Portugal's Non-Habitual Resident regime — the NHR, one of the most generous expat tax programmes in European history — was abolished by the Costa government at the end of 2023 and replaced with the IFICI, commonly called NHR 2.0. The new regime came into force in 2024 and is now approaching its second full year of operation.
I have been advising clients on Portugal for many years. I have had clients use the original NHR with great success. And I have watched the transition to IFICI with a mixture of professional interest and personal frustration on my clients' behalf.
Here is my honest current assessment.
What the Original NHR Was
The original NHR, in its simplest form, gave qualifying foreign residents a flat 20% tax rate on Portuguese-source income and, crucially, a full exemption on most categories of foreign-source income — dividends, interest, royalties, capital gains, pensions from certain countries — for ten years.
This was genuinely extraordinary. A German entrepreneur who became a Portuguese tax resident under the NHR could receive dividend income from a German company, interest from a Swiss account, and capital gains from an international portfolio, and pay zero Portuguese tax on all of it for a decade.
The programme attracted a significant influx of wealthy foreigners into Lisbon, Porto, and the Algarve. It also significantly inflated property prices, which was one of the factors that made it politically unsustainable.
What IFICI Actually Is
The IFICI is more targeted. It provides a 20% flat rate on Portuguese-source income from qualifying activities — broadly, highly qualified professionals in specific sectors including technology, scientific research, clean tech, and certain financial services.
The key word is qualifying. Unlike the original NHR, which applied broadly to any foreign resident who had not been tax-resident in Portugal in the prior five years, the IFICI requires that you are working in, or directing, a business in a qualifying sector.
If you are a German tech entrepreneur genuinely working in the Portuguese market, IFICI may still work well for you. If you are a passive investor, a retiree with a portfolio, or an entrepreneur in a sector that does not qualify, your options under IFICI are significantly more limited.
The Honest Assessment
Portugal remains a genuinely pleasant country to live in. The climate is exceptional. The food is excellent. Lisbon and Porto are both genuinely liveable European cities with real culture and history.
For the right person — particularly someone in a qualifying tech or research role, or an entrepreneur genuinely building a business in Portugal — the combination of lifestyle and IFICI tax benefits remains attractive.
For a passive investor or someone with a globally diversified income profile looking for a low-tax European base, Portugal is no longer the obvious first choice it was under the original NHR.
The programme got worse. The lifestyle did not. Choose accordingly.
What Has Replaced Portugal in My Recommendations
For clients who wanted what Portugal used to offer, I am now more commonly recommending:
Malta, for those who want EU residency and are comfortable with a smaller, more international environment. Cyprus, for those who want EU residency with a stronger financial services infrastructure. Greece's non-dom regime, which offers a flat annual tax on foreign income at relatively modest rates for those who qualify. And, for those who have accepted they are leaving the EU: Switzerland, UAE, and various territorial tax jurisdictions that offer a cleaner break.
Portugal is not gone from my toolkit. But it no longer leads it.
Work with Sebastian
If Portugal was on your list and you are not sure whether it still makes sense given the IFICI changes, this is exactly the conversation I am having with clients right now. Let's assess your specific profile. Book a consultation.