This new version of the NHR was introduced by the 2024 State Budget and, theoretically, is already in effect. However, with eligibility requirements still awaiting regulation and no platform available for applications, the regime remains clouded by uncertainty. This delay is causing hesitation among individuals considering relocating to Portugal to benefit from the new system.

Unlike its predecessor, which offered significant tax exemptions on foreign-source pensions and attracted many retirees, NHR 2.0 takes a different approach. It no longer provides tax relief for foreign-source pensions but instead offers tax exemptions on foreign-source capital gains. This marks a shift in focus from retirees to business owners, entrepreneurs, and investors with unrealized stock market gains. While the old NHR appealed primarily to those seeking to enjoy their retirement in Portugal, NHR 2.0 is designed to attract individuals who remain professionally active, positioning Portugal as an appealing destination for those looking to grow their wealth and bring their expertise to the country.

Given that the eligibility criteria are still awaiting clarification, anyone considering relocating to Portugal should carefully evaluate the potential tax implications. Those relocating in 2024 may still qualify for the old NHR under the grandfathering provision, but could also meet the requirements of NHR 2.0. They should stay informed of any forthcoming regulations to apply when the process becomes available. Since NHR 2.0 has technically been part of the tax code since January 1st, 2024, anyone who has relocated since that date should be eligible to apply, provided they meet the requirements once clarified.

As for the changes introduced by the 2025 Budget, apart from minor tax law adjustments, the key proposal is a tax relief for those entering the job market. This relief would last for 10 years, offering tax reductions of 100% in the first year, 75% from the second to the fourth year, 50% from the fifth to the seventh year, and 25% between the eighth and tenth years. Income caps and additional requirements will apply.

While potentially beneficial, this proposal is still subject to parliamentary debate and could undergo changes before the Budget is finalized. Until then, and while awaiting the final regulations for NHR 2.0, it is essential to recognize that navigating international tax matters is as complex as navigating the waters off the Algarve coast. Caution is crucial to ensure a safe journey.

by Bernardo Masteling Pereira, Associate Partner of Forvis Mazars in Portugal, bpereira@mazars.pt