Article by Luís Leitão Teixeira – Lawyer at International Atlantic Services

Portugal’s Non-Habitual Resident (NHR) tax regime was created to attract highly qualified professionals, foreign investors, and pensioners by offering significant tax benefits for a period of ten consecutive years. For many years, it positioned Portugal as one of the most attractive tax destinations in Europe. While the original NHR framework has now evolved, the regime continues under a new structure commonly referred to as NHR 2.0.

To benefit from the NHR regime, individuals must become tax residents in Portugal and must not have been Portuguese tax residents in the previous five years. Eligibility traditionally depended on earning foreign-source income or carrying out a highly qualified activity in Portugal. Under the original regime, qualifying professionals could benefit from a flat 20% personal income tax rate on Portuguese employment or self-employment income, while many categories of foreign-source income, such as pensions, dividends, interest, rental income, and capital gains —could be exempt from taxation in Portugal, provided certain conditions were met and double taxation treaties applied.

The taxation applicable under the NHR regime depends on the nature and source of the income. Foreign pension income, which was previously exempt, has been subject to a 10% flat tax since 2020. Foreign dividends and investment income may still benefit from exemption in Portugal, provided the income may be taxed in the country of origin, the source country has a Double Taxation Agreement with Portugal, and the paying entity is not located in a blacklisted jurisdiction. For employment and professional income earned in Portugal, individuals carrying out qualifying activities benefit from the reduced 20% IRS rate.

From 2025 onwards, Portugal introduced significant changes to the regime through what is now known as NHR 2.0, formally designated as the Tax Incentive for Innovation and Scientific Research (IFICI). This new framework narrows the scope of eligibility and places a stronger focus on professionals engaged in high value-added activities. The benefits remain available for a ten-year period, but the entry criteria are more restrictive and targeted.

Under NHR 2.0, the regime is primarily aimed at highly qualified professionals working in strategic sectors such as technology, engineering, medicine, science, and research. It also applies to individuals employed by innovative companies, startups, export-oriented businesses, as well as academic researchers and university professors. While the tax advantages remain attractive, careful analysis is now essential to determine eligibility and ensure compliance with the new rules.

Applying for NHR status in Portugal continues to involve several administrative steps. Applicants must first obtain a Portuguese tax number (NIF), register as tax residents in Portugal, and submit the NHR application through the Portuguese Tax Authority’s online portal. Supporting documentation, including proof of residence and income, must be provided, after which the application will be reviewed by the tax authorities.

In conclusion, Portugal’s NHR regime, now in its revised 2.0 version, remains one of the most competitive tax incentive programs in Europe for qualified professionals and investors. However, given the changes introduced and the more stringent eligibility requirements, proper tax planning and professional advice are more important than ever to fully benefit from the opportunities the regime offers.