Eligibility for a particular tax regime depends, first and foremost, on correctly determining tax residence, as well as on the taxpayer’s personal circumstances, professional activity, source of income and compliance with the relevant legal requirements.
In this context, advance tax planning is essential for anyone considering moving their tax residence to Portugal, returning to the country or starting a professional or business activity in Portugal.
Tax residence in Portugal: the first step
Before considering any tax benefit, it is necessary to determine whether an individual is considered a tax resident in Portugal.
Under the rules currently in force, an individual may be considered tax resident in Portugal, among other circumstances, when they remain in Portuguese territory for more than 183 days, whether consecutive or otherwise, during a 12-month period beginning or ending in the relevant tax year.
Tax residence may also arise where an individual remains in Portugal for a shorter period but has a dwelling available in Portugal, at any point during that period, in circumstances indicating an intention to maintain and occupy it as their habitual residence.
Therefore, tax residence should not be determined solely by the number of days spent in Portugal. The existence of a habitual home and the individual’s actual circumstances may also be relevant.
This issue is particularly important for people who divide their time between Portugal and another country, international workers, entrepreneurs, directors and professionals carrying out activities in different jurisdictions.
What does being tax resident in Portugal mean?
Tax residence has significant implications for the taxation of income.
In general terms, Portuguese tax residents are subject to Portuguese Personal Income Tax (IRS) on their worldwide income, including income arising outside Portugal. Non-residents, on the other hand, are generally taxed in Portugal on income arising from or connected with Portuguese territory.
For this reason, a move of tax residence to Portugal should be analysed globally.
It is not enough to consider salary or professional income earned in Portugal. Investments, property, pensions, dividends, interest, capital gains and other income arising both in Portugal and abroad must also be taken into account.
The end of the Non-Habitual Resident regime
One of the most significant changes to the Portuguese tax system was the abolition of the Non-Habitual Resident (NHR) regime for new situations from 1 January 2024.
The previous regime allowed, under certain circumstances, particularly favourable taxation for a period of 10 years.
However, its abolition did not automatically remove the rights of individuals who were already covered by the regime or who meet the conditions established under the applicable transitional provisions.
Consequently, there are still taxpayers who continue to benefit from the NHR regime for the period originally granted to them, which may extend to 10 years, provided that the relevant requirements continue to be met.
It is therefore important to distinguish between:
- taxpayers who were already benefiting from the NHR regime;
- taxpayers covered by the transitional rules;
- new Portuguese tax residents who cannot access the former regime;
- taxpayers who may qualify for currently available regimes, such as IFICI or the Young IRS regime.
IFICI: the new incentive for scientific research and innovation
For many new residents, the Tax Incentive for Scientific Research and Innovation (IFICI) is currently one of the most relevant tax regimes.
IFICI is provided for under Article 58-A of the Portuguese Tax Benefits Code and was introduced with the aim of attracting highly qualified talent, promoting scientific research and encouraging innovation activities in Portugal.
The activities potentially covered by the regime include, among others:
- certain teaching activities in higher education and scientific research;
- scientific employment in certain entities integrated into the national science and technology system;
- certain positions in technology and innovation centres;
- certain qualified positions and management functions;
- certain highly qualified professions;
- other qualified activities and positions meeting the conditions established by law.
Access to the regime is not automatic. One of the fundamental requirements is that the taxpayer becomes tax resident in Portugal and has not been tax resident in Portugal during the previous five years. The taxpayer must also carry out an eligible activity and meet the other statutory requirements.
What is the benefit?
Where the relevant requirements are met, certain net Category A and Category B income arising from eligible activities may benefit from a special 20% tax rate for a period of 10 consecutive years, subject to the applicable rules and the possibility of opting for aggregation where legally available.
The regime also establishes specific rules for certain foreign-source income. The analysis should therefore not be limited to income earned in Portugal.
Young IRS: an opportunity for younger residents
Another relevant tax regime is the Young IRS regime, currently provided for under Article 12-B of the Portuguese Personal Income Tax Code.
The regime provides for a partial exemption from certain Category A and Category B income earned by taxpayers aged up to 35, during the first 10 years in which they earn income, subject to the statutory requirements and the taxpayer opting for the regime in their IRS tax return.
However, the regime does not automatically apply to all young taxpayers.
There are specific conditions and exclusions. For example, the regime cannot be combined with certain other tax regimes, including the NHR regime, IFICI and the former residents’ regime provided for under Article 12-A of the Personal Income Tax Code.
The appropriate tax treatment should therefore be assessed based on each taxpayer’s individual circumstances.
Tax regime for former residents
Portugal also has a tax regime aimed at encouraging former residents to return to the country.
The regime applicable to former residents may cover taxpayers returning to Portugal who meet certain requirements, including having previously been tax resident in Portugal and not having been tax resident in the country during the five years preceding their return.
Among other conditions, the taxpayer must become tax resident in Portugal within the period established by law and have their tax affairs in order.
This regime may be particularly relevant for Portuguese citizens who have developed part of their professional careers abroad and are considering returning to Portugal.
Tax benefits go beyond personal income tax
When discussing tax benefits in Portugal, it is important not to limit the analysis to regimes applicable to employment income.
Portugal offers various tax incentives relating to other areas, including:
- business investment;
- research and development;
- certain financial investments;
- acquisition or rehabilitation of property in legally defined circumstances;
- residential letting;
- donations;
- specific regimes applicable to certain activities or territories.
A particularly relevant example in the housing sector is the regime providing an exemption from Portuguese personal and corporate income tax on certain rental income arising from the transfer of properties previously used for local accommodation to residential letting, provided that all legally established conditions are met.
This example demonstrates that eligibility for a tax benefit does not necessarily depend on the owner’s tax residence. In certain circumstances, the objective conditions relating to the property, the lease and its use may be decisive.
Tax residence and foreign-source income
For individuals moving to Portugal, this is one of the areas requiring the greatest attention.
A new Portuguese tax resident may continue to have:
- bank accounts abroad;
- property in other countries;
- dividends from foreign companies;
- international professional income;
- pensions;
- financial investments;
- interests in companies;
- capital gains arising from transactions outside Portugal.
Moving to Portugal does not mean that these sources of income cease to have tax implications.
It is necessary to analyse Portuguese legislation, the tax rules applicable to each category of income and, where more than one country is involved, the relevant Double Tax Treaties.
Where possible, proper tax planning should be carried out before the change of residence.
The importance of planning before changing tax residence
Tax residence should not be treated simply as an administrative change of address with the Portuguese Tax and Customs Authority.
A move to another country can have significant tax consequences and should be analysed taking into consideration, among other factors:
- The effective date of the move to Portugal;
- The number of days spent in each country;
- The existence and use of a home in Portugal;
- The country in which professional activities are carried out;
- The source of income;
- Assets held abroad;
- The possible application of a Double Tax Treaty;
- Potential eligibility for IFICI, the Young IRS regime or the former residents’ regime;
- Tax and reporting obligations in Portugal and abroad;
- The tax consequences of changing residence in the country of origin.
An analysis carried out only after the move may limit tax-planning opportunities and, in certain circumstances, result in a higher tax burden than could have been achieved through timely planning.
Conclusion
Portugal continues to offer a diverse range of tax incentives that may be relevant to existing residents, new residents, young professionals, researchers, highly qualified workers, entrepreneurs and former residents considering returning to the country.
However, the Portuguese tax framework has changed significantly. The former Non-Habitual Resident regime is no longer available for new situations, while regimes such as IFICI, the Young IRS regime and the former residents’ regime are now particularly relevant, each with its own requirements and conditions.
Rather than simply looking for “the most favourable tax benefit”, it is essential first to determine tax residence, identify all of the taxpayer’s income and assets and then assess which regimes may apply.
An efficient tax decision should be planned, documented and tailored to each taxpayer’s individual circumstances.
How can Nominaurea help?
Nominaurea – Consultoria Fiscal e Contabilidade, Lda. advises companies, entrepreneurs, professionals and individuals on taxation and tax residence matters in Portugal.
We can assist with, among other matters:
- analysing tax residence in Portugal;
- identifying the main tax regimes and potentially applicable tax benefits;
- assessing eligibility for IFICI, the Young IRS regime or the former residents’ regime;
- analysing the taxation of income earned in Portugal and abroad;
- supporting compliance with tax obligations before the Portuguese Tax and Customs Authority;
- analysing the tax implications associated with a change of residence;
- providing accounting and tax support to companies and professionals carrying out activities in Portugal;
- coordinating with legal specialists whenever a situation requires specialist legal advice.
Before moving your tax residence to Portugal, it is important to understand the tax consequences of that decision in advance.
Nominaurea is available to analyse your situation and identify the tax framework appropriate to your circumstances.
