17 March 2025
Background
The 2024 State Budget Law introduced a significant shift in the Portuguese fiscal landscape, marking the end of the Non-Habitual Resident (NHR) regime.
However, recognizing that Portugal’s high tax burden continues to pose a challenge to work, innovation and performance, and acknowledging the difficulties faced by national companies in improving their competitiveness and attracting international talent, the legislator included in the same State Budget Law the creation of the Scientific Research and Innovation Tax Incentive Scheme (IFICI), established under Article 58-A of the Tax Benefits Statute (EBF), which is applicable as from 1 January 2024.
More recently, the IFICI was further regulated by Ministerial Order No. 352/2024/1 of 23 December (“Order”), which specified the procedures required for taxpayers to enroll in the regime, identified the professions considered highly qualified and defined the industrial activities and services eligible for its application. Other Orders, Notices and Circular Letters have also been published to complement, in practice, the application of this incentive.
Our Comments
Despite this regime presenting significant advantages, specifically:
- The opportunity to benefit from a reduced taxation rate under PIT, applicable to net income from categories A and B (dependent and independent work), exclusively from national sources, earned in the context of certain scientific research and innovation activities carried out by eligible entities and sectors, subjecting them to a special rate of 20%.
- Other income from any categories, when originating from abroad, is exempt from taxation, except when paid or made available by non-resident entities domiciled in jurisdictions with a clearly more favorable tax regime (as per the list approved by the ordinance of the government member responsible for finance), in which case such income will be taxed at a rate of 35%.
This is more demanding:
- In terms of criteria to be observed – not only initially when verifying access conditions but also annually, until the end of the 10-year
- Benefit period, requiring more documentation to be prepared;
- Waiting for more controls by various entities (each with their own processes and requirements), with the burden being shared between the individual and the company/institution involved;
- As well as Having implicit restrictions and exclusions, not allowing the accumulation of benefits.
Specifically for people who have become residents in 2024, there is also a limitation for submitting an application for registration until March 31, 2025 (for people who only become residents after this period, the deadline is January 15 of the following year).
From the above, and contrary to expectations, this incentive seems to bring with it a substantial increase in bureaucracy compared to the previously existing regime (RNH) and, consequently, an increase in complexity (e.g., shared processing), which may hinder access to the regime from the outset and, ultimately, lead to an increase in litigation at the administrative or judicial level.
Therefore, the process of assessing eligibility and considering alternatives from the start (which should be done in a timely manner) is crucial for its success.
Being aware of the particularities of this new framework and the challenges it may bring, we offer our experience and technical knowledge to support our clients at all stages of the process.
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The above information is not intended to provide an exhaustive analysis of all changes to the current legal framework but rather a selection of those we consider most relevant. It does not replace consultation with our company and/or the legal texts referenced herein.
For further information, please contact: Catarina Breia (+351 91 7575 832 or cbreia@pt-nexia.com) from our Tax Department.
