Portugal has long been a popular destination for expatriates due to its favourable climate, quality of life, and attractive tax regimes. The Non-Habitual Resident (NHR) tax regime, introduced in 2009, played a significant role in this attraction. However, as of January 1, 2024, the NHR regime has been replaced by NHR 2.0. This blog will explain both regimes, focusing on their benefits & eligibility criteria, what employers need to know to attract talent to Portugal, and how Portuguese Employer of Record can help.

The original Non-Habitual Resident (NHR) Tax Regime

The Non-Habitual Resident (NHR) tax regime was introduced in Portugal in 2009 to attract high-skilled professionals, pensioners, and individuals of independent means. It provided significant tax reductions and exemptions for ten years.

Key benefits of the original NHR

1. EU residency: residency in an EU member country.
2. No minimum stay requirement: Flexibility in residency without strict stay requirements.
3. Tax Exemptions: Tax exemptions on certain non-Portuguese income for ten years.
4. Flat tax rates:
-20% on Portuguese-source employment income, fees, profits, and royalties from eligible occupations
-10% on pensions and similar remuneration obtained abroad
5. Inheritance and gift tax exemption: Ability to pass on wealth to a spouse, life partner, and direct descendants or ascendants without paying inheritance or gift taxes.

Eligibility

To qualify for the NHR regime, individuals need:
– A long residency visa (e.g., Portugal Golden Visa, D7 Visa, or D2 Visa)
– To become tax residents in Portugal
– Not to have been tax residents in Portugal in the previous five years

Transition to NHR 2.0

In late 2023, the Portuguese parliament decided to phase out the original NHR regime, arguing it was no longer beneficial to the country. The new NHR 2.0 regime, which entered on January first, 2024, focuses on attracting professionals in scientific research, technical fields, and innovation.

Key Features of NHR 2.0

1. Flat tax rate: A flat tax rate of 20% on Portuguese-sourced income from specific high-value-added activities, primarily in IT and related fields.
2. Reduced scope of tax exemptions: Unlike the original NHR regime, NHR 2.0 does not offer broad tax exemptions for foreign-sourced income.
3. Focused eligibility: Targeted at individuals earning income from high-value-added activities recognised by Portuguese authorities.

Eligibility for NHR 2.0

To benefit from NHR 2.0, individuals must:
– Become tax residents in Portugal
– Not have been tax residents in Portugal in the previous five years
– Earn income from specific high-value-added activities defined by the Portuguese tax authorities

Benefits for employers

The NHR 2.0 has multiple benefits for employers:

Attracting talent

Both NHR and NHR 2.0 regimes offer attractive incentives for expatriates, making it easier for employers to attract and retain top talent. By offering reduced tax rates, these regimes can significantly increase potential hires’ net incomes, making positions in Portugal more appealing.

Simplified tax obligations

Employers can leverage these regimes to simplify tax obligations for their employees, providing a clear and advantageous tax framework. This can enhance job satisfaction and reduce administrative burdens related to international assignments.

Strategic hiring

The NHR 2.0 regime’s focus on high-value-added activities aligns with the needs of modern industries. Employers in fields such as IT, scientific research, and technical services can strategically attract professionals whose skills are in high demand.

Utilising Employer of Record (EOR) services

Employers can simplify the process using the service of the specialised Employer of Record in Portugal. We handle compliance, payroll, and tax requirements, ensuring employees benefit from the NHR 2.0 regime efficiently and legally. This allows employers to focus on business growth and managing their international talent effectively.

Understanding the tax advantages of the NHR and NHR 2.0 regimes is crucial for employers looking to attract top international talent to Portugal. These regimes offer significant benefits, from reduced tax rates to strategic advantages in hiring. Employers can enhance recruitment by leveraging these regimes and utilising the Employer of Record in Portugal services, ensuring a competitive edge in the global market. Contact us today!