Portugal's ITS Tax Program: The NHR Replacement Explained

Portugal's ITS Tax Program: The NHR Replacement Explained

For years, Portugal's Non-Habitual Resident (NHR) tax regime was one of the most attractive fiscal incentives in Europe. It drew retirees, remote workers, entrepreneurs, and investors from around the world with its generous tax benefits. In January 2024, Portugal closed the NHR program to new applicants and replaced it with a more targeted regime called ITS, or Incentivised Tax Status. Officially known as IFICI (Incentivo Fiscal a Investigacao Cientifica e Inovacao), this new program has significant implications for anyone considering a Golden Visa investment in Portugal.

In this article, we explain what happened to NHR, how ITS works, who qualifies, and what it means for Golden Visa investors in practical terms.

What Was NHR? A Brief History

Portugal launched the Non-Habitual Resident tax regime in 2009 as part of a broader strategy to attract foreign investment and skilled professionals to the country. The program offered substantial tax benefits to individuals who had not been Portuguese tax residents for the previous five years.

Under NHR, qualifying residents enjoyed a flat 20% income tax rate on certain Portuguese-source income, including employment and self-employment income from "high value-added" activities. Perhaps more significantly, many types of foreign-source income, including pensions, dividends, interest, royalties, and capital gains, could be received entirely tax-free in Portugal, provided they were taxable in the source country under applicable double tax treaties.

These benefits lasted for 10 years from the date of registration. The program was enormously popular, particularly among French and Scandinavian retirees, British professionals, and American investors. By some estimates, tens of thousands of individuals registered under NHR during its 15-year lifespan.

However, the program also attracted criticism. Domestically, there were concerns about fairness: why should foreign residents pay less tax than Portuguese citizens? Internationally, countries like Sweden and Finland objected to their citizens receiving pensions tax-free in Portugal. Under growing political and diplomatic pressure, Portugal's government announced the end of NHR for new applicants, effective January 1, 2024.

What Is ITS (IFICI)?

The replacement program, officially called Incentivo Fiscal a Investigacao Cientifica e Inovacao (IFICI), is marketed as the Incentivised Tax Status (ITS) regime. It was introduced as part of Portugal's 2024 State Budget and came into effect for new applicants from January 2024 onwards.

Unlike NHR, which was broadly available to almost anyone who met the residency criteria, ITS is deliberately more targeted. The program focuses on attracting individuals engaged in scientific research, innovation, and specific qualified professional activities that Portugal considers strategically important for its economy.

The core benefit remains attractive: a flat 20% tax rate on qualifying Portuguese-source employment and self-employment income for a period of 10 years. However, the scope of who can access this benefit and how foreign income is treated has changed materially from the NHR regime.

Key Differences Between NHR and ITS

Understanding the differences between the old and new regimes is essential for anyone planning their tax position around a move to Portugal.

Eligibility

NHR was broadly available to anyone who had not been Portuguese tax resident for the previous 5 years. There were no restrictions on profession, activity, or income source. A retiree, a remote worker, a business owner, or an investor could all qualify equally.

ITS is restricted to individuals engaged in specific qualifying activities. The program targets scientific researchers, academics, technology professionals, startup founders, and certain board members and professionals in "certified" activities deemed strategically important. You must demonstrate that your professional activity falls within one of the approved categories.

Tax Rate on Portuguese Income

Both regimes offer a flat 20% tax rate on qualifying Portuguese-source income for 10 years. In this regard, the headline benefit is similar. However, the definition of "qualifying income" under ITS is more narrowly defined and tied to the approved activities.

Treatment of Foreign-Source Income

This is where the most significant difference lies. Under NHR, many types of foreign-source income could be received tax-free in Portugal. This was the feature that made NHR so attractive to retirees with foreign pensions and investors with international portfolios.

Under ITS, the treatment of foreign-source income is more restrictive. The broad exemptions that existed under NHR have been significantly curtailed. Foreign income may still benefit from reduced taxation under applicable double tax treaties, but the blanket exemptions are gone.

Duration

Both programs offer benefits for 10 years from the date of registration.

Who Qualifies for ITS?

The ITS program is designed for individuals in the following categories:

• Scientific researchers and academics: Individuals employed by Portuguese universities, research centres, or companies in qualifying R&D roles.
• Technology professionals: Specialists in areas such as software development, data science, artificial intelligence, cybersecurity, and other technology disciplines, particularly those working for certified companies or startups.
• Startup founders: Founders and key employees of certified startups registered with Startup Portugal or equivalent bodies.
• Board members and senior professionals: Certain directors and managers of companies engaged in qualifying activities, provided the role and company meet the certification requirements.
• Other certified professionals: Individuals in professions designated as strategically important by the Portuguese government, subject to periodic review and certification.

Crucially, applicants must not have been Portuguese tax residents for the previous 5 years (the same baseline criterion as NHR), and they must demonstrate that their professional activity in Portugal falls within an approved category.

How ITS Interacts with the Golden Visa

This is one of the most common questions we receive from prospective investors: does a Golden Visa qualify me for ITS?

The short answer is: not automatically. The Golden Visa is a residency-by-investment program. It grants you a residence permit based on your investment in Portugal, typically a EUR 500,000 qualifying fund investment. It does not, by itself, qualify you for any particular tax regime.

ITS qualification depends on your professional activity, not your immigration status. If you happen to be a scientific researcher, tech professional, or startup founder who also holds a Golden Visa, you could potentially qualify for both. The combination would indeed be powerful: residency through investment plus favourable tax treatment on your professional income.

However, for the majority of Golden Visa investors, particularly those who are passive investors, retirees, or professionals in non-qualifying fields, ITS will not be available. This is a meaningful change from the NHR era, when virtually any Golden Visa holder could access the tax benefits.

What About Existing NHR Holders?

If you registered under the NHR regime before it closed to new applicants on January 1, 2024, your benefits are fully protected. You will continue to enjoy your NHR tax status for the full 10-year period from the date of your registration. The introduction of ITS does not affect existing NHR holders in any way.

This is an important point of reassurance for current Golden Visa investors who registered for NHR during the window when both programs were available.

Tax Implications for Golden Visa Investors Who Do Not Qualify for ITS

For US and other international investors who hold a Golden Visa but do not qualify for ITS, the tax picture depends primarily on one question: are you Portuguese tax resident?

Portuguese tax residency is triggered if you spend 183 or more days per year in Portugal, or if you maintain a habitual residence in the country. Most Golden Visa holders, who are required to spend only 7 days in the first year and 14 days in each subsequent two-year period, do not become Portuguese tax resident.

For non-resident Golden Visa holders, the tax position is largely unchanged by the NHR-to-ITS transition:

• Fund profits: Returns from qualifying Golden Visa fund investments are typically subject to 0% Portuguese tax for non-residents, depending on the fund structure and applicable tax treaties.
• Worldwide income: As a non-resident, Portugal does not tax your worldwide income. Your tax obligations remain with your country of tax residence (e.g., the United States).
• Capital gains: Non-residents are generally not subject to Portuguese capital gains tax on assets outside Portugal.

In practical terms, if you were never planning to become Portuguese tax resident, the end of NHR and the introduction of ITS has minimal impact on your Golden Visa investment.

Practical Advice: Consult a Cross-Border Tax Advisor

The transition from NHR to ITS has made Portugal's tax landscape more complex for international investors. The rules around tax residency, double taxation treaties, fund taxation, and the interaction between immigration status and tax status require careful navigation.

We strongly recommend working with a qualified cross-border tax advisor who understands both Portuguese tax law and the tax obligations in your home country. For US investors, this means someone familiar with FATCA reporting, the US-Portugal double tax treaty, and the specific treatment of foreign fund investments under US tax law.

Key questions to discuss with your advisor include:

• Will your planned level of presence in Portugal trigger tax residency?
• How will your Golden Visa fund returns be taxed in both Portugal and your home country?
• Do any of your professional activities qualify for ITS?
• What reporting obligations do you have in both jurisdictions?
• How does the applicable double tax treaty affect your specific income sources?

Book a Consultation

The end of NHR and the introduction of ITS represent a significant shift in Portugal's approach to attracting foreign residents. While the new regime is more targeted, the Golden Visa program itself remains one of Europe's most attractive residency-by-investment pathways, and for non-resident investors, the tax position remains highly favourable.

If you would like to understand how ITS affects your specific situation, or if you are considering a Golden Visa investment and want to plan your tax position from the outset, we invite you to book a free consultation with our team. We work with leading cross-border tax advisors and can help you build a strategy that aligns with your financial and lifestyle goals.

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