calculated progressively, meaning that the exempt income is combined with other taxable income to determine the applicable tax rate [1].
  • Duration: These benefits are applicable for a period of 10 years, offering a substantial period of tax relief [1 & 2].

Individuals that wish to avail of these benefits are required to register with the Fundação para a Ciência e Tecnologia, I.P., the Agência para o Investimento e Comércio Externo de Portugal, E.P.E., and the Agência Nacional de Inovação, S.A., as applicable [1].

Implications for Expats and Investors

This strategic move by the Portuguese government, proposed by the Socialist party, represents a significant shift in how Portugal aims to attract skilled professionals and investors. The Inpatriate Regime not only offers financial incentives but also opens doors for professionals in a wide range of sectors, especially in technology, education, and research.

For those considering a move to Portugal, this new regime presents an attractive proposition, especially for those who can leverage their skills and experience in the specified sectors. It’s an opportunity not just to enjoy the Portuguese lifestyle but to benefit from a tax regime that supports and encourages professional growth and investment.

What about the “Old NHR Regime”

If you were registered for NHR before the scheme was phased out, nothing will change. The old regime lasts for 10 years. After that point, you will no longer be able to take advantage of the NHR tax regime.

A small number of people who started their move in 2023 but completed it in 2024 will be the last few to take advantage of the old NHR regime. To qualify for this, you will need to show either:

  • An employment contract or confirmed offer of employment dated before 31st of December 2023.
  • A lease or purchase agreement related to property ownership or habitation dated before 10th of October 2023.
  • Confirmation that dependent children had been enrolled in a Portuguese educational establishment dated up to 10th October 2023.
  • A residence visa or permit dated before 31st December 2023.

Sources

  1. Portugal’s Tax Landscape Shifts: NHR Regime Ends, New Incentives EmergeBelion Partners
  2. Non Habitual Resident and the new impatriate regimeAbreu Advoagods
  3. Portugal sets out proposals for terminating NHR tax status – Sovereign Group
Written by

James Cave is the founder of Portugalist and the author of the bestselling book, Moving to Portugal Made Simple. He has visited just about every part of Portugal, including Madeira and all nine islands of the Azores, and lived in several parts of Portugal including Lisbon, the Algarve, and Northern Portugal.