4 Steps to Understanding Portugal’s NHR Changes
If this title sparked your interest, you’re probably well aware that Portugal’s Non-Habitual Residence (NHR) tax regime has attracted a lot of attention in the past six months or so. Recently, the outlook has become much clearer. If you’re considering a move to Portugal, or you’ve recently moved here, these updates could be useful to you in understanding your potential tax benefits and obligations.
First things first, let’s get you up to speed with the end of the existing NHR program and highlight a couple of important deadlines: 31st March 2024 and 31st March 2025.
- The Existing NHR Program Is Ending
In October 2023, the Portuguese Prime Minister, António Costa, announced his intention to end the NHR program, stating that “maintaining this measure for the future is prolonging a measure of fiscal injustice.”
Many expats who established tax residency in Portugal over the past decade or so have been able to make the most of the NHR regime, which offers favorable tax policies over a 10-year period, such as a flat 20 percent rate on income tax as well as 0 to 10 percent rate on pensions.
Following the State Budget in January 2024, the number of people who can still apply for NHR status decreased significantly, and by the end of March 2025, the program will be completely closed to new applicants.
2. There Are Urgent Deadlines for Anyone Who Can Still Apply
While NHR is being phased out for new applicants, we’re now in a transitional period that allows some people to qualify for the existing program. But who can still apply?
Anyone who registered as a tax resident in Portugal in 2023 and hadn’t been taxed in the country in the previous five years can still apply by 31st March 2024.
It’s also possible for some people to apply up until 31st March 2025, but the eligibility requirements for this deadline are more stringent. To qualify, you’d have to meet a few conditions, check our NHR calculator to see if you can still apply
If you passed the test, you’d be able to have NHR status from the date that you become a tax resident — whether that’s in 2024 or in the first quarter of 2025 — until 31st December 2033.
3. NHR “2.0” Is Now Available
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.
If you’re eligible for NHR 2.0 you’ll 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.
With status, you’ll also have a tax exemption on most foreign-sourced income, such as dividends, interest, capital gains, and rents. These benefits will last for a 10-year period. Unlike the original NHR regime, this program doesn’t include exemptions for pensions.
4. Who’s Eligible for the New Program?
To qualify for the new program, you’d have to meet the following conditions:
- You become a tax resident in Portugal
- You haven’t been a tax resident in Portugal in the previous five years
- You earn income from certain professional categories
The people who are eligible for the program are:
- 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 tourism related activities, agricultural, IT related services and more.
- 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 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 won’t be able to apply.
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 can expect to get a clearer indication of the program’s operational characteristics. To keep up to date with any developments, you can use our NHR Guide.
