The most successful outcomes for residence-by-investment planning almost never come from pursuing a single, isolated option. Most often, success is achieved through a holistic approach that integrates more than one solution – the most advantageous residency routes, the most beneficial tax and wealth planning, and mobility strategies that align with a client’s wider lifestyle, business and family goals.

A recent article in Investment Migration Insider (IMI) makes this point clear: a place of residence can provide access but not flexibility, a passport can provide mobility but not structure, and a tax base can provide efficiency but not long-term settlement.

According to IMI, today’s investors are now therefore converging around three functional layers:

• Mobility – a fast-track citizenship that provides immediate global access.
• Tax base – a jurisdiction offering efficiency, predictability and structural flexibility.
• A European anchor – a long-term residency driven by stability, lifestyle, business and opportunities.

No single programme can provide all three dimensions. Portugal’s Golden Visa can certainly be advantageous, but current waiting times are long and over recent years the Portuguese government has increasingly shifted the programme’s focus onto investors who bring long term economic value in skills or investment. This year it has also extended the timescale for acquiring Portuguese citizenship.

This may mean that, for some applicants, the Golden Visa is unlikely to deliver all three objectives in one go. A single path could turn out to be a dead end, while a combination of solutions can build resilience and offer clients the long-term security and opportunity that they are seeking for themselves and their families.

Such applicants should consider adding shorter term mobility and tax residence options to their current planning to ensure that they maintain flexibility; others may decide to look at other beneficial European programmes, such as Cyprus, Malta, Greece and Italy, or further afield to the UAE.

“At Sovereign, we don’t just sell visas. Our expertise in cross-border corporate and private client services means we can design solutions that integrate residence and mobility options with tax, wealth and succession planning across multiple jurisdictions,” said Shelley Wren, Head of Business Development at Sovereign Portugal.

“The question is no longer ‘which visa should I apply for?’ but ‘which combination of residence, tax and mobility solutions is likely to deliver the best long-term outcomes?’ Sovereign has four decades of experience and a global network of expertise to help develop comprehensive planning that can adapt to change.”

If you’re considering Portugal’s Golden Visa or are already in the scheme and unclear about the implications of recent changes, then contact Sovereign Portugal to review your plans and assess your answers to the following questions:

• How does this fit with my existing tax position and residency status?
• Do I need additional options in other jurisdictions to preserve flexibility?
• Am I planning for mobility, family needs and multi-generational goals, and not just a single passport?

For further information, please contact Shelley Wren.

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Portugal’s new Nationality Law, which substantially amends the legal framework governing Portuguese nationality, was promulgated by President António José Seguro on 3 May, ending months of uncertainty.

The revised Law, which was approved by parliament on 1 April, was published in the Official Gazette (Diário da República) as Organic Law No. 1/2026 on 18 May and entered into force the following day.

The new Law increases the minimum legal residence periods required for the acquisition of Portuguese nationality through naturalisation from five years under the previous regime to seven years for citizens of EU member states and Community of Portuguese Language Countries (CPLP) member states, and 10 years for citizens of other states.

The new Law also introduces a structural amendment regarding the calculation of the legal residence period. The relevant period for nationality purposes is now counted exclusively from the date of issuance of the first valid residence permit by the Agency for Integration, Migration and Asylum (AIMA).

Previously, the administrative waiting time following the submission of the residence application was taken into account. This amendment may have a significant impact on applicants for Portugal’s ‘Golden Visa’ where there are lengthy periods between the initiation of the immigration process and the issuance of the residence permit.

The new Law also introduces amendments in respect of the attribution of nationality to children of foreign nationals born in Portuguese territory. For the automatic attribution of nationality, one of the parents must have legally resided in Portugal for at least five years at the time of birth. Previously, it was only necessary for them to have lived there for one year, regardless of their legal status.

Finally, the new Law strengthens the criteria relating to effective connection with the Portuguese community and suitability requirements. Naturalisation applicants must now demonstrate:

• Proficiency in the Portuguese language (A2 level minimum)
• Knowledge of Portuguese culture, civic rights and duties, and the country’s political organisation through a formal assessment
• A solemn declaration of adherence to democratic principles
• Sufficient means of subsistence
• A clean criminal record – applicants with sentences of three years or more are ineligible.

Parliament first approved amendments in October 2025 but President Seguro then referred the draft legislation to the Constitutional Court, which struck down several provisions in December. It ruled that applying the new, longer residency timelines to existing pending applications would be unconstitutional.

The new Law expressly establishes a transitional regime under which nationality applications already filed at the Instituto dos Registos e do Notariado (IRN) before its entry into force – 19 May 2026 – will continue to be assessed under the previous wording of the Nationality Law.

Seguro emphasised “the importance of guaranteeing that pending processes are not, effectively, affected by the legislative change, which would constitute an undesirable breach of trust in the state, at the domestic and international level.”

He also noted, given the long delays in issuing residence permits by the AIMA, “the importance of ensuring that the counting of legally fixed timelines for obtaining nationality is not affected by the slowness of the state.”

“Following our previous informational notes about the proposed amendments to the Nationality Law, we are relieved that the prolonged period of uncertainty is now over,” said Shelley Wren, Head of Business Development at Sovereign Portugal. “This solution ensures legal certainty and protects the legitimate expectations of applicants who have already initiated their procedures under the previous legal framework.

“However, this amendment represents a significant departure from the previous regime. For those currently holding a residency permit – Golden Visa, Passive Income Visa (D7), Entrepreneur Visa (D2) or Digital Nomad (D8) – the integration requirements for naturalisation are stricter, and the timeline is longer. It is even more significant for recent applicants who are still awaiting their first permit.

“For those investors and retirees and their family members who are focused on long-term residence in Portugal rather than naturalisation, there is no change. But for who have built their strategy around the five-year EU citizenship path will need to assess the potential impact of this new timeline.

“If you have a pending application, you should ensure that everything is documented and monitor how the IRN is handling your case under the transitional regime. If you don’t have a pending application, you should maintain continuous legal residence and ensure that you keep your permits renewed. You should also begin building the documentation required under the new criteria for demonstrating an effective connection with the Portuguese community.”

The government has 90 days from publication to update the implementing regulation (Regulamento da Nacionalidade Portuguesa). AIMA and the IRN are also expected to publish updated procedural guidance.

Over 500 Golden Visa holders, predominantly American, are preparing a collective lawsuit against the Portuguese state. The reported challenge is expected to focus on legal certainty, legitimate expectations and the position of investors who have already committed funds under the previous framework.

The post Portugal brings new Nationality Law into force – longer residence but less uncertainty appeared first on The Sovereign Group.

Crypto asset service providers in 47 jurisdictions around the world, including Portugal, have started to collect transaction data from users to enforce tax compliance under the OECD’s new Crypto-Asset Reporting Framework (CARF) from 1 January 2026.

Crypto asset service providers are now required to facilitate the automatic exchange of tax information on transactions in crypto assets concerning taxpayers resident in Portugal on an annual basis. It signals the end of anonymity in crypto transactions and the beginning of structured, mandatory crypto information exchange.

What are DAC8, CARF and CRS 2.0?

The growth of the crypto-asset market over the past decade has created significant challenges to tax authorities worldwide. Crypto assets can be transferred and held without interacting with traditional financial intermediaries and without any central administrator having full visibility. In addition, crypto assets as an asset class were generally out of scope for existing Automatic Exchange of Information (AEOI) frameworks like the OECD Common Reporting Standard (CRS).

In response, the G20 countries handed the Organisation for Economic Co-operation & Development (OECD) a mandate to develop the CARF, a dedicated global tax transparency framework to facilitate AEOI on transactions in crypto assets with a taxpayer’s jurisdiction of residence in a standardised manner on an annual basis. The OECD also updated the CRS to cover the use of virtual assets. This updated regime is generally known as ‘CRS 2.0’.

In 2023, the European Council reached political agreement on aligning with the OECD’s CARF and CRS 2.0 rules via an eighth amendment to the EU Directive on Administrative Cooperation (DAC), which is known as the ‘DAC8’.

Which crypto assets fall within DAC8 reporting?

The definition of crypto assets under the DAC8 focuses on the use of cryptographically secured distributed ledger technology (DLT), or similar emerging technologies, as the distinguishing factor underpinning the creation, holding and transferability of crypto assets. This broad scope includes stablecoins, specific e-money tokens, selected non-fungible tokens (NFTs), central bank digital currencies (CBDCs) and crypto-assets utilised for payment or investment purposes.

Which businesses must report under DAC8?

A ‘Reporting Crypto Asset Service Provider’ (RCASP) includes any individuals or entities that, as a business, provide a service effectuating exchange transactions for or on behalf of customers. This includes crypto exchanges, custodial wallet providers, platforms enabling crypto-to-crypto or crypto-to-fiat exchanges, as well as certain brokers and intermediaries.

Who is considered a reportable crypto asset user?

A reportable Crypto Asset User is an individual or entity that is a customer of an RCASP and that is resident for tax purposes in a reportable jurisdiction. Entity users include companies, partnerships, trusts and charities. RCASPs must identify Crypto Asset Users, determine their tax residence and report transaction details annually to the relevant tax jurisdictions.

How does CRS 2.0 expand crypto reporting obligations?

Under CRS 2.0, the scope of the CRS has been expanded to include Specified Electronic Money Products (SEMPs) and Central Bank Digital Currencies (CBDCs). Indirect investments in crypto assets, including those made through derivatives and investment vehicles, are also now potentially within scope, subject to interaction with the CARF regime.

DAC8 also advocates for the use of an EU Tax Identification Number (TIN) to streamline the monitoring of cross-border crypto-asset transactions effectively. This provision enables authorities to efficiently link transactions to individuals or entities, enhancing the ability to trace and audit cross-border activities within the crypto market.

What are the penalties for DAC8 non-compliance?

Under the DAC, penalties are applied in cases of serious non-compliance by service providers, ensuring a uniform approach across EU member states to enforce adherence and deter misconduct within the crypto-asset market. The fines for non-compliance can reach €22,000 with the potential for revoking the operator’s registration in the EU.

How is Portugal implementing DAC8?

All EU member states were required to implement the DAC8 legislation into their national law by 31 December 2025 so that the reporting could commence from 1 January 2026. First reporting, in respect of 2026 data, is to be provided to competent authorities in 2027.

However, 12 member states, including Portugal, failed to notify the European Commission that they had transposed the DAC8 provisions into domestic legislation and, on 30 January this year, the Commission announced its decision to launch infringement procedures against these member states by sending them letters of formal notice. Member states had two months to respond and complete their transposition.

The Portuguese government sent draft legislation to the parliament last December and it is expected that DAC8 will now be transposed as a priority. Updated guidance and information will be issued during 2026 to give financial institutions and RCASPs time to update their policies and processes and ensure on-going compliance.

We will keep clients updated on the legislative process but it is clear that RCASPs will be required to collect and send information to the tax authorities about users who are resident in Portugal or who have controlling persons who are resident in Portugal, and about the transactions carried out by these users. These transactions range from exchanges between crypto-assets and fiat currency, crypto payments, or transfers to external wallets, among others.

What does DAC8 mean for crypto investors and service providers?

It is important to note, that the aim of CARF is to increase transparency and to allow authorities to close the tax gap in respect of crypto assets. Under CARF, the aggregate of transactions for each type of crypto asset is provided. This will assist the Portuguese revenue authority to assess whether taxpayers are declaring their crypto asset gains, but the burden of calculating and reporting tax liabilities on crypto assets remains solely with the taxpayer. However, Sovereign can assist clients in meeting their obligations, including the reporting of crypto transactions on their personal tax returns.

To demonstrate the reach of the CARF framework, the 47 jurisdictions, including all EU members states, that have committed to undertake first exchanges of information in relation to crypto-assets during 2027 comprise: Austria, Belgium, Brazil, Bulgaria, the Cayman Islands, Chile, Colombia, Croatia, Czechia, Denmark, Estonia, the Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hungary, Iceland, Indonesia, Ireland, the Isle of Man, Israel, Italy, Japan, Jersey, Kazakhstan, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, San Marino, the Slovak Republic, Slovenia, South Africa, Spain, Sweden, Uganda and the UK.

A further 28 jurisdictions have committed to undertake first exchanges during 2028, comprising Australia, Azerbaijan, the Bahamas, Bahrain, Barbados, Belize, Bermuda, the British Virgin Islands, Canada, Costa Rica, Cyprus, Hong Kong (China), Israel, Kenya, Malaysia, Mauritius, Mexico, Mongolia, Nigeria, Panama, the Philippines, St Vincent & the Grenadines, the Seychelles, Singapore, Switzerland, Thailand, Turkey and the United Arab Emirates.

The US has also committed to undertake first exchanges during 2029, while Argentina, El Salvador, Georgia, India and Vietnam have all been identified by the OECD as jurisdictions that are relevant to the CARF, but which have not yet committed to implementation.

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In recent years, Portugal has become an increasingly attractive base for freelancers working with international clients. From digital nomads settling in the Algarve to experienced consultants serving global businesses, the country offers a compelling mix of lifestyle and professional opportunity. However, while foreign companies often benefit from simplified arrangements when engaging Portuguese freelancers, the compliance burden rests firmly on the individual service provider.

Understanding tax and social security obligations is therefore essential for any freelancer operating from Portugal, particularly when working across borders.

Independent Status Under Portuguese Law

Portuguese freelancers are legally classified as independent service providers rather than employees. This distinction is crucial. In a genuine freelance relationship, the responsibility for tax compliance, invoicing, and social security contributions lies entirely with the freelancer, not the client.

This applies regardless of whether the client is based in Portugal or abroad. For international engagements, the rules do not disappear, they simply shift entirely onto the individual.

Personal Income Tax (IRS)

Freelance income in Portugal is taxed under Category B of the Personal Income Tax (IRS) system, which applies to business and professional income.

For those considered tax residents in Portugal, taxation is based on worldwide income. This means that even if a freelancer works exclusively with foreign clients and receives payments from overseas, that income must still be declared in Portugal.

To remain compliant, freelancers must:

• Register their activity with the Portuguese Tax Authority before starting work
• Issue invoices that meet Portuguese legal requirements
• Submit an annual IRS return declaring all income
• Pay income tax at progressive rates based on total earnings

The way taxable income is calculated depends on the chosen tax regime. Many freelancers operate under the simplified regime, where only a portion of gross income is considered taxable. This system assumes a standard level of expenses, removing the need for detailed accounting.

Alternatively, freelancers with higher earnings or more complex activities may opt for organized accounting, where actual expenses are deducted.

In addition, in some cases freelancers are required to make advance tax payments on account throughout the year, helping spread the tax burden and avoid large payments of IRS at year-end. 

Withholding Tax Considerations

Withholding tax rules depend largely on where the client is based.

When services are provided to Portuguese companies, those companies are generally required to withhold tax at a rate of 23%. However, exemptions may apply—particularly for freelancers with lower income levels who can opt for exemption on withholding tax.

For international work, the situation is different. When the client is a foreign company with no permanent establishment in Portugal, there is typically no withholding tax applied at source. In these cases, the freelancer is fully responsible for declaring and paying the appropriate tax in Portugal.

If foreign tax is withheld abroad, double taxation treaties may allow the freelancer to claim a tax credit in Portugal, provided the legal requirements are met. 

VAT Obligations

Value-added tax (VAT) is another key area of responsibility.

Freelancers must register for VAT purposes before starting their activity unless they qualify for an exemption (usually based on low turnover thresholds).  Once registered, they are required to:

• Issue invoices compliant with Portuguese VAT rules
• Submit periodic VAT returns (monthly or quarterly)
• Pay any VAT due within the required deadlines

For cross-border services, when services are supplied to business clients established in another EU country or outside the EU, the general rule is that VAT is due where the client is established. In some cases, Portuguese VAT is not charged, and/or the reverse charge mechanism applies.  Even so, the freelancer must correctly indicate the applicable VAT treatment on the invoice and report the transaction in their VAT return.

Failure to comply with VAT rules can lead to penalties, interest charges, and unnecessary administrative complications, making accuracy and consistency essential.

Social Security Contributions

In addition to tax obligations, freelancers in Portugal must register with the social security system as self-employed workers.

Their responsibilities include:

• Submitting quarterly income declarations
• Paying monthly social security contributions

Contributions are calculated based on 70% of gross income, with a standard rate of 21.4%. This system ensures access to benefits such as healthcare and pensions.

New freelancers typically benefit from a 12-month exemption period when starting their activity. During this time, contributions are not mandatory, although voluntary payments can be made to maintain coverage.

As with tax obligations, non-compliance can result in fines, interest, and enforcement proceedings. Importantly, in a genuine freelance relationship, foreign clients have no responsibility for these contributions.

Practical Compliance Tips

For Portuguese freelancers—especially those working with international clients—staying compliant requires careful attention to detail. Key best practices include:

• Ensuring proper registration with both the Tax Authority and Social Security
• Issuing legally compliant invoices for all services
• Understanding when withholding tax applies
• Submit annual income tax returns and periodic VAT returns on time.
• Meeting all payment deadlines for tax and contributions 

Even when working exclusively with foreign clients, Portuguese freelancers remain fully subject to Portuguese tax on their worldwide income. Cross-border situations may involve additional complexity, particularly regarding double taxation relief and VAT reporting. 

A Balanced Perspective

While foreign companies benefit from a lighter compliance burden in a genuine freelance arrangement, the Portuguese freelancer carries significant individual tax and social security responsibilities.

Proper registration, accurate reporting and timely payment of taxes and contributions are essential to avoid penalties and ensure full compliance with Portuguese law. 

Sovereign – Consultoria Lda can not only assist you with obtaining your residency in Portugal but can provide further guidance or professional support to ensure that you are fiscally compliant.

Sovereign – Consultoria Lda
Parque Empresarial Algarve
Bloco 8 Porta 21
8400-431 Lagoa, Algarve

Tel: +351 282 340 480
Email: serviceinfo@SovereignGroup.com
Website: SovereignGroup.com

The post Tax and Social Security Obligations of Portuguese Freelancers: A Practical Overview for International Engagements appeared first on The Sovereign Group.

The Portuguese government’s proposed reform of the Nationality Law to introduce stricter requirements for Portuguese nationality has been sent to the Constitutional Court for preventive review after the Socialist Party (PS) formally submitted two requests on 19 November, halting its entry into force.

Parliament voted on 24 October to approve the amendments, which increase the minimum legal residency period for naturalisation from five to seven years for citizens from EU Member States and Community of Portuguese Language Countries (CPLP), and ten years for all other nationalities.

Significantly, the residency period begins from the date a residence permit is issued, rather than from the application date. The law shelters pending citizenship applications from retroactive changes but would apply to residence holders who have not yet initiated citizenship applications.

Applicants will be required to pass a civics and language test, demonstrating adequate knowledge of the Portuguese language, the rights and duties of citizens and the organisation of the country’s political system. They must also make a sworn declaration affirming adherence to Portugal’s democratic principles.

Children of foreign residents born on Portuguese soil will only be eligible for nationality if their parents have lived legally in Portugal for at least three years and expressly request Portuguese citizenship for the child.

Nationality by descent is to be restricted to great-grandchildren of Portuguese nationals. Previously, the right could be extended to more distant generations in certain cases. The extraordinary nationality route for Portuguese Sephardic Jews, introduced in 2015, is also terminated under the new law.

Naturalised citizens who commit serious crimes resulting in prison sentences of five years or more may lose their Portuguese nationality if it was granted less than the length of their sentence ago. The reform also modifies the Law on Foreigners, introducing tighter immigration controls and new visa conditions.

Portugal’s Constitution permits one-fifth of sitting Assembly deputies the power to request preventive constitutional review of any decree sent to the President for promulgation. The PS party, which has 58 deputies in the 230-seat Assembly, therefore invoked its parliamentary prerogative to send the approved Nationality Law amendments directly to the Constitutional Court. The mechanism has only been used twice since the Court was established in 1983.

The PS argues that several provisions in the Nationality Law amendments violate fundamental constitutional principles, including:

• Equality before the law.
• Proportionality in restrictions of fundamental rights.
• Protection of legitimate expectations and legal certainty.
• Determination and clarity of criminal consequences.
• Prohibition of automatic effects of criminal convictions.
• Compliance with Portugal’s international obligations.

Under the Constitution, the Court now has 25 consecutive days to issue a ruling. The law remains suspended throughout the review process and cannot enter into force until judges issue their determination.

If the court rules the law’s provisions to be unconstitutional, then the Portuguese parliament will have to amend or abandon the legisaltion. If the Court uphold the amendments, the President can then promulgate the law for publication in the official gazette.

Sovereign will continue to monitor the process closely to assist all applicants to move forward with clarity and confidence.

The post Portugal’s Nationality Law Sent to the Constitutional Court for Review appeared first on The Sovereign Group.

A record-breaking 142,000 millionaires are projected to relocate internationally this year, with the UK expected to see the largest net outflow of high-net-worth individuals (HNWIs) by any country since global wealth intelligence firm New World Wealth began tracking millionaire migration 10 years ago.

In Europe, Portugal is one of the key beneficiaries of this trend. It is set to attract a net gain of more than 1,400 HNWIs, driven by its favourable tax regime, lifestyle appeal and active investment migration programmes, writes Shelley Wren, Head of Business Development at Sovereign Portugal.

The ongoing appeal of Portugal includes its lifestyle and climate, security and safety, easy access to the European Union and the Schengen area, and its vibrant cities and coastal areas. Key locations attracting millionaires include Lisbon, Cascais and the Algarve, with the latter two particularly known for their desirable luxury properties.

Portugal’s new IFICI regime – “Tax Incentive for Scientific Research and Innovation” – was launched in December 2024 and is a new, targeted residence regime for highly qualified professionals. It delivers significant tax benefits and generous tax exemptions, especially for overseas income, to eligible new tax residents in Portugal.

The IFICI replaces the well-known Non-Habitual Resident (NHR) special tax regime, which was closed to new entrants at the end of 2023, and is commonly known as ‘NHR 2.0’. Like the previous NHR regime, it provides the following key tax benefits, which are available for 10 calendar years from the time the applicant becomes tax resident in Portugal:

• For business owners, directors, entrepreneurs and their advisors, the picture is a compelling one. Setting up an active company in Portugal is notably straightforward, future dividends, capital gains, interest, salaries and fees from non-Portuguese source will be fully exempt from Portuguese tax for 10 years, while the salary paid by the Portuguese active company is subject to just 20% personal tax.
• Non-Portuguese income in most categories – dependent work, professional activities, capital income, rental income and capital gains are considered reportable in Portugal but exempt from taxation in Portugal if the income does not come from a blacklisted location.

Unlike the previous NHR regime, which taxed foreign pension income at a flat tax rate of 10%, foreign pension income can be taxed in Portugal under the IFICI.  There are caveats to the type of pension and the way in which the contributions are attributed to the pension which may preclude the income from taxation in Portugal. Advice should be taken.

Additionally, any income earned in countries listed by the Portuguese Finance Department as ‘preferential tax regimes’ – the so-called ‘blacklist’ – will not qualify for exemption unless the listed country has a DTA with Portugal.

Only individuals who move to Portugal for eligible roles related to science, research, or innovation are eligible. But the professional scope is broad, from CEOs to technicians, and the range of eligible activities is wide – extractive industries, manufacturing industries, utilities, construction, hospitality, ICT, financial, scientific and technical, education, administration, health, and cultural or natural interest.

Individuals can either establish tax residency in Portugal voluntarily by securing a residence permit and establishing a permanent address, or by residing in Portugal for more than 183 days within any 12-month period or by establishing a habitual residence. Applicants must not have been tax resident in Portugal in the previous five years or have previously benefited under the NHR regime.

The granting of the IFICI is dependent on prior registration with the Portuguese Tax Authority (AT) and the relevant government agencies responsible for receiving and verifying registration applications.

It is important to note that IFICI is designed to attract talent and foster the growth of Portuguese companies, so eligible businesses must have economic substance in Portugal. Industrial and service companies must also export at least 50% of their turnover.

While IFICI unlocks powerful benefits, the route to qualification and maintaining ongoing compliance is not straightforward. Each case requires careful structuring, eligibility validation and continuous record-keeping. A professional advisory approach is strongly recommended for every step, particularly for high-value cross-border tax planning.

Sovereign Portugal specialises in concierge IFICI onboarding and residency planning, smoothing the path for new residents and their companies to enjoy the regime’s benefits. As part of the global Sovereign Group, we are also well placed to provide the tailored global tax advice and compliant structuring that is often required.

We will provide clear, tailored pathways for applicants and entrepreneurs, as well as their families, to successfully establish their lives and ventures in Portugal. My deep knowledge of Portuguese tax regimes, visa requirements and corporate structuring enables me to offer clients confident, seamless integration strategies that deliver financial efficiency as well meeting their personal and professional goals.

The post IFICI: Portugal’s Edge in Attracting Global Talent appeared first on The Sovereign Group.

The minority government of Portugal’s newly reappointed Prime Minister Luís Montenegro, under pressure from the far right to reduce immigration, presented a draft law on 23 June that includes amendments to the Nationality Law to introduce stricter requirements for Portuguese nationality.

Portugal has experienced a significant increase in immigration in recent years and the tightening of the rules was a central theme in May’s election, in which the far-right Chega party became the main opposition party. The draft law has yet to be sent to parliament but is expected to be approved with Chega’s support.

“We are significantly strengthening the requirements for access to citizenship, naturalisation, in line with the guidelines we had already included in the government’s programme,” said Cabinet Minister Antonio Leitao Amaro.

Under the draft law, the minimum legal residency requirement to apply for citizenship is to be increased from five to 10 years for most foreigners. Immigrants from the Community of Portuguese Language Countries (CPLP) – Angola, Brazil, Cabo Verde, Equatorial Guinea, Guinea-Bissau, Mozambique, Sao Tome and Principe, and Timor-Leste – will benefit from a reduced seven-year period.

Significantly, the residence period now starts counting from the date the residence permit is granted, not from the date of initial application. According to the government statement, the new citizenship rules will not apply to complete naturalisation applications submitted before 19 June 2025, but incomplete applications submitted before that date may not be accepted.

Under existing rules, aside from the five years of residency, foreign citizens must demonstrate sufficient knowledge of the Portuguese language, have no previous criminal convictions resulting in a prison sentence of more than three years, and must not constitute a threat to national security.

This is to be strengthened. Under the draft law, applicants will further be required to demonstrate familiarity with Portuguese culture, the rights and duties of Portuguese citizens, and make a declaration of support for the fundamental principles of a democratic state. Assessment tests are expected to be introduced as part of this process.

Applications will no longer be admissible for individuals with criminal records for crimes punishable by imprisonment, regardless of the sentence applied.

Children born in Portugal will no longer automatically qualify for Portuguese citizenship. Children of foreign parents will only be granted Portuguese nationality if both parents have had legal residence in Portugal for at least three years and the parents actively apply for the child’s nationality.

The law will also curtail the Sephardic Jewish ancestry route, which was specifically introduced in 2015 to grant Portuguese nationality through naturalisation to the descendants of Portuguese Sephardic Jews who were expelled from Portugal and Spain in the fifteenth century.

Acquisition through ancestry will be limited to the third generation – great-grandchildren – subject to proof of an effective connection to the Portuguese community.

There will be a provision allowing naturalised Portuguese who are convicted of serious crimes with effective prison sentences of five years or more to be stripped of their citizenship as an accessory penalty. This will be determined by a court on a case-by-case basis.

A separate draft law also seeks to regulate key migration channels, with emphasis on family reunification, CPLP residence and the Job Seeker Visa, also known as the DP (Documento de Posse) visa, which enables non-EU citizens to enter Portugal to look for employment.

It is proposed that family reunification would require at least two years of legal residence in Portugal. In-country applications would be permitted only for minors, while other family members must apply via consular channels. Applicants would also require proof of adequate housing, sufficient financial means, and integration efforts such as language and school attendance.

It is proposed that CPLP applicants would no longer be possible to obtain a residence permit based on a tourist visa or visa exemption. Security clearance by the Unidade de Coordenação de Fronteiras e Estrangeiros (UCFE) will also be required.

The Job Seeker Visa is a temporary visa valid for 120 days, with a possible extension for another 60 days. During this period, visa holders can search for jobs and even begin working until the visa expires or a residence permit is granted. It is proposed that this will now be restricted to highly qualified professionals, with technical qualifications and eligible professions defined by ordinance.

A new National Unit for Foreigners and Borders (UNEF) will be established within the police force with responsibility for border control, in-country inspections related to foreign nationals, and carrying out deportation and removal orders.

The Agency for Integration, Migration and Asylum (AIMA), which manages all matters concerning foreign documents, permits and visas, will be authorised to plan appointment schedules according to its operational capacity.

AIMA, which continues to process an enormous backlog of over 400,000 residency applications, reported in May that 123,000 residence permits had been approved and 23,500 immigrants had had their residence permit applications rejected. Of these rejected applicants, 4,500 have already been notified to voluntarily leave the country within 20 days. A further 171,000 applications had been cancelled due to lack of payment.

AIMA estimates that more than 1.5 million foreign citizens were legally residing in Portugal as of the end of 2024. Brazilians are the largest group, with over 450,000 legal immigrants.

The new government proposals do not include any further changes to residency rights under Portugal’s Golden Visa programme. Once a Golden Visa application is submitted, the applicant’s right to residency remains protected and the option for permanent residency after five years of residence under the Golden Visa remains. However, depending on timing, access to naturalisation may be affected by the proposed law.

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The UK government announced in its Autumn Budget last October that, from 6 April 2025, it is replacing ‘domicile’ as a connecting factor for liability to applicable UK taxes, including inheritance tax (IHT), and adopting a residence-based regime instead.

Accordingly, as from 6 April 2025, individuals who have been UK resident for at least 10 out of the past 20 tax years – for example, a person who was UK resident for 11 tax years from 6 April 2014 to 5 April 2024 – will be classified as a ‘Long-Term Resident’ (LTR) and exposed to IHT on their worldwide assets.

To ensure that long-term UK residents do not escape tax obligations immediately upon leaving the UK, the legislation also introduces a ‘tail’ provision. This means, if they pass away within the residence tail period, the worldwide estate of an LTR will still be subject to UK IHT for up to 10 years after they cease to be a UK resident.

The length of the tail will depend on the duration of the individual’s residence in the UK. The minimum length of the tail is three years, which applies to individuals who have been UK residents for 10 to 13 of the past 20 UK tax years. The length of the tail increases by one tax year for each additional year of residence, up to a maximum of ten years.

Individuals who do not meet the criteria for LTR status will generally remain liable for IHT on UK-based assets only. This aligns with the previous system, under which non-UK domiciled individuals were taxed on UK situs assets but non-UK assets were out of scope for IHT purposes.

For LTRs who have moved to Portugal, or wish to, this could present a serious problem; the residence tail provision may extend their UK IHT liability on non-UK assets for several years post-residency. It will particularly impact individuals with global property holdings, offshore trusts, or diversified investment portfolios.

Former UK residents assessing their potential IHT exposure should, as a first step, review the history of their UK residency to determine whether they meet the threshold for LTR status. They should also review their global asset structures because the residence tail could expose previously sheltered non-UK assets to tax.

Although the domicile concept is being replaced for tax purposes, it may remain relevant in certain trust and estate planning structures. For individuals holding assets in trusts established before April 2025, legacy rules may still provide certain exemptions or protections.

It may also be worth considering taking out IHT insurance. Insurance cover has long been a useful tool to protect lifetime gifts of property and assets, known as known as potentially exempt transfers (PETs). Gifts made from an individual’s estate are exempt from IHT provided they survive for a period of seven years after the date the gift is made.

But if an individual dies within this seven-year period, there is still a potential IHT liability. The most common way of protecting the beneficiaries of these gifts from the potential tax liability is to set up life assurance policies to cover the potential liability. The insurance policy doesn’t alter the IHT liability but will pay out a lump sum to meet the IHT bill.

Similarly, life assurance policies can be set up to cover the potential liability to UK IHT if an LTR policy holder was to pass away within the applicable residence tail period, up to 10 years, after they cease to be a UK resident.

It is strongly recommended that such life assurance policies should be placed into trust. This ensures that any pay-out is not considered part of the estate, which would defeat the purpose of the cover. It also means the policy does not get caught up in probate, so beneficiaries can be paid quickly and can settle the liability as soon as possible.

If you are or are likely to be classified as an LTR and exposed to UK IHT on your worldwide assets for a period of up to 10 years, a life assurance policy can give you peace of mind that your beneficiaries won’t be subject to a huge IHT bill if you don’t survive through the whole of the residence tail period.
It is essential to get expert advice before taking out any policy – especially given the new rules about registering trusts.

For any further information on the changes to the UK’s IHT regime, or to talk to us about your IHT planning, please contact our Portugal office. Our services will be tailored to your individual circumstances and are designed to help you plan for your future.

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The IFICI offers a highly attractive tax framework for new tax residents in Portugal but is more limited in scope than the previous NHR regime. It is restricted to highly qualified individuals who carry out scientific research and innovation activities or hold qualifying jobs in Portugal.

The IFICI regime was approved as part of the State Budget Law for 2024 and has been in effect since 1 January 2024, but regulations were awaited to activate it. These regulations under Ordinance 352/2024/1 came into force on 24 December but have retroactive application to 1 January 2024.

What Are the Key Benefits of Portugal’s IFICI (NHR 2.0) Regime?

The Ordinance regulates and defines the eligible activities, the covered sectors, the criteria and procedures, as well as the requirements necessary for confirming the applicable conditions.

Like the previous NHR regime, the key benefits under the IFICI / NHR 2.0, which are available for 10 calendar years from the time the applicant become tax resident in Portugal, are as follows:

• A special Personal Income Tax (IRS) rate of 20% on employment income (category A) and professional income (category B) obtained in the Portuguese territory.
• An IRS exemption on income obtained from abroad covering categories A (dependent work), B (professional activities), E (capital income), F (rental income) and G (capital gains), which will be aggregated to determine the rate to be applied to the remaining income.

Unlike the previous NHR regime, however, income from foreign pensions – as well as income from ‘blacklisted’ low tax jurisdictions – will be fully taxable in Portugal.

How Do You Apply for the IFICI / NHR 2.0 Regime in Portugal?

The Ordinance provides that taxable persons who are resident in Portuguese territory must submit their application for the IFICI / NHR 2.0 by 15 January in the year following the year in which they become resident in Portugal. A transitional period applies to applicants who became tax resident between 1 January and 31 December 2024, with a deadline of 15 March 2025.

Individuals can either establish tax residency in Portugal voluntarily by securing a residence permit and establishing a permanent address, or automatically by residing in Portugal for more than 183 days within any 12-month period or establishing a habitual residence.

Applicants must generally not have been tax resident in Portugal in the five years preceding their application. They must also not have previously benefited under the former NHR regime or Portugal’s ongoing Return Programme.

The application of the IFICI is dependent on prior registration with the Portuguese Tax Authority (AT) and/or the government agencies listed below, as well as on accreditation by the respective employers or those contracting their services.

• Foundation for Science and Technology (FCT)
• Portuguese Trade and Investment Agency (AICEP)
• Portuguese Agency for Competitiveness and Innovation (IAPMEI)
• National Innovation Agency (ANI)
• Startup Portugal

These agencies are responsible for receiving and verifying registration applications, as well as ensuring compliance with the specific requirements for the IFICI regime.

Who Qualifies for Portugal’s New IFICI (NHR 2.0) Regime?

The list of highly qualified professions and industrial and service companies comprises:

• Directors (general managers and executive managers of companies).
• Directors of administrative and commercial services.
• Directors of production and specialised services (except directors of other specialised services and professions with command, direction or leadership in the security forces and services).
• Specialists in physical sciences, mathematics, engineering, and related technical fields (excluding architects, urban planners, surveyors and designers).
• Industrial product or equipment designers.
• Doctors.
• University and higher education professors.
• Specialists in information and communication technologies (ICT).

Workers in these fields must have at least either a level 8 qualification (Doctorate) under the European Qualifications Framework (EQF) or an EQF level 6 qualification (bachelor’s degree), plus three years of verified professional experience.

Which Companies Are Eligible Under Portugal’s IFICI Regime?

Highly qualified professionals that can benefit under the IFICI / NHR 2.0 regime must be employed by eligible companies, which include recognised technological and innovation centres, entities certified as start-ups, and those benefiting from specified investment incentives such as Portugal’s Investment Support Tax Regime (RFAI).

The Ordinance sets out a list of codes from the Portuguese Classification of Economic Activities (CAE) for industrial and service companies, which must also export at least 50% of their turnover in the fiscal year in which the applicant commences employment or in any of the two previous years:

• Extractive industries.
• Manufacturing industries.
• Information and communication activities, including –
  • Publishing activities (can include books, newspapers, computer programmes)
  • Film, video, television programme production, sound recording and music editing activities;
  • Software programming activities;
  • Software consultancy activities;
  • Data processing, hosting and related activities;
  • News agency activities.
• Research and development in the physical and natural sciences.
• Higher education.
• Human health activities.

What Documents Are Required for an IFICI / NHR 2.0 Application?

Applicants must submit the following documents, as applicable:

• If the activity is a job – copy of the individual employment contract.
• If the activity involves being a member of a corporate body – up-to-date permanent commercial certificate.
• If the activity involves scientific research: copy of grant contract.
• For highly qualified professions – proof of applicable academic qualifications.
• Declaration from the competent agency certifying compliance with the requirements related to the activity.
• Any other requested documents.

The relevant employer company must also prove compliance with the requirements established in article 58-A.1.c) of the established in article 58-A.1.c of the Tax Benefits Statute (EBF) by verifying that it meets the qualifying conditions and the taxpayer works in a highly qualified profession.

What Are the Record-Keeping and Verification Requirements?

Both the competent agencies and the respective employer companies are required to maintain and provide documentation that proves compliance with the IFICI / NHR 2.0 regime requirements.

Taxpayers are required to keep a record of their activities and income earned during any of the years the IFICI regime is applied. This documentation must be presented at the request of the AT.

How Long Do the IFICI / NHR 2.0 Benefits Last?

Like the previous NHR regime, the benefits under IFICI / NHR 2.0 are available for 10 calendar years from the time the applicant become tax resident in Portugal.

Taxpayers are required to notify the relevant authority if they no longer meet the requirements to benefit from the IFICI regime or if there is a change in their registration details. Notification must be submitted by 15 January of the year after the year in which the change of circumstances occurred, specifying the date on which the eligibility ended.

Taxpayers are also required to submit a new registration application if there is a change in the company that must verify the requirements for highly qualified professions or in the agency to which the registration application is submitted.

Is Portugal’s NHR 2.0 Regime Still Worth It?

The IFICI / NHR 2.0 has a much more targeted scope than the former NHR regime in terms of the eligibility criteria, but still offers highly attractive special tax incentives for a 10-year periods for expats and investors seeking long-term residence in Europe.

“NHR 2.0 is all about attracting talent and fostering the growth of Portuguese companies. Eligible businesses must have economic substance in Portugal, so it does does not apply to freelancers or anyone working for non-resident companies that are not operating in Portugal,” said Shelley Wren, Head of Business Development at Sovereign Portugal.

“Designed to position Portugal as a hub for scientific research and innovation, when placed alongside the other attractive residency options the NHR 2.0 regime further consolidates Portugal’s status as a leading destination for residency and inward investment in the European Union.”

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According to an informed source working in the Portuguese revenue authority – Autoridade Tributária e Aduaneira (ATA) – most NHRs appear to be filing tax returns stating that they have no discernible income, despite seemingly living a luxurious lifestyle. They are now being targeted by the ATA.

Anecdotal evidence suggests that most NHRs believe they are entitled to reside in Portugal for ten years without Portuguese taxation. This can be true if all their arrangements are correctly structured but most seem to have taken little care with their tax affairs and will be legally liable to pay tax on most of their worldwide income at rates of up to 48%.

It is probably fair to say that the ten-year tax-free deal under NHR does not do “precisely what it says on the tin”. Portuguese tax is not payable on overseas income if, but only if, it has either already been taxed, or been liable to tax, abroad. And that is the catch.

The legal position is quite clear. An NHR is required to file a return detailing their worldwide income and claiming exemption for any qualifying foreign income or capital gains that should not be subject to Portuguese tax. However, most NHRs appear to be filing returns that fail to declare any overseas income when much of their foreign income and capital gains does not qualify for exemption.

Portugal has stringent anti-avoidance laws that ‘look through’ most offshore (non-resident) structures and income and gains derived by the foreign entity are allocated to the Portuguese-resident shareholder. These laws are common to most high tax countries and are specifically designed to prevent profit shifting though low taxed entities. The rules are generally known around the world as controlled foreign company (CFC) or attribution rules.

Portugal’s CFC rules apply to tax resident individuals holding, directly or indirectly, at least 25% of the shares or voting rights of non-resident entities that are domiciled in a country, territory or region that is either on Portugal’s extensive ‘blacklist’ of tax havens or that are subject to effective rate of tax that is lower than 50% of the tax that would be due in Portugal.

Income or gains from any such non-resident entities are treated by Portugal as belonging directly to the beneficial owner and are therefore declarable and taxable in Portugal, irrespective of whether any distribution is actually made.

Under the OECD’s Common Reporting Standard (CRS), reports are made automatically to ATA by the tax authority of any jurisdiction worldwide in which a Portuguese resident has an account. The CRS applies globally, except in the US. The US has its own equivalent legislation, the Foreign Account Tax Compliance Act (FATCA), so there is nowhere to hide.

These CRS reports contain details of the amount of income and gains generated on the account, whether that be a personal, corporate or trust account.

The ATA seems to be very good at sifting through this information and contacting the relevant Portuguese residents if their tax return does not align with the information they are receiving from abroad. And that, of course, will trigger an investigation that is likely to result in a bill for the unpaid tax, as well as large fines for failing to properly declare worldwide income or gains.

The ATA seems to be extremely efficient in this area as this author, who is resident in Portugal and has NHR status, can personally attest. I had a mortgage loan on a Spanish property with Jyske Bank in Denmark. Jyske Bank reported the existence of the account used to service this loan to the ATA.

The ATA mistakenly concluded that I was receiving interest on the loan amount. This was an error. I was paying interest to service the mortgage loan. The confusion was swiftly resolved, but it was interesting to note that the ATA not only knew about the existence of the account but had details of the amount it contained and the interest paid in the previous tax year.

It was perhaps assumed that Portugal would leave the NHRs well alone because they were not a fruitful source of income and the Portuguese government would not want to deter the very same foreign investors that the NHR regime was designed to attract.

That may or may not have been true, but now that the NHR regime is largely being phased out there is no longer any disincentive on the part of the government to target taxpayers who have clearly ignored their tax obligations in Portugal and who are filing returns which bear little resemblance to reality.

The net is closing, and it is closing fast. Any NHRs who are in any doubt about their current, or past, tax obligations in Portugal are advised to seek professional advice without delay.

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Even more telling was the location of the searchers on the Google Trends platform. Although Google searches on Portugal were recorded in 29 regions, it was the states of Colorado, Oregon and Washington that topped the list. These were all Democrat strongholds that Vice President Kamala Harris managed to hold.

In a repeat of 2016, the re-election of Trump as US president has driven many Americans to take stock of their options to leave the country and, in some case, renounce their citizenship altogether.

Many wealthy Americans had already been making preparations to leave the US as a ‘Plan B’, regardless of which candidate won the presidency. But surveys have showed that an increasing number of Americans at all income levels also want to leave the country, with political and social unrest being a top concern, followed by the high cost of living.

Most Americans moving abroad look north to Canada or across the Atlantic to Europe, where popular destinations include Portugal, Spain, Malta, Greece and Italy. But all such destinations have stringent requirements.

Generally, immigration depends upon working in an in-demand trade or profession, making a substantial investment, buying real estate, having a spouse or partner who is a citizen, having sufficient passive or retirement income or having the ability to work remotely. Typically, the initial residence visa will be of limited duration, but will offer the potential to lead to permanent residence and / or naturalisation.

Portugal is an increasingly popular destination for Americans and offers a number of different routes for those who want to move there, including the well-known Portuguese ‘golden visa’ programme and the D7 visa scheme for retirees with passive income.

It is already one of the top holiday destinations for Americans when booking a vacation. Between January and June, Portugal received more than one million tourists from the US, an increase of 15% compared to the same period in 2023.

This increase in overnight stays was recorded across all regions, with the biggest increases recorded in Alentejo (18%) and the Azores (17.6%). The lowest were in Algarve (5.2%), Madeira (5.6%) and Greater Lisbon (5.7%).

According to data from Eurostat’s 2023 Migration and Asylum Report, more than 14,000 Americans are now living in Portugal, an increase of more than 40% over 2022. In that year, less than ten thousand North Americans still resided in Portugal (9,794).

In the Algarve region, 30% of houses were purchased by foreigners in 2023, according to relative data published by the National Statistics Institute (INE) in March.

There are many considerations that Americans should take into account make before moving abroad. The obvious ones are safety, accessibility, community, health care and opportunity, but they should consider how it might impact on their financial and tax position and how difficult it might be to adjust to a new culture and language.

Immigration laws and the rules for various residency programmes are also always changing. Politicians in many European countries have started pushing back against the golden visa programmes, particularly due to the unintended consequences for local economies, house prices and infrastructure. Anyone interested in moving abroad should always seek up to date advice on the best options available to match their particular circumstances.

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Portugal’s Prime Minister Luís Montenegro announced, on 4 July, that his government had approved 60 measures to “accelerate economic growth”, including a proposal to reduce the standard rate of corporate income tax by two percentage points a year from the current 21% to reach 15% by 2027.

Montenegro leads the centre-right Democratic Alliance (AD) coalition minority government, which won the March elections by a slim margin over the outgoing Socialist Party (PS). It holds just 80 seats in the 230-seat legislature.

“Our aim is to make life easier for companies so they can generate more wealth and, accordingly, pay better wages,” said Montenegro when presenting the programme ‘Accelerating the Economy’, following approval by the Council of Ministers.

The government, he said, wanted “companies with greater scale, more capitalised, prepared to invest and get return on their investments”.

To this end, the current 17% corporate income tax rate for small and medium-sized enterprises (SMEs), which applies to companies with profits up to €50,000 per year, will also be reduced to 12.5% by 2027.

At the same time the government pledged to transpose the EU Minimum Tax Directive, which introduces a global minimum effective rate of corporate taxation at an agreed minimum rate of 15% for multinational enterprise (MNEs) and large-scale domestic groups in the EU. The European Commission had set a deadline of 31 December 2023 by which member states were to have transposed this Directive into their national laws.

Montenegro said his government’s programme was also committed to innovation and sustainability. It is about “reinforcing all the mechanisms to enhance human capital and all the technology instruments so that research capabilities and scientific knowledge have a practical representation in companies’ lives,” he said, and about realising “the social and environmental goals, which we want to be beacons for the entire corporate fabric.”

The fourth vector of the economic programme was “investing in areas of specialisation where we are more competitive and have more growth potential”, he said. He cited tourism, where diversification and qualification “can remove seasonality and contribute to attracting more visitors as well as making its relative importance to the economy more sustainable.”

In this area, the government has already begun the parliamentary process of dismantling many of the restrictions that were imposed by its predecessor on the regulation of Alojamento Local (AL) licences governing short-term rentals. These measures formed part of a wider programme called ‘Mais Habitação’, aimed at easing the housing crisis.

In May, the new government abolished the special contribution to local accommodation (CEAL), a 15% tax based on factors such as the economic coefficient of local accommodation and urban pressure, which was due to apply from 25 June.

It also revoked the ‘coeficiente de vetustez’ (coefficient of agedness), which was to assess properties for the purposes of the IMI annual municipal property tax based on the year of their construction or last major renovation.

In addition to these changes, the new government has announced the end of the ban on issuing new AL licences, the end of the rule that prohibited the transmission of AL licences when the ownership of properties change and has given local authorities autonomy to manage the Al licensing system.

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