An overview of Portugal’s new IFICI regime

Filipe Romão
Uría Menéndez, Lisbon
filipe.romao@uria.com

Raquel Silva Alves
Uría Menéndez, Lisbon
raquel.silvaalves@uria.com

Introduction

Portugal has traditionally attracted international investors, skilled professionals and high-net-worth individuals by offering a favourable combination of geographic, social and, crucially, tax-related advantages. One of the most well-known tax programmes was the Portuguese non-habitual residents (NHR) regime, which for many years provided special tax benefits to individuals establishing a residence in Portugal.

However, the NHR regime came to an end in 2023, prompting the Portuguese government to introduce a new framework that seeks to maintain the country’s global competitiveness. This new regime, known as the Tax Incentive for Scientific Research and Innovation (IFICI) regime, aims to encourage the establishment of well-qualified individuals in the country and the growth of specific strategic sectors and foreign investment.

This article outlines Portugal’s broader flexible tax system and explains how the newly introduced IFICI regime operates, who qualifies and what key benefits can be expected.

The flexible Portuguese tax framework

Partial tax year and residence rules

Portugal’s tax system adopts the concept of the ‘partial tax year’, which means that an individual may become a tax resident or cease to be one at any point during the year.

Furthermore, there is no legally mandated ‘minimum period of stay’ required to maintain tax resident status in Portugal. In practice, however, determining residence does require meeting certain classic criteria: staying in the Portuguese territory for more than 183 days (this does not need to be consecutive) during a 12-month period or having accommodation that may be used as a habitual residence.

Alongside the partial tax year concept, Portugal’s rules have historically been light on bureaucratic hurdles: registering as a tax resident in Portugal is fast and straightforward, often taking only a few working days if the required documents are in order.

Absence of a net wealth tax

Portugal does not impose a general wealth tax on individuals. The only levies that might approximate a wealth tax are the municipal property taxes (Imposto Municipal de Imóveis or IMI and Adicional ao IMI or AIMI) on real estate.

Exemption or reduction of inheritance and gift taxes

Portugal does technically levy a ten per cent stamp duty on inheritance and gifts. Under Portuguese law, transfers of assets to spouses, descendants and close family members are exempt, and only assets deemed located in Portugal are generally subject to inheritance or gift taxes.

No exit tax on departure

In addition to flexible entry rules, Portugal has historically been known for its lack of an exit tax. When individuals depart from the country and change their tax residence, there is generally no automatic accrual or deemed disposal of their worldwide assets from a Portuguese tax standpoint.

Golden visa programme still in place

Portugal’s golden visa programme remains available, even if somewhat reshaped. While property investment thresholds and other visa processes have changed, the essential framework still offers third-country nationals a streamlined and quick path to relocate to Portugal if they meet certain investment criteria.

Emergence of the IFICI regime

Background: from the NHR to the IFICI

For years, the NHR regime meant that Portugal was a prime destination for pensioners, remote workers, investors and others seeking to benefit from tax advantages. Under the NHR regime, foreign-sourced dividends, interest and certain capital gains were often exempt from Portuguese taxation, and local employment income from recognised activities was subject to a flat 20 per cent tax rate. However, changes in policy led to the NHR scheme’s termination in 2023.

As an alternative, the Portuguese government introduced the IFICI regime, effective from 1 January 2024. Despite the name referencing research and innovation, the scope of the IFICI regime extends beyond scientific work. It embraces various activities, investments and professional roles deemed pivotal for Portugal’s economic development, particularly in technology, higher education and in regard to certain corporate structures.

Duration

The IFICI is valid for ten consecutive tax years once the individual is first deemed to be resident in Portugal. If the individual leaves the country and loses their tax residence status in the interim, they can potentially resume their participation in the regime for the remaining years if they become resident again, subject to meeting the requirements anew.

However, the law explicitly states that individuals who have benefited from the old NHR system (with certain transitional exceptions applied in 2024) are generally ineligible to benefit from the IFICI regime.

Requirements of the IFICI

Cumulative conditions

Under the IFICI, the core requirements for eligibility include:

• absence of Portuguese residence in the previous five years: the individual must not have been resident in Portugal for the five preceding calendar years;
• no previous benefits gained from the NHR regime: taxpayers who benefited from the old NHR scheme generally cannot switch to the IFICI regime, unless they registered in 2024 under certain transitional provisions;
• earning eligible income: each year, the individual must derive employment or self-employment income in Portugal from a qualifying position or activity, eg, working for certain startups, technology centres or companies that meet the IFICI ‘eligible activities’ criteria; and
• making a formal application on time: individuals must choose to participate in the IFICI by filling out the relevant forms with the Portuguese Customs and Tax Authority (PTA) (Autoridade Tributária e Aduaneira) by 15 January of the year following their first year of residency.

If all these conditions are satisfied initially and on an ongoing basis, the taxpayer is deemed to be eligible for the IFICI for up to ten consecutive years.

Specifics about the eligible positions

Eligible positions under the IFICI include working for or serving as a board member in certain eligible companies provided one’s position is considered to be ‘highly qualified’ or ‘qualified’. The broad categories are outlined as follows:

• RFAI companies: named after the Regime Fiscal de Apoio ao Investimento (the fiscal regime for investment support or RFAI), these companies have either benefited from a specific investment support tax regime or have conducted specified industrial, service or tourism-related activities. Board members are explicitly included among those people who can be considered ‘highly qualified’ within RFAI companies;
• export companies: these are companies that export at least 50 per cent of their turnover in a given year or the two previous years, focusing typically on manufacturing, technology, information services and certain related activities. Board members in export companies per se are not eligible, whereas employees may qualify if their job is ‘highly qualified’; and
• relevant companies: they encompass entities carrying on activities deemed ‘relevant to the national economy’, such as holding companies, collective fund management companies, certain hospitality companies (hotel establishments, but not local short-term accommodation platforms), engineering companies, organisations involved in scientific research and more. For these companies, both board members and personnel fulfilling ‘qualified jobs’ may be considered eligible.

The legal definitions of ‘highly qualified’ and ‘qualified’ differ slightly. Under certain categories, individuals must have a doctorate or at least a bachelor’s degree with three years of experience. For other categories, a fifth-level qualification under the European Qualifications Framework may suffice. The emphasis is on ensuring that those benefiting from the IFICI are suitably skilled and are employed in sectors or roles that align with the national goal of attracting human capital that fosters innovation and growth.

Tax treatment under the IFICI

Foreign-sourced income

Perhaps the most significant advantage of the IFICI is the blanket exemption for foreign-sourced income. While under the old NHR regime, certain income categories were exempt only if they could be taxed abroad according to an applicable double-taxation treaty, the new regime offers a simpler approach: all foreign-sourced income and capital gains are exempt from taxation in Portugal. Notwithstanding the general rule, there are two exceptions:    

• pension income, which remains taxable at progressive marginal rates of up to 53 per cent; and
• income paid or made available by entities located in blacklisted jurisdictions (or those countries deemed to be tax havens), which is taxed at a special rate of 35 per cent.

Portuguese-sourced income

Regarding Portuguese-sourced income, the IFICI applies a 20 per cent flat rate exclusively on income derived from the qualifying activity or position that meets IFICI eligibility. All other Portuguese-sourced income, such as rental income, investment income or other activities not classified under the IFICI, will be taxed at the normal rates of up to 53 per cent for employment/self-employment and pension income or a fixed rate of 28 per cent as a general rule for investment income (dividends, interest, capital gains and other investment income).

As a result, an IFICI beneficiary might, for instance, hold a high-level position in a Portuguese technology company that qualifies under the ‘relevant companies’ category, be taxed at only 20 per cent for the salary connected to that role, and then hold foreign investments producing dividends or capital gains that remain entirely exempt from Portuguese taxation.

Corporate structures underpinning the IFICI

RFAI companies

RFAI companies have typically benefited from certain Portuguese tax incentives related to capital investment in the manufacturing, tourism and technology sectors. Under the IFICI, an individual who takes on a ‘highly qualified’ role, such as related to engineering, research or board membership, within a RFAI company may be eligible for the 20 per cent flat rate on Portuguese-sourced salary and an exemption on their worldwide income, aside from minor exceptions.

To maintain RFAI status, the company itself must make and retain a defined amount of investment in tangible or intangible assets, as well as create at least one job.

Export companies

Export companies are required to demonstrate that at least half of their turnover is generated by exports, typically measured in the tax year the individual starts work or in the preceding two years. Eligible roles largely target employees who are ‘highly qualified’, mostly in technology, research or advanced services.

It should be noted that, unlike with RFAI companies, board members in pure export companies do not meet the eligibility threshold.

Relevant companies

‘Relevant companies’ are enterprises whose activities the government has considered relevant to the national economy, for example, holding companies, certain fund-management institutions, advanced engineering companies and hospitality operators, excluding short-term accommodation enterprises. Board members or ‘qualified jobs’ in these relevant companies can qualify for the IFICI if the employee is engaged in tasks that require at least post-secondary level qualifications (Level 5 of the European Qualifications Framework) or an equivalent standard.

These companies are not mandated to make particular investments or create new jobs in order to qualify.

A comparative look at the IFICI and the old NHR regime

The old NHR regime was hinged on applying double-tax treaty rules to pre-empt Portuguese taxation on many categories of foreign-sourced income. While that approach functioned well for many beneficiaries, it sometimes created confusion because the tax exemption in Portugal depended on whether the relevant double-taxation treaty effectively ceded taxation rights to the source state (even if the source state might not fully utilise those rights).

In contrast, the new IFICI regime sets out a straightforward universal exemption: all foreign source income is exempt except for pensions and income paid or made available by entities located in blacklisted jurisdictions.

Implementation timeline and practical considerations

As of 1 January 2024, the IFICI is fully active for individuals relocating to Portugal who have not benefited from the NHR regime in the past. Applicants must complete the relevant registration by 15 January of the following year. The PTA is expected to respond by 31 March of that year.

Concluding remarks

Portugal has a longstanding reputation for providing an attractive blend of lifestyle perks and strategic tax advantages. Even following the phase-out of the NHR regime, the government has introduced the IFICI as a more modern, streamlined mechanism. In many respects, it simplifies the taxation of foreign-sourced income by granting a near-universal exemption and establishes a low 20 per cent tax rate on eligible domestic income.

The partial tax year concept, the absence of a general wealth tax, safe rules on inheritance and gifts and the lack of an exit tax all remain important features of Portugal’s tax environment, complementing the newly launched IFICI regime.

Potential applicants should remain mindful of the eligibility rules, particularly the condition that they serve in a position or role defined as qualified within an eligible entity. Once these requirements are met, Portugal’s flexible framework offers an inviting path for globally mobile workers, investors and entrepreneurs.

Overall, the IFICI regime’s introduction underscores the country’s desire to remain at the forefront in terms of attracting global talent, supporting both established industries like tourism and manufacturing, as well as up-and-coming hubs in technology and research. Through straightforward exemptions and beneficial tax rates, the IFICI is set to continue Portugal’s tradition of standing out from the crowd on the international tax stage.