The NHR scheme was cancelled with effect from October 2023, but some individuals were still able to qualify under the transitional rules up until 31 March 2025.

In its place, a new initiative has been introduced: the Incentive for Scientific Research and Innovation (IFICI), informally known as “NHR 2.0.”

NHR 2.0: Now Open for Applications

While the new IFICI scheme was legislated to take effect from January 2024, practical implementation was delayed until February 2025, when the necessary forms and procedures were made available. With applications now open, many are wondering:

What are the benefits and who is eligible?

Tax Benefits Under NHR 2.0:

In many ways, NHR 2.0 is even more attractive than its predecessor. Under the previous scheme, specific conditions applied for foreign income and gains to be tax-free.

However, under NHR 2.0, all foreign-sourced income and gains are exempt from Portuguese tax, with the exceptions of pension income and income from blacklisted jurisdictions.

Additionally, similar to the old regime, NHR 2.0 introduces a 20% flat tax rate on employment and self-employment income derived from qualifying industries and activities.

Eligibility Criteria: A Boon for Business Owners

To qualify for the new scheme, individuals must be a tax residents of Portugal from 1 Januar,y 2025 and must not have been tax residents in Portugal for any of the previous five years. Those who have previously benefited from NHR 1.0 or Portugal’s tax regime for former residents are not eligible to apply.

Although the tax benefits are generous, the eligibility criteria has been tightened, making the scheme more industry-focused. However, recent expansions to the list of qualifying activities have widened access, particularly benefiting business owners. Notably, UK business owners could find this scheme attractive, as it may allow them to receive tax-free dividends and potentially sell their businesses without incurring tax liabilities in either the UK or Portugal.

1. UK Implications: What you need to consider

Meeting Portugal’s eligibility requirements is just one part of the equation; ensuring compliance with UK tax rules is equally critical. The key factors to consider include:

2. Limiting time spent in the UK

To take full advantage of the tax benefits of NHR 2.0, individuals must carefully manage their time in the UK. Many assume a 90-day limit applies, but the actual threshold varies depending on personal circumstances. The UK statutory residence test, introduced in 2013, determines UK residency status and can limit stays to as little as 16 days in some cases, or as many as 182 days in others.

Given the complexity of these rules, tracking travel days across Portugal, the UK, and other jurisdictions is crucial.

The UK’s Five-Year Anti-Avoidance Rule

This rule prevents individuals from temporarily leaving the UK to realise income or capital gains tax-free before returning. To avoid UK tax liabilities on income or gains realised abroad, individuals must remain non-UK residents for at least five years.

Application Process and Deadlines

Applications for NHR 2.0 registration must be submitted by 15 January of the year following the year of Portuguese residency. However, individuals becoming residents in 2024 have an extended deadline until 31 March, 2025.

While this article provides an overview based on current regulations and practices, tax laws can change with little or no notice. As such, seeking professional advice tailored to individual circumstances must always be sought.

With over 35 years’ experience, Debrah Broadfield and Mark Quinn are Chartered Financial Planners (Level 6) and UK Tax Advisers specialising in cross-border advice for expatriates. For a complimentary initial consultation, please contact +351 289 355 316 or portugal@spectrum-ifa.com. Alternatively, visit www.spectrum-ifa.com.