NHR 1.0 – The old regime:

Until the end of 2024, the transitory regime still applies under certain circumstances, which allows expats and investors to come to Portugal and still benefit from NHR – Non Habitual Regime, with the following benefits:

  • Flat tax of 20% on salaries and self-employment, if the worker is performing a high value activity;
  • Apply a flat tax rate of 10% for retirement pensions;
  • Be exempt from personal income tax from dividends, interests, and royalties sourced outside of Portugal;
  • Always be taxed on capital gains, no matter the place it has originated from, Portugal or abroad.

NHR 2.0 – The new regime in town for expats in Portugal
Benefits of Portugal’s New Tax Incentive Regime for Scientific Research and Innovation

Portugal has recently introduced a comprehensive tax incentive regime aimed at fostering scientific research and innovation through Law No. 82/2023, effective from December 29, 2023. This regime offers significant benefits to qualified professionals who choose to become tax residents in Portugal, particularly those engaged in higher education, scientific research, and other high-value economic activities. One of the standout features of this regime is the favorable tax treatment for income under Category G, which includes gains from cryptocurrencies and capital gains from stocks, making them completely exempt from taxation.

Key Benefits of the New Regime

1. Special Tax Rate for Qualified Activities: Under Article 58-A, taxpayers who were not residents in Portugal for any of the preceding five years and who engage in specified high-value activities can benefit from a reduced IRS tax rate of 20% on net income from Categories A (employees) and B (contractors/Self-employed).

This special rate applies for 10 (ten) consecutive years from the year they register as residents in Portugal. This provision covers a wide range of activities, including:

  • Teaching and scientific research in higher education.
  • Employment in certified technology and innovation centers.
  • Highly qualified professionals in companies benefit from investment tax support.
  • Jobs in industrial and service companies with significant export activities.
  • Positions in startups and other recognized economic activities crucial to the national economy.

2. Tax Exemption for Capital Gains and Crypto Gains: One of the most attractive aspects of this regime is the exemption from taxation on gains categorized under Category G. This includes capital gains from the sale of stocks and cryptocurrencies, providing a significant financial incentive for investors and professionals in these fields. By offering complete tax exemption on such gains, Portugal positions itself as an appealing destination for global investors and cryptocurrency enthusiasts.

If you are under this special regime, you enjoy significantly greater advantages in two specific situations. One of the most notable benefits, far surpassing those of the old NHR regime, is the exemption from taxation on capital gains. To emphasize, under the previous NHR regime, capital gains were taxed at 28% in Portugal. However, under the new regime, the following scenarios are entirely tax-free:

a) Any capital gain from cryptocurrencies, regardless of whether held for more or less than 365 days;

b) Selling your business or exiting a company;

c) Selling equities, shares, funds, ETFs, or any other assets that fall under the category of capital gains.

This means that gains from cryptocurrencies and equity investments are completely exempt from taxation.

3. Flexibility and Continuity: The regime allows for a high degree of flexibility. Taxpayers who meet the initial criteria but do not take advantage of the benefits in certain years can still reclaim the benefits in subsequent years, provided they continue to meet the residency and activity requirements. Nevertheless, expats and investors, need to request on their first year of residency to be part of the regime. This ensures that professionals and investors can adapt their strategies without losing the long-term benefits offered by the regime.

4. Support for a Wide Range of Activities: The scope of activities covered under this regime is broad, including both traditional sectors such as teaching and research, and emerging sectors like startups and high-tech industries. This inclusivity encourages a diverse range of professionals to relocate to Portugal, enriching the country’s human capital and fostering innovation across multiple sectors.

5. Clear Guidelines and Administration: The regime is governed by clear guidelines, with specific roles assigned to various administrative bodies such as the FCT, AICEP, IAPMEI, and Startup Portugal. These bodies are responsible for the registration and oversight of beneficiaries, ensuring transparency and efficient implementation of the regime.

If you happen to work for a STARTUP, which means being recognized as such by STARTUP PORTUGAL, for this purpose, you are required to meet three criteria’s:

To qualify, an entity must meet the following criteria:

  1. Be a legally constituted entity in Portugal;
  2. Be less than 10 years old;
  3. Have fewer than 250 employees;
  4. Have less than 50 million in turnover;
  5. Not be a product of a split or transformation of a large company, and not have a majority direct or indirect stake held by a large company;
  6. Fulfill one of the following conditions:
    • Be an innovative company with high growth potential, with an innovative business model, products, or services, and have recognized eligibility by ANI – Agência Nacional de Inovação, S.A., for conducting research and development activities or certification of the recognition process for technology sector companies;
    • Have completed at least one round of venture capital financing;
    • Have received investment from Banco Portugues de Fomento, S.A., or from funds managed by it, or by its subsidiaries, or from one of its capital or quasi-capital instruments.

If you happen to reside and work for a company in Madeira or the Azores, you may also benefit from it if it complies with the regional regulatory framework.

Conclusion

Portugal’s new tax incentive regime represents a significant step towards attracting highly skilled professionals and innovative companies to its shores.

We can see huge benefits compared with the original regime, namely by continuing to offer a 20% special tax rate to certain categories of workers and entrepreneurs and keeping the exemptions for dividends, interests, but above all to exempt from taxation any capital gains and crypto gains, the regime provides substantial financial incentives for those looking to relocate to Portugal. This not only enhances the country’s economic dynamism but also fosters an environment of innovation and scientific advancement. For investors, researchers, and entrepreneurs, Portugal now stands out as a highly attractive destination for both professional growth and financial gain, especially for entrepreneurs who are willing to make the islands of Madeira or Azores their home.

In preparing this article about crypto taxation, we have considered the law, administrative and jurisprudential interpretations that exist on the subject to date, which are subject to change. However, it is a new field and a new Law open to interpretations; the ones here are exclusive to our own authority and are not supported in any legal or administrative understanding, especially according to stablecoins being a crypto asset or other matter.

If the facts and/or assumptions of the respective law change, including interpretative changes, our understanding must be re-evaluated. We are not obligated to update this article when it is produced changes after the date of issue.

Our opinion expressed here is not binding for the tax or judicial authorities and does not guarantee that these authorities cannot take contrary positions. This document is for informative purposes only and does not allow any third party use of its contents.

This article is for informational purposes only and is not intended to be exhaustive in relation to the matters covered here and all requirements/applicable law and rules or exceptions and it includes hypothetical situations in order for the client to better understand the taxation in any way it contains guidance or advise to any regime or particular situation.. However, if you still need to be completely clear and continue with doubts, or if you want our help, feel free to contact us through geral@fslegal.pt.

Written by Rodolfo José Santos

8 comments

  1. Thank you for this insightful article. It’s well-researched and provides a lot of useful information. I learned a lot and will definitely be returning for more. : nftbeyond.com

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