Portugal Replaces the NHR Tax Regime with IFICI

Portugal's Non-Habitual Resident (NHR) tax regime, one of the most attractive tax programs for expats in Europe, officially ended on January 1, 2025. In its place, Portugal introduced the IFICI (Innovative Fiscal Incentive for Scientific Research and Innovation), commonly referred to as "NHR 2.0".

Running since 2009, the NHR offered new tax residents a flat 20% income tax rate on qualifying Portuguese-sourced income, with many types of foreign income either exempt or taxed at reduced rates. By 2024, the annual tax expenditure linked to NHR exemptions had exceeded €1.7 billion, the highest since the regime's creation.

The NHR was particularly popular among retirees, who could receive foreign pension income with significant tax advantages, and high-income professionals relocating to Portugal.

The replacement IFICI regime is more targeted than its predecessor. Key features include:

• A 20% flat tax rate on eligible Portuguese-sourced income
• Relief from double taxation for certain foreign-sourced income
• Available for 10 years from the date of registration
• Restricted to highly qualified professionals in innovation-driven fields

Eligibility is significantly narrower than the old NHR. To qualify, you must:

1. Not have been a Portuguese tax resident in the previous 5 years
2. Hold a university degree (EQF Level 6+) or a PhD
3. Work in approved sectors: science, technology, healthcare, green energy, or R&D
4. Be employed by a qualifying entity or engaged in qualifying research activities

Important for retirees: The IFICI does not include the pension tax benefits that made the NHR so popular among retirees. If you're planning to retire in Portugal, your tax situation will now follow standard Portuguese income tax rules unless you qualify under a different provision.

If you're considering a move to Portugal in 2025 or beyond, the tax landscape is different from what it was. The D7 visa (passive income) and D8 visa (digital nomad) remain excellent residency pathways, but the generous tax regime that once accompanied them is gone for most applicants. That said, Portugal's cost of living, climate, safety, and quality of life continue to make it one of the most attractive relocation destinations in Europe.

Our team can help you understand how these changes affect your personal situation and whether Portugal remains the right fit for your relocation plans.