2025 Update on NHR Taxation: Impacts for Foreign Investors

Context : Success and End of the Classic NHR Regime (2009–2023)

Portugal introduced the Non-Habitual Resident (NHR) status in 2009 to attract foreigners — both retirees and highly skilled professionals — with tax benefits for 10 years. This regime notably allowed: a flat 20% tax rate on “high value-added” professional income earned in Portugal (qualified professions such as teachers, executives, doctors, architects, engineers, etc.), and exemption from income tax on most foreign-sourced income (pensions, dividends, interest, rental income, capital gains) under certain conditions. For example, a foreign retiree previously enjoyed a total exemption from tax on their pension for 10 years; since 2020, a 10% flat tax applied to foreign pensions for new NHRs. These substantial tax advantages attracted thousands of wealthy residents to Portugal, helping boost both the real estate market and the local economy.

However, the NHR regime came under growing criticism in Portugal, seen as a form of “tax injustice” by part of the population and political class, as it benefited foreigners but not Portuguese nationals. Moreover, the influx of wealthy expatriates was blamed for driving up real estate prices in major cities (Lisbon, Porto) and in the Algarve. Under pressure from these socio-economic concerns, Prime Minister António Costa announced in autumn 2023 the end of the “classic” NHR regime starting in 2024. The Prime Minister argued there was no longer any reason to continue these “tax giveaways” to foreign residents, which in his view contributed to real estate speculation. This decision is part of a broader move to scale back incentives for foreign investors — such as the end of the Golden Visa programme earlier in 2023 — marking a turning point in Portugal’s attractiveness policy.

Changes in 2024–2025: Abolition of the NHR and Introduction of the New IFICI Regime

Since 1 January 2024, the NHR regime is no longer open to new applicants. In practical terms, no new NHR (“Non-Habitual Resident”) status applications can be filed by individuals becoming tax residents in 2024 or later, except under transitional provisions. However, the government has introduced a grandfather clause to protect acquired rights for ongoing situations :

• For individuals already settled in 2023: If you became a tax resident of Portugal before 31 December 2023, it was still possible to apply for the classic NHR status until 31 March 2024. After this deadline, no new NHR registrations were accepted for these 2023 residents.

• For individuals settling in 2024: If you became a tax resident of Portugal during 2024 (and had not been a Portuguese resident in the previous five years), the law provided one final window to apply for the classic NHR until 31 March 2025. However, you had to meet strict conditions proving that your relocation process had already started before the announcement of the regime’s end. For example, you had to have signed a rental lease or property purchase contract in Portugal before 10 October 2023, or have an employment contract in Portugal signed before 31 December 2023, or have obtained an approved visa/residence permit before the end of 2023, etc. These criteria were designed to reserve the regime’s benefits for individuals who were already in the process of relocating by late 2023, rather than for opportunistic new arrivals in 2024. By meeting these conditions, NHR status could still be obtained at the last minute, with the same benefits as before.

Individuals who already held NHR status before the reform will continue to benefit from it in full until the end of their 10-year period. In other words, an expatriate registered as NHR in 2018 can keep their preferential tax regime until 2027, despite its abolition for new entrants. There is no retroactive change for these beneficiaries.

Alongside the end of the “classic NHR,” the government introduced in 2024 a new targeted regime, called IFICI (Incentivo Fiscal à Investigação Científica e Inovação, or Tax Incentive for Scientific Research and Innovation). Considered a “NHR 2.0,” this scheme aims to maintain tax incentives to attract highly qualified profiles while refocusing these benefits on sectors deemed strategic (innovation, technology, research, etc.). The IFICI has been officially in force since 1 January 2024 and is intended for new tax residents meeting much stricter eligibility requirements than the former NHR.

The New IFICI Regime : Eligibility Conditions in 2025

The IFICI status applies to individuals who become tax residents of Portugal from 2024 onwards and who have not been Portuguese tax residents during the previous five years, as was the case with the former NHR regime. In addition to this basic criterion, there is now a fundamental requirement: the individual must carry out a profession considered highly qualified or innovative, or related to research and development, in service of specific entities established in Portugal. In practice, the law and implementing decrees provide an exhaustive list of eligible situations, for example :

• Higher education teachers and scientific researchers working in universities, research institutes, or innovation centres in Portugal.

• Highly qualified professionals in R&D or technology (engineers, IT specialists, doctors, scientists, etc.) holding at least a higher education degree (Bachelor’s or above) and several years of experience, recruited by Portuguese companies operating in innovative sectors.

• Executives or board members working in Portugal for companies meeting specific economic criteria — for example, industrial or service companies generating at least 50% of their turnover from exports, or certified startups in Portugal. Eligible sectors include manufacturing, digital (software, IT), scientific research, and certain advanced medical or engineering activities.

• Highly qualified employees seconded to projects of national strategic interest, or within entities benefiting from specific tax incentives (e.g., technology centres funded by public programs, innovation labs, etc.).

• Employees of startups or innovative companies accredited by the authorities (incubators, government programs such as Startup Portugal), provided these companies meet eligibility requirements (fewer than 250 employees, less than 10 years old, innovative funding, etc.).

  
  

In summary, the IFICI targets a narrow circle of “talents” — primarily scientists, academics, engineers, and executives in the technology or industrial sectors, whose arrival aligns with Portugal’s innovation strategy. Retirees, passive income earners, and similar profiles are automatically excluded from this regime (as are individuals who have already benefited from NHR or the “ex-resident” scheme in the past). Access to the IFICI is granted only once per taxpayer and cannot be combined with another preferential tax status.

Tax Benefits Offered by the IFICI Regime

For eligible individuals meeting the strict requirements, the IFICI provides benefits comparable to the former NHR for a period of 10 years :

• Flat income tax rate of 20% on Portuguese-sourced income derived from eligible professional activities (Category A – employment or Category B – self-employment). This special 20% rate applies to net income, replacing the standard progressive IRS rates (whose top marginal bracket reaches 48% to 53% in 2025). It is valid each year the beneficiary holds the status, for a maximum of 10 consecutive years.

• Exemption from Portuguese income tax on foreign-sourced income earned during the regime period. This applies to salaries, business profits, interest, dividends, rental income, and capital gains from foreign sources, which will not be taxed in Portugal (with progression — meaning these exempt foreign incomes are still considered when calculating the tax rate applicable to other taxable income in Portugal).

  • Notable exception: pensions are not eligible for any exemption or reduced rate under IFICI. Foreign retirement pensions are taxed under the standard IRS progressive rates (~14.5% to 53%), just like any regular resident. In other words, IFICI completely removes the advantages foreign retirees enjoyed under the old NHR.

• Other provisions: income from jurisdictions considered tax havens (as listed by Portugal) is not eligible for exemption and remains subject to an aggravated 35% tax rate — a rule already present under the old NHR. Furthermore, IFICI allows that if a taxpayer temporarily ceases to meet the conditions (e.g., leaves Portugal before the end of the 10-year period), they may interrupt and later resume the benefit within the original 10-year window, provided they again become a Portuguese tax resident and resume work in an eligible sector.

Comparison of the Former NHR and the New IFICI Regime (2025)

From a tax perspective, the so-called “NHR 2.0” (IFICI) shares certain similarities with the former NHR, but with marked differences in scope and eligibility.

Note: In both regimes, there is no minimum stay requirement beyond meeting tax residency criteria (≥183 days/year or a habitual residence as of 31/12). The 10-year period is non-renewable; once it ends, residents revert to the standard IRS regime. Neither NHR nor IFICI grants any wealth tax benefit — Portugal continues to have no wealth tax, and no inheritance/gift tax between close relatives, advantages which apply to all residents.

Practical Impacts for Expats and Foreign Investors :

The reform of the NHR regime has major consequences for different expatriate profiles considering a move to Portugal :

• Foreign retirees – loss of fiscal attractiveness. This group are the biggest losers from the reform. While Portugal was long a retirement haven (with zero tax and later only 10% on foreign pensions), these benefits are now abolished for new arrivals. A retiree moving to Portugal in 2025 will be taxed like any other resident on their worldwide pension. For example, on an annual pension of €30,000, the tax bill could exceed €6,000/year (progressive IRS rates), compared to zero before 2020 and roughly €3,000 under the 10% NHR rate. This loss of fiscal advantage will likely slow the inflow of European retirees or push them towards alternative strategies (e.g., Luxembourg life insurance to shelter investment income). In short, “retiring in the sun” in Portugal no longer comes with the same tax savings, and disposable income for expat retirees is significantly reduced.

• Highly qualified professionals – benefit maintained, but for an elite. Active professionals working in cutting-edge sectors (tech, science, etc.) can still access very favourable taxation under IFICI — provided they meet the strict eligibility requirements. For these “VIP profiles”, Portugal remains attractive: an eligible engineer or researcher will still pay only 20% IRS on local salary for 10 years, versus around 40–45% without a special regime. This remains a powerful recruitment tool for innovative Portuguese employers. However, the tightened rules (mandatory degrees, certified companies, etc.) mean that many executives once eligible under NHR will no longer qualify for IFICI. For example, a finance executive or consultant outside priority sectors will now pay standard rates. Multinationals and HR teams will need to adjust their expatriation policies, as the removal of the broad NHR regime raises the fiscal cost of assignments in Portugal.

• Entrepreneurs, freelancers, and digital nomads – tighter restrictions. Many foreign entrepreneurs and self-employed professionals used NHR to enjoy low taxes while launching a business in Portugal (tech start-ups, remote work, consulting, etc.). With the reform, only those within innovation/export frameworks will qualify for IFICI. A tech start-up founder could qualify if the company is certified and export-oriented, securing the 20% IRS rate. By contrast, a digital nomad or freelancer serving foreign clients without integrating into an eligible local entity will be taxed normally on worldwide income. Many of these independents — who previously could be almost untaxed depending on treaty rules — will now face higher taxes if they become Portuguese tax residents. Some may avoid residency by limiting stays to under 183 days or may look for other tax-friendly jurisdictions.

• Wealthy investors and rentiers – capital income now taxed. The NHR regime appealed to high-net-worth individuals living off passive income (dividends, capital gains, foreign rental), as it often meant no Portuguese tax on foreign-source investment income (if taxed abroad, even lightly). Now, unless they qualify for IFICI via eligible professional activity, a wealthy rentier will be taxed like a standard resident: 28% flat tax on foreign dividends/interest, 28% on capital gains, etc. The exemption once enjoyed by NHRs is gone. For instance, a stock portfolio generating €50,000/year in dividends, previously net of Portuguese tax under NHR, will now incur €14,000/year in IRS for a new resident without IFICI. This may deter some international investors from moving to Portugal purely for fiscal optimisation. The country instead emphasises its no wealth tax, no inheritance/gift tax between close relatives, and overall safety and quality of life — but the capital income tax carrot is much smaller in 2025.

  
  

In summary, the end of the “generalist” NHR marks the close of an era of easy tax optimisation in Portugal for most expatriates. The new framework seeks a balance: continuing to attract high value-added talent and projects (through selective tax benefits) while restoring fiscal fairness for other residents and addressing socio-economic pressures (housing, perceived inequality). Portugal remains competitive for technology and innovation profiles but will no longer be a tax haven for retirees or passive income earners. Each investor or expatriate should therefore reassess the attractiveness of Portuguese tax residency in light of these new rules.

Administrative procedures and alternative regimes in 2025

For existing NHR beneficiaries (registered before 2024), no special action is required to continue enjoying the regime. They must simply maintain their tax residency in Portugal each year and will be able to apply their special status until the end of the initial 10-year period. It is advisable to keep proof of their granted NHR status in case of an audit and to monitor any legislative changes that could affect it (although retroactive changes are unlikely).

For individuals arriving in 2024 who were eligible for the former NHR, the 31 March 2025 deadline was crucial. They had to submit the standard NHR application online via the Portal das Finanças or at the tax offices before this date, along with supporting documents (proof of residence in 2023/2024 and eligibility under the transitional clause). After March 2025, no new NHR applications are accepted — the window is permanently closed. Those who moved in 2024 without meeting the exception criteria were therefore unable to obtain the regime and are automatically taxed under the general regime (unless they qualify for the IFICI).

For new arrivals in 2025 and beyond, the only available tax relief option is the IFICI regime described above. Enrolment is not automatic — an explicit application must be submitted to the competent authorities within the prescribed deadlines. The process generally involves: registering as a tax resident (obtaining a NIF, Portuguese taxpayer number), then filing an application for the IFICI regime before 15 January of the year following the year of arrival. For example, a professional who becomes a tax resident in 2025 must apply for IFICI status before 15 January 2026. Depending on the case, the application is submitted either directly through the tax authorities (Autoridade Tributária) or via other authorised bodies (such as the investment agency AICEP or the IAPMEI institute) when eligibility depends on the employer’s status (startup, export-oriented company, etc.). Supporting documents are required, such as: university degree, employment contract, employer’s certificate describing the nature of the activity and confirming compliance with eligibility criteria (e.g. confirmation that the company generates at least 50% of its turnover from exports).

The file is then reviewed by the competent authority, and if approved, IFICI status is granted for the remaining duration of 10 years.

NB: A transitional measure granted 2024 residents an extended deadline until 15 March 2025 to register under the IFICI regime, given the novelty of the scheme. In the event of a late registration, the law provides that the taxpayer may still benefit from the regime starting from the year of regularisation (without retroactive effect on the previous year). It is therefore crucial for those concerned to meet the deadlines in order to maximise the period of tax relief.

What alternatives remain in 2025 to reduce taxation in Portugal, outside of the IFICI ?

The Portuguese government has maintained or introduced a few targeted tax regimes, although these are not aimed directly at new foreign residents, but rather at other categories :

• The “Ex-Resident” regime (Programa Regressar) aims to encourage Portuguese nationals living abroad to return to the country. Under certain conditions, it grants a 50% exemption on employment and self-employment income for five years to individuals who were previously resident in Portugal and return after at least three to five years abroad. This regime has been extended to cover returns until 2026, with a €250,000 annual income exemption cap for returns starting in 2024. It therefore only applies to former Portuguese residents (and not to first-time foreign arrivals), but it is a strong incentive for the Portuguese diaspora, which may interest certain dual nationals or mixed couples considering a return.

• The “IRS Jovem” regime, updated in 2023, provides a partial IRS exemption for young workers under 35 during their first ten years in the labour market (100% in the first year, 75% in years 2 to 4, then progressively reduced), within a certain cap. This scheme, open to all young residents (Portuguese or foreign), can provide a tax bonus for young expatriates starting their careers in Portugal, although it is not specifically designed to attract foreigners but rather as a general youth measure.

• Finally, in the absence of a specific tax regime for foreign retirees, they can turn to private tax planning solutions. For example, Luxembourg life insurance policies allow the accumulation of financial income with taxation deferred until withdrawal, offering a cross-border framework often favoured by wealthy expatriates. Similarly, investment through Portuguese venture capital funds can benefit from reduced rates (10% on certain capital gains). These alternatives fall outside the scope of this article but illustrate that the end of the NHR does not mean the end of all optimisation opportunities for savvy taxpayers — even though Portugal no longer grants a broad special tax regime for new arrivals.

  
  

In conclusion,

The year 2025 marks a turning point for expatriate taxation in Portugal. The NHR regime (Non-Habitual Resident), a flagship tool for attracting foreign residents for over a decade, has been abolished for new residents, in a political context prioritising tax fairness and moderation of the real estate market.

Only one new tax incentive, the IFICI, remains to continue attracting high value-added profiles, scientists, and innovators, offering them reduced tax rates comparable to the former NHR on professional income, along with an exemption on foreign income (excluding pensions). Most other foreign residents will now have to adapt to the standard tax regime, which is less advantageous — a change that could reshape expatriation flows to Portugal.

Nevertheless, the country remains attractive in other respects (cost of living, climate, safety, absence of wealth tax, etc.), and measures like the IFICI show a willingness to keep Portugal competitive in the global talent race while addressing domestic concerns.

It is therefore essential for any prospective expatriate in 2025 to carefully assess their profile against these new rules, in order to anticipate their tax burden and take advantage of any available incentives still in place. The guidance of specialists (tax lawyers, wealth management advisors) is more than ever recommended to navigate this rapidly evolving tax landscape.