Tax Reform in Portugal: Understanding the Transition to NHR 2.0

Portugal has recently unveiled an innovative tax regime, the Fiscal Incentive for Scientific Research and Innovation (IFICI) program, marking a significant shift towards attracting global talent. This initiative, commonly referred to as NHR 2.0, is designed to foster a thriving ecosystem for highly qualified professionals by offering compelling tax benefits and positioning Portugal as a leading destination for residence and employment.

Key Tax Benefits

• Reduced Personal Income Tax Rate: Beneficiaries enjoy a flat 20% rate on employment income, a considerable reduction from the standard rates that escalate from 14.5% to 53%.

• Exemption on Foreign Income: A wide range of foreign income sources are exempt from tax, including employment and self-employment income, capital investment returns, royalties, capital gains, and real estate income/gains. It's important to note, however, that foreign pensions remain subject to Portugal's standard progressive rates.

Income from black-listed jurisdictions does not qualify for IFICI exemptions and may face higher tax rates.

Eligibility Criteria

To be eligible for the IFICI program, applicants must meet the following requirements:

• Become a tax resident in Portugal from 2024 onwards, without having been a resident in the five years prior.

• Have not previously benefited from the NHR regime or opted for the "ex-residents" tax regime.

• Participate annually in eligible scientific research and innovation activities, without exceeding a six-month interruption.

Eligible Activities

Eligibility extends to a variety of roles and activities, including:

• Higher education teaching and scientific research.

• Positions within technology and innovation centers.

• Highly qualified professions in supported sectors.

• Roles contributing significantly to the national economy, as recognized by relevant Portuguese agencies.

• Research and development personnel.

• Positions in certified startups and in the Azores and Madeira Autonomous Regions.

Given its complexity, the IFICI program warrants professional tax analysis to fully understand individual eligibility and benefits. Seeking expert advice is strongly recommended to navigate this transition effectively.

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