Portugal activates ‘NHR 2.0’ tax regime, officially known as the IFICI

The Portuguese government finally issued the first regulations under the Tax Incentive for Scientific Research and Innovation (IFICI) on 23 December, almost a full year after it technically came into force. The IFICI replaces the original Non-Habitual Resident (NHR) regime, which was closed to new entrants at the end of 2023, and is therefore commonly known as ‘NHR 2.0’.

The IFICI offers a highly attractive tax framework for new tax residents in Portugal but is more limited in scope than the previous NHR regime. It is restricted to highly qualified individuals who carry out scientific research and innovation activities or hold qualifying jobs in Portugal.

The IFICI regime was approved as part of the State Budget Law for 2024 and has been in effect since 1 January 2024, but regulations were awaited to activate it. These regulations under Ordinance 352/2024/1 came into force on 24 December but have retroactive application to 1 January 2024.

Key Benefits

The Ordinance regulates and defines the eligible activities, the covered sectors, the criteria and procedures, as well as the requirements necessary for confirming the applicable conditions.

Like the previous NHR regime, the key benefits under the IFICI / NHR 2.0, which are available for 10 calendar years from the time the applicant become tax resident in Portugal, are as follows:

• A special Personal Income Tax (IRS) rate of 20% on employment income (category A) and professional income (category B) obtained in the Portuguese territory.
• An IRS exemption on income obtained from abroad covering categories A (dependent work), B (professional activities), E (capital income), F (rental income) and G (capital gains), which will be aggregated to determine the rate to be applied to the remaining income.

Unlike the previous NHR regime, however, income from foreign pensions – as well as income from ‘blacklisted’ low tax jurisdictions – will be fully taxable in Portugal.

Application Process

The Ordinance provides that taxable persons who are resident in Portuguese territory must submit their application for the IFICI / NHR 2.0 by 15 January in the year following the year in which they become resident in Portugal. A transitional period applies to applicants who became tax resident between 1 January and 31 December 2024, with a deadline of 15 March 2025.

Individuals can either establish tax residency in Portugal voluntarily by securing a residence permit and establishing a permanent address, or automatically by residing in Portugal for more than 183 days within any 12-month period or establishing a habitual residence.

Applicants must generally not have been tax resident in Portugal in the five years preceding their application. They must also not have previously benefited under the former NHR regime or Portugal’s ongoing Return Programme.

The application of the IFICI is dependent on prior registration with the Portuguese Tax Authority (AT) and/or the government agencies listed below, as well as on accreditation by the respective employers or those contracting their services.

• Foundation for Science and Technology (FCT)
• Portuguese Trade and Investment Agency (AICEP)
• Portuguese Agency for Competitiveness and Innovation (IAPMEI)
• National Innovation Agency (ANI)
• Startup Portugal

These agencies are responsible for receiving and verifying registration applications, as well as ensuring compliance with the specific requirements for the IFICI regime.

Scope

The list of highly qualified professions and industrial and service companies comprises:

• Directors (general managers and executive managers of companies).
• Directors of administrative and commercial services.
• Directors of production and specialised services (except directors of other specialised services and professions with command, direction or leadership in the security forces and services).
• Specialists in physical sciences, mathematics, engineering, and related technical fields (excluding architects, urban planners, surveyors and designers).
• Industrial product or equipment designers.
• Doctors.
• University and higher education professors.
• Specialists in information and communication technologies (ICT).

Workers in these fields must have at least either a level 8 qualification (Doctorate) under the European Qualifications Framework (EQF) or an EQF level 6 qualification (bachelor’s degree), plus three years of verified professional experience.

Eligible Companies

Highly qualified professionals that can benefit under the IFICI / NHR 2.0 regime must be employed by eligible companies, which include recognised technological and innovation centres, entities certified as start-ups, and those benefiting from specified investment incentives such as Portugal’s Investment Support Tax Regime (RFAI).

The Ordinance sets out a list of codes from the Portuguese Classification of Economic Activities (CAE) for industrial and service companies, which must also export at least 50% of their turnover in the fiscal year in which the applicant commences employment or in any of the two previous years:

• Extractive industries.
• Manufacturing industries.
• Information and communication activities, including –
  • Publishing activities (can include books, newspapers, computer programmes)
  • Film, video, television programme production, sound recording and music editing activities;
  • Software programming activities;
  • Software consultancy activities;
  • Data processing, hosting and related activities;
  • News agency activities.
• Research and development in the physical and natural sciences.
• Higher education.
• Human health activities.

Documentation

Applicants must submit the following documents, as applicable:

• If the activity is a job – copy of the individual employment contract.
• If the activity involves being a member of a corporate body – up-to-date permanent commercial certificate.
• If the activity involves scientific research: copy of grant contract.
• For highly qualified professions – proof of applicable academic qualifications.
• Declaration from the competent agency certifying compliance with the requirements related to the activity.
• Any other requested documents.

The relevant employer company must also prove compliance with the requirements established in article 58-A.1.c) of the established in article 58-A.1.c of the Tax Benefits Statute (EBF) by verifying that it meets the qualifying conditions and the taxpayer works in a highly qualified profession.

Record-keeping and Verification

Both the competent agencies and the respective employer companies are required to maintain and provide documentation that proves compliance with the IFICI / NHR 2.0 regime requirements.

Taxpayers are required to keep a record of their activities and income earned during any of the years the IFICI regime is applied. This documentation must be presented at the request of the AT.

Duration

Like the previous NHR regime, the benefits under IFICI / NHR 2.0 are available for 10 calendar years from the time the applicant become tax resident in Portugal.

Taxpayers are required to notify the relevant authority if they no longer meet the requirements to benefit from the IFICI regime or if there is a change in their registration details. Notification must be submitted by 15 January of the year after the year in which the change of circumstances occurred, specifying the date on which the eligibility ended.

Taxpayers are also required to submit a new registration application if there is a change in the company that must verify the requirements for highly qualified professions or in the agency to which the registration application is submitted.

Conclusion

The IFICI / NHR 2.0 has a much more targeted scope than the former NHR regime in terms of the eligibility criteria, but still offers highly attractive special tax incentives for a 10-year periods for expats and investors seeking long-term residence in Europe.

“NHR 2.0 is all about attracting talent and fostering the growth of Portuguese companies. Eligible businesses must have economic substance in Portugal, so it does does not apply to freelancers or anyone working for non-resident companies that are not operating in Portugal,” said Shelley Wren, Head of Business Development at Sovereign Portugal.

“Designed to position Portugal as a hub for scientific research and innovation, when placed alongside the other attractive residency options the NHR 2.0 regime further consolidates Portugal’s status as a leading destination for residency and inward investment in the European Union.”