Portugal closed the Non-Habitual Resident (NHR) regime to new applicants on 1 January 2024 and launched IFICI (English: Incentivo Fiscal à Investigação Científica e Inovação, the Fiscal Incentive for Scientific Research and Innovation) as its replacement. The core offer looks similar on paper: a 20% flat tax on qualifying income for 10 years. The mechanics underneath are different enough to significantly change who benefits.
What IFICI covers, and
what it does not The 20% flat rate applies exclusively to Portuguese-sourced employment and self-employment income from activities defined in Article 58-A of the Tax Benefits Code (EBF). Eligible categories include: - Highly qualified jobs in technology, information systems, R&D, and industrial production
- Positions in qualified investment projects (minimum 500,000 EUR project investment)
- Teaching and scientific research at accredited Portuguese institutions
- Activities in free trade zones (Madeira and the Azores)
- Founders and employees of recognised start-ups under the Portuguese Start-up Act Income outside these categories is taxed at standard rates. Dividends, whether from Portuguese or foreign sources, face a 28% withholding tax. Foreign pension income is taxed at 10%. Rental income follows the progressive scale. There is no blanket exemption for foreign-source income as there was under NHR.
NHR versus IFICI:
the key differences The old NHR was broader. Foreign-source income, dividends, capital gains, pensions, was often taxed at 0% under tax treaties or the NHR unilateral exemption. The qualifying activity list was long and relatively easy to meet. IFICI tightens the rules in three ways. First, at least 60% of your total annual income must come from a qualifying IFICI category. If your tech salary covers only 55% of your total income, because you also draw dividends, you fail the threshold and lose the flat rate for the entire tax year. Second, the category list is narrower: creative professionals, lawyers, engineers, and managers no longer qualify automatically. Third, foreign-source income receives no special treatment. For a retired professional living off a foreign pension and investment portfolio, IFICI offers little advantage. For an employed software developer earning 100,000 EUR from a Lisbon company, the saving is substantial.
Tax saving in practice
A senior engineer relocating from Germany earning 120,000 EUR per year from a qualifying Portuguese employer: - IFICI: 24,000 EUR in income tax (20% flat rate)
- Standard Portuguese scale: approximately 45,000 EUR (top marginal rate 48% above 81,199 EUR)
- Annual tax saving: approximately 21,000 EUR
- Over the 10-year IFICI period: saving exceeds 210,000 EUR on employment income alone Social security contributions apply at standard rates regardless of IFICI status (employee: 11%, employer: 23.75%). Unlike income tax, IFICI provides no reduction here.
Qualification requirements To apply,
the following conditions must be met: 1. Not having been a Portuguese tax resident during the 5 calendar years before the application year 2. Becoming tax resident in Portugal in the application year, either 183 or more days present or principal home established in Portugal by 31 December 3. Working in a qualifying IFICI activity, documented with an employment contract or certified self-employment registration in the eligible category 4. Earning at least 60% of total annual income from qualifying IFICI activities 5. Submitting the application to the AT (Autoridade Tributária, English: Portuguese Tax and Customs Authority) within 90 days of first registering as a tax resident The 90-day deadline is a hard cutoff, missing it means waiting until the following tax year, losing up to 12 months of the 10-year benefit window.