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Are you registered or planning to register as a Non-Habitual Resident (NHR)?

In this article, we explain what the NHR tax regime entails, the changes to the law, and how to declare income for IRS purposes.

The NHR regime was revoked effective January 1, 2024, but until March 31, 2025, it is still possible to apply for registration and benefit from this tax regime.

Definition of Non-Habitual Resident

The figure of the Non-Habitual Resident (NHR) was created with the aim of attracting qualified professionals in high added value activities, foreign pensioners, and high-net-worth individuals to Portugal.

The special tax regime for NHR allows for exemption or more favorable tax rates on the income earned by these taxpayers for a period of 10 consecutive years, including the year of registration.

If during the 10-year period you have not benefited from the NHR taxation right in one or more years, you can re-benefit from the regime until the 10 years are completed, provided you are considered a tax resident in Portugal.

This regime was created to contribute to the development and modernization of the Portuguese economy, to increase consumption and tax revenues (IMT, IMI, and VAT).

The IRS Code defines the NHR as an individual who becomes a resident in Portuguese territory and has not been taxed as a resident in Portugal in the previous 5 years.

To become a resident in Portugal it is necessary (n. 1 of art. 16.º of CIRS):

  • Have stayed in Portuguese territory for more than 183 days, consecutive or interpolated, in a 12-month period starting or ending in the relevant year;
  • If stayed less than 183 days in Portugal, have a dwelling in conditions to be maintained and used as a habitual residence.

The NHR regime is a right that is neither mandatory nor automatic. If the taxpayer is interested in benefiting from this status, they must request it from the Tax Authority (AT), thus opting for the special regime. If the NHR status is not requested, the taxpayer will be taxed as a tax resident in Portugal under the general regime.

Taxation of Income under the NHR Tax Regime

High Added Value Activities

One of the objectives of creating the NHR regime was to attract highly qualified professionals in activities considered high added value that contribute to the development of the Portuguese economy.

The table of high added value activities, approved by Ordinance No. 12/2010 and amended by Ordinance No. 230/2019, includes activities such as directors, physicists, mathematicians, doctors, engineers, university professors, ICT specialists, artists, journalists, among others.

Within this group, there are high added value activities carried out as employees (category A income) or within the scope of professional and business activities (category B income).

How is income taxed under the NHR tax regime?

Category A Income:

  • If obtained in Portugal, it is taxed at an autonomous rate of 20%;
  • If obtained through a foreign entity and taxed abroad, the exemption method applies. Otherwise, the autonomous rate of 20% applies.

Category B Income:

  • If obtained in Portugal, it is taxed at an autonomous rate of 20%;
  • If obtained by activity in a permanent establishment abroad, the exemption method applies.

Pension Income

The NHR regime also aimed to attract foreign pensioners or Portuguese residents abroad, aiming for them to establish residence in Portugal and thus contribute to the Portuguese economy through the acquisition of real estate, essential and non-essential goods, services, leisure activities, etc. In this way, tax revenues would increase through IMT, IMI, and VAT.

Pension income, category H, is taxed at an autonomous rate of 10%. For those who registered as NHR until 2020, the income in this category is exempt.

Pension income, when exempt, is mandatorily aggregated, without prejudice to the tax credit for international double taxation (n. 1 of art. 81.º of CIRS).

Other Income

Income obtained by NHRs from categories E (capital), F (real estate), and G (capital gains, including securities) is subject to:

  • Exemption method, if sourced abroad and taxed abroad;
  • Taxation at the rate of 35% for capital income and capital gains, if sourced abroad and paid by an entity domiciled in a country subject to a more favorable tax regime.

International Double Taxation

To eliminate double taxation, i.e., for the same income not to be taxed abroad and in Portugal, the taxpayer can choose between:

  • Exemption method;
  • Tax credit method.

The exemption method is applied in the form of exemption with progressivity, i.e., the income is exempt from taxation but is aggregated with other types of income to determine the applicable IRS rate.

The tax credit, simply put, is a mechanism to eliminate double taxation that consists of deducting the tax paid abroad from the tax assessed in Portugal.

NHR Tax Regime – Transitional Provision

The Non-Habitual Resident tax regime was revoked by the State Budget of 2024 (al. b) of art. 317.º of Law No. 82/2023 of December 29), effective from January 1, 2024. However, the same law provides for a transitional provision that allows the application of this regime beyond that date.

The regime continues to apply until the end of the 10th consecutive year from the year of registration (inclusive) as NHR. For the purpose of counting the time, the start is considered from the date the taxpayer becomes a resident in Portugal.

Who can continue to benefit from the old regime?

According to Article 236.º of Law No. 82/2023, the Non-Habitual Resident tax regime continues to apply to the taxpayer who:

  • Was already registered with the AT on January 1, 2024, but has not yet exhausted the 10-year period in which they are entitled to be taxed as NHR;
  • Met the conditions for qualification as NHR (art.16.º of CIRS) for tax purposes in Portugal on December 31, 2023, and submitted the application for registration as NHR on the AT Portal by March 31, 2024.

The NHR tax regime is also applicable to the taxpayer who becomes a tax resident by December 31, 2024, and submits the application for registration as NHR on the AT Portal by March 31, 2025 (with effect from the year 2024).

To fall within this situation, the taxpayer must possess one of the following elements:

  • Employment or assignment contract, employment or assignment agreement signed by December 31, 2023, to be performed in Portugal;
  • Rental contract, or another that grants the use or possession of a property in Portuguese territory, signed by October 10, 2023;
  • Reservation contract or promise of acquisition of real estate rights in Portuguese territory signed by October 10, 2023;
  • Enrollment or registration for dependents, made by October 10, 2023, in an educational institution located in Portugal;
  • Valid visa or residence permit by December 31, 2023;
  • Visa or residence permit application initiated with the competent authorities by December 31, 2023;

In these circumstances, it is important that the taxpayer retains all documents justifying the inclusion in the NHR tax regime to present to the AT whenever requested.

The family members of the taxpayer covered by the transitional provision can also benefit from the NHR tax regime.

The taxpayer who becomes a resident by December 31, 2024, and their family members must first register in the AT database as residents in Portuguese territory (n. 10 of art. 16.º of CIRS) by changing the tax residence, and only then proceed to register as NHR.

If the application for registration as NHR related to 2024 is submitted after March 31, 2025, and is approved, the NHR taxation will only apply from the year of registration and until the end of the 10-year period counted from 2024. Thus, a taxpayer registered as NHR in August 2025, for example, will only benefit from the tax regime for 9 years.

Note that if the taxpayer becomes a tax resident in Portugal in 2025, the application submitted in 2025, or later, will be denied if the conditions provided in the temporary provision are not met.

You can submit the application for registration as NHR here, entering your authentication data on the AT Portal.

How to Declare in the IRS

The Non-Habitual Resident must submit the IRS Model 3, declaring all income obtained in Portugal and abroad.

Thus, the annexes corresponding to the various categories of income and Annex L – Non-Habitual Resident must be submitted.

We, at Simplifinance, are happy to provide any clarifications regarding this matter.