NHR 2.0 – Portugal’s non-habitual resident tax regime

New NHR (NHR 2.0)

The New NHR (also known as NHR 2.0): Tax Incentive for Scientific Research and Innovation (applications possible until March 31, 2025)

In addition to changes to the NHR regime, a new tax incentive for scientific research and innovation has been introduced for individuals moving to Portugal from January 1, 2024. To be eligible for this incentive, individuals must meet one of the criteria below:

1. Hold a position or engage in another activity as a tax resident in the Autonomous Regions of Madeira and the Azores, as defined by regional decree.
2. Teaching in higher education and scientific research, including scientific employment in entities, structures, and networks of the national scientific and technological system, as well as employment and membership in the governing bodies of entities recognized as technological and innovation centers.
3. Qualified employment and members of the governing bodies of entities within the scope of contractual benefits for productive investment, as defined in Chapter II of the Investment Tax Code.
4. Highly qualified professions, defined by Ministerial Decree, in companies with relevant applications in the year of activity commencement or in the previous five years benefiting or having benefited from the Tax Regime for Investment Promotion (RFAI) or in industrial and service companies (with activities in areas to be defined by Ministerial Decree) exporting at least 50% of their turnover in the year of commencement or in the two preceding years.
5. Other qualified positions and members of the governing bodies of entities engaged in economic activities recognized by AICEP or IAPMEI (public investment bodies) as relevant to the national economy, particularly in attracting productive investment and reducing regional disparities.
6. Research and development personnel with eligible costs for the tax incentive regime for R&D, as provided in the Investment Tax Code.
7. Positions and members of the governing bodies of entities certified as start-ups under Portuguese Start-Up Law.

Taxpayers meeting the requirements as new tax residents from 2024 and fitting any of the positions listed above may be subject to a special tax rate of 20% on income from employment or business activities derived from these activities for ten consecutive years. To be eligible for this regime, taxpayers must continue to earn active income, with a maximum gap of 6 months between eligible activities or jobs. According to the current proposal, eligible taxpayers will be exempt from foreign income tax in various categories, including income from work performed abroad, self-employment income earned abroad, foreign rental income, and capital gains on assets based abroad. However, it is important to note that this exemption does not include pension income. Additionally, certain income items from sources in blacklisted jurisdictions will be subject to a fixed tax rate of 35%. A Ministerial Decree will regulate the registration of beneficiaries with entities and communication with tax authorities. Until such a decree is approved, qualified activities as “high value-added activities” will be those currently applicable under the NHR regime, and beneficiary registration will be done directly with tax authorities, as in the NHR regime. Understanding that this special regime can only be used once is crucial. It is not available to taxpayers who have already benefited from the NHR regime or opted for partial exemption under a special regime for former residents.

Tax Regime for Former Residents

For former Portuguese tax residents returning to residency between 2024 and 2026, there is a 50% relief, limited to 250,000 euros, on employment and business income. This regime applies only to former tax residents who have not been tax residents in Portugal in the five years preceding their application. The exemption applies for a period of five years and cannot be combined with any other special regime.

Conclusion

The new NHR regime in Portugal, set to take effect in 2024, significantly changes the tax benefits available to individuals moving to the country. While the current NHR regime ends, safeguard provisions will ensure a smooth transition for existing NHR holders. The new tax incentive for scientific research and innovation also aims to attract individuals engaged in these activities. It is essential to consult legal and tax professionals to understand how these changes might impact your circumstances and determine the best course of action. Staying informed and seeking professional advice will enable you to make well-informed decisions regarding your tax residency and financial planning in Portugal.

Idealista*

Startups: Which jobs are eligible for NHR? The new NHR regime will be available in 2024 for those working in startups in Portugal. These are young companies meeting the following main criteria:

• Employing fewer than 250 workers;
• Having an annual turnover not exceeding 50 million euros;
• Operating for less than 10 years;
• Having headquarters or representation in Portugal or at least 25 workers in the country;
• Not resulting from the spin-off of a large company.

This change aligns with the appeal of Startup Portugal’s executive director, António Dias Martins, who recently advocated for the NHR regime to continue applying to startup employees and investors. According to Martins, this regime has been “a very important argument” for attracting and retaining talent in Portugal, as well as for attracting investment, being a measure with positive returns and “impact” for the country. The NHR in the form of a tax incentive for scientific research and innovation will be accessible to individuals who have not been residents in Portugal in the previous five years and occupy positions in entities certified as startups. In this situation, the qualification requirements derive from the company itself and its legal framework as a startup, without discrimination of which jobs are eligible, explains Miguel Paixão, senior tax advisor at Belzuz Abogados, to Idealista/news.

Although the list of new jobs recognized by AICEP or IAPMEI has not yet been published, Miguel Paixão of Belzuz Abogados states that these jobs “must be considered relevant to the national economy, particularly in attracting investment.” The sectors included in the Contractual Tax Benefits for Productive Investment are as follows, according to the advisor:

• Extractive industries – divisions 05 to 09;
• Manufacturing industries – divisions 10 to 33;
• Accommodation – division 55;
• Restaurants and similar – division 56;
• Publishing activities – division 58;
• Cinematographic, video, and television program production activities – group 591;
• IT consultancy and programming and related activities – division 62;
• Data processing, information hosting, and related activities and web portals – group 631;
• Scientific research and development activities – division 72;
• Activities of interest to tourism – subclasses 77210, 90040, 91041, 91042, 93110, 93210, 93292, 93293, and 96040;
• Administrative and support services provided to companies – classes 82110 and 82910.

Therefore, it remains to be seen how and when the jobs recognized by AICEP or IAPMEI will be selected and published, which will be included in the criteria for Portuguese emigrants and foreign citizens to benefit from the tax regime replacing the NHR status in 2024, allowing them to plan their future and relocation to Portugal.

Who cannot benefit from this regime?

The following cannot benefit from this new regime: a) Taxpayers who benefit or have benefited from the non-habitual resident status; b) Those who opted for taxation under Article 12.º-A of the IRS Code (special tax regime for former residents).