The NHR in Portugal: Guide 2024

Portugal’s Non-Habitual Resident Status established a more favourable special regime but was repealed with the approval of the General State Budget Law for 2024. In this article we will deal with the new situation in detail.

What is NHR in Portugal?

The Non-Habitual Resident Status (NHR) established a more favourable special regime, which guaranteed a reduction in Personal Income Tax, for a period of 10 years, to new foreign residents and Portuguese citizens who had emigrated for more than 5 years. To benefit from that benefit, the person concerned was required to carry out a professional activity considered to have “high added value” or to be retired. The aim was to attract qualified professionals in high-profile activities and beneficiaries of pensions obtained abroad. However, with the approval of the State Budget Law for 2024, this regime was repealed, replacing another, called Tax Incentive for Scientific Research and Innovation. The new regime, unlike the previous one, is now provided for in the Tax Benefits Statute (EBF). However, the reinvigorating regime did not end with immediate effect on 31 December, as a transitional regime was established.

NHR Transitional regime

The article 236, ner 3 of the State Budget Law for 2024 provides that the NHR Statute continues to apply to taxable persons who, on the date of entry into force of the above mentioned law, were already registered as non-habitual residents, until the 10-year period has expired. Likewise, it is foreseen that taxpayers who on 31.12.2023 met the conditions for registration as non-habitual residents, continue to be able to enjoy the above mentioned NHR Statute. It is also applicable to taxable persons who become resident for tax purposes until 31.12.2024, and who declare, for the purposes of their registration as a non-habitual resident, that they have one of the following elements:

• Promise or employment contract, promise or secondment agreement entered into until December 31, 2023, whose exercise of functions must take place in national territory.
• Lease agreement or other agreement granting the use or possession of real estate in Portuguese territory entered into until October 10, 2023.
• Reservation contract or promissory contract for the acquisition of a real right over real estate in Portuguese territory entered into until October 10, 2023.
• Enrollment or enrollment for dependents, in an educational establishment domiciled in Portuguese territory, completed by October 10, 2023.
• Residence visa or residence permit valid until December 31, 2023.
• Procedure, initiated by December 31, 2023, for the granting of a residence visa or residence permit, with the competent authorities, in accordance with the legislation in force applicable to immigration, namely through the request for scheduling or effective scheduling for the submission of the application for the granting of a residence visa or residence permit or,  also, through the submission of the application for the granting of a residence visa or residence permit.

Finally, members of the household of the taxpayers referred to in the previous hypotheses also benefit from the extinct NHR Statute. Thus, the expectations of taxable persons who were already in the non-habitual resident regime, as well as those who were in the process of moving, were safeguarded.

The “new” tax incentive for scientific research and innovation

This new regime has a smaller scope than the one mentioned above, finding its legal regulation in Article 58-A of the EBF, which should be combined with Article 81 of the CIRS, with regard to the elimination of international legal double taxation. This regime is aimed at natural persons who become resident in Portuguese territory and who have not been resident here in any of the previous five years (this rule is similar). However, the big and notorious difference is found in the activities covered, which show a clear reduction compared to the previous regime. Thus, the following activities are covered:

• Teaching in higher education and scientific research, including scientific employment in entities, structures and networks dedicated to the production, dissemination and transmission of knowledge, integrated in the national science and technology system, as well as jobs and members of governing bodies in entities recognized as technology and innovation centres, within the scope of Decree-Law No. 126-B/2021, of 31 December.
• Qualified jobs and members of corporate bodies within the scope of contractual benefits to productive investment, under the terms of chapter II of the Investment Tax Code.
• Highly qualified professions, defined in an ordinance of the members of the Government responsible for the areas of finance and economy, developed in:
  • (i) Companies with relevant investments, in the exercise of the beginning of functions or in the five previous years, which benefit or have benefited from the investment support tax regime, under the terms of Chapter III of the Investment Tax Code; or
  • (ii) Industrial and service companies, whose main activity corresponds to the CAE code defined in an ordinance of the members of the Government responsible for the areas of finance and economy and which export at least 50% of their turnover, in the exercise of the beginning of their functions or in any of the two previous years.
• Other qualified jobs and members of governing bodies, in entities that carry out economic activities recognized by AICEP, EPE, or IAPMEI, IP, as relevant to the national economy, namely, to attract productive investment and reduce regional asymmetries.
• Research and development of personnel whose costs are eligible for the purposes of the system of tax incentives in research and business development, under the terms of Article 37(1)(b) of the Investment Tax Code.
• Jobs and members of governing bodies in entities certified as startups, under the terms of Law no. 21/2023, of 25 May: or
• Jobs or other activities carried out by tax residents in the Autonomous Regions of the Azores and Madeira, under the terms to be defined by regional legislative decree.

Tax Advantages of the “new” Regime

The IRS benefit results from taxation at the special rate of 20% on the net income of categories A and B earned within the scope of the aforementioned activities, for a period of 10 consecutive years from the year of your registration as a resident in Portuguese territory, without prejudice to the option for aggregation. The right to be taxed under this regime, in each year of the concession period, depends on the taxpayer being considered to be a tax resident in Portuguese territory, at any time of that year, and on continuing to receive, in each year, income from the exercise of one of the relevant activities. The taxpayer is considered to continue to earn income from one of the relevant activities, provided that the start of the exercise of the new activity occurs within a maximum period of six months after the end of the activity previously carried out. The taxpayer who has not enjoyed the right to be taxed under this regime, in one or more years of the concession period, may resume the enjoyment of the same in any of the remaining years of that period, from the year, inclusive, in which he is again considered resident for tax purposes in Portuguese territory and returns to earn income in the exercise of one of the relevant activities.

Enrolment in the “new” Regime

The registration of beneficiaries is carried out with the following entities, depending on the relevant activities carried out:

• Foundation for Science and Technology, I. P. (FCT), regarding the relevant activities listed in Article 58-A(1)(a) of the EBF [Teaching in higher education and scientific research].
• Agency for Investment and Foreign Trade of Portugal (AICEP), E. P. E., regarding the relevant activities listed in point b) [ Qualified jobs and members of corporate bodies within the scope of contractual benefits to productive investment].
• Tax and Customs Authority (AT), regarding the relevant activities listed in paragraph c) – [Highly qualified professions, defined in an ordinance of the members of the Government responsible for the areas of finance and economy].
• Agency for Competitiveness and Innovation, I.P. (IAPMEI), or Agency for Investment and Foreign Trade of Portugal (AICEP), regarding the relevant activities listed in point d) [Other qualified jobs and members of corporate bodies, in entities that carry out economic activities recognized by AICEP, EPE, or IAPMEI, IP, as relevant to the national economy].
• Agência Nacional de Inovação, S.A. of Startup Portugal and of the Autonomous Regions of the Azores and Madeira, respectively, regarding the relevant activities listed in points e), f) and g). [Research and development of personnel whose costs are eligible for the purposes of the system of tax incentives in research and business development; Jobs and members of governing bodies in entities certified as start-ups; Jobs or other activities carried out by tax residents in the Autonomous Regions of the Azores and Madeira].

Deadline for Registration in the “New” Tax Regime

The procedures and deadlines for the registration of beneficiaries with the competent authorities, as well as the communication of the respective data by them, to the AT, will be regulated by an ordinance of the members of the Government responsible for the areas of finance, economy and science and higher education [not yet approved] However, paragraph 7 of article 58-A of the EBF contains a safeguard provision for situations of registration carried out after the deadline that may be defined in the aforementioned ordinance, in which case taxation under the terms of the new regime takes effect from the year in which the registration is made and is in force for the remaining legal period foreseen.

Exclusions from the application of the “new” tax regime

Taxable persons who:

• Benefit or have benefited from the status of non-habitual resident.
• Have opted for taxation under the terms of article 12-A of the Personal Income Tax Code (tax regime for former residents);

Income excluded from the “new” tax regime

The income of taxable persons whose wage costs are eligible as relevant investments for the purposes of the RFAI.

Elimination of international legal double taxation

According to the new wording of Article 81 of the CIRS, it is established that the exemption method is applied to income obtained abroad in categories A, B, E, F and G, and must be included for the purposes of determining the rate to be applied to other income, regardless of whether or not it is effectively taxed in the other State. If such income is paid or made available by non-resident entities without a permanent establishment in Portuguese territory, which are domiciled in a country, territory or region subject to a clearly more favourable tax regime, included in a list approved by ordinance of the member of the Government responsible for the area of finance, such income shall be taxed under the terms of Article 71(17)(b) and (c) (35% withholding rate) and paragraph 18 Article 72 of the Personal Income Tax Code (autonomous rate of 35%). The withholding rate of 20% applied to income from employment and category B of personal income tax is maintained, now included in the new Tax Incentive for Scientific Research and Innovation regime provided for in article 58-A of the EBF, which replaces the regime for non-habitual residents. The “new” tax regime does not apply to income in Category H (pensions). You can learn more about the specialized tax services we offer in Tax – accounting advice