The Non-Habitual Residence (NHR) regime is coming to an end in 2024, and it will be replaced by a new tax incentive for scientific research and innovation. This means that the NHR regime will no longer be available for new tax residents who arrive in Portugal after December 31, 2023. However, those who are already enrolled in the NHR regime as of that date will continue to benefit from it for the remainder of their 10-year eligibility period.
The new tax incentive for scientific research and innovation is similar to the NHR regime, but it has some differences. The main difference is that the new tax incentive is only available for individuals who work in scientific research and innovation activities, as defined by the law. These activities include:
- Research and development (R&D) activities, such as basic research, applied research, or experimental development, in any scientific or technological field.
- Innovation activities, such as the creation or improvement of products, processes, services, or business models, that have a significant economic or social impact.
- Technology transfer activities, such as the acquisition, protection, or exploitation of intellectual property rights, or the provision of technical or scientific consultancy services.
The new tax incentive for scientific research and innovation will grant the following tax benefits:
- A flat 10% income tax rate on Portuguese employment and self-employment income derived from scientific research and innovation activities. This is instead of the normal progressive tax rates that range from 14.5% to 48%.
- An exemption from income tax on foreign income derived from scientific research and innovation activities, provided that the income is taxed in the source country, or that it is not derived from a blacklisted tax haven, or that it is not obtained in Portugal.
- An exemption from wealth tax and inheritance tax, as Portugal does not levy these taxes on residents.
The new tax incentive for scientific research and innovation will also last for 10 consecutive years, starting from the year of registration as a tax resident in Portugal. To qualify for the new tax incentive, one must meet the following requirements:
- Be a tax resident in Portugal, which means staying in Portugal for more than 183 days in a year, or having a permanent home in Portugal at any time during the year.
- Not have been a tax resident in Portugal in the previous five years before applying for the new tax incentive.
- Register as a beneficiary of the new tax incentive with the Portuguese tax authorities before the end of the year of becoming a tax resident in Portugal.
- Provide evidence of the scientific research and innovation activities performed, such as contracts, invoices, certificates, or publications.
The new tax incentive for scientific research and innovation aims to attract and retain talented and qualified individuals who can boost the scientific and technological development of Portugal, as well as to foster a culture of innovation and entrepreneurship in the country. The new tax incentive is also compatible with the Golden Visa program, which grants residency and citizenship rights to foreign investors who invest in Portugal.
In conclusion
Portugal’s tax landscape is undergoing a significant transformation with the impending conclusion of the Non-Habitual Residence (NHR) regime in 2024, making way for a targeted tax incentive focused on scientific research and innovation. While the NHR regime, known for its broad eligibility, will cease to be an option for new tax residents arriving after December 31, 2023, those already enrolled will continue to enjoy its benefits for the remainder of their 10-year eligibility period.
The transition brings forth the new tax incentive, aligning with Portugal’s commitment to fostering scientific and technological advancements. Designed specifically for individuals engaged in research and innovation activities, it offers a flat 10% income tax rate on relevant Portuguese income, exemptions on foreign income derived from these activities, and relief from wealth and inheritance taxes for a decade.
To qualify for this innovative incentive, individuals must meet specific residency criteria, demonstrate engagement in qualifying activities, and adhere to the application process outlined by the Portuguese tax authorities. This strategic shift aims to attract and retain skilled professionals who can contribute to Portugal’s scientific and technological development while promoting a culture of innovation and entrepreneurship.
