Our previous article examined the end of the Non-Habitual Resident Status (ERNH) and its transitional arrangements. Despite the repeal, a more limited regime was created: the Tax Incentive for Scientific Research and Innovation (IFICI). It appears in Article 58-A, recently added to the Tax Benefits Statute (EBF). Article 81 of the IRS Code, concerning the elimination of international juridical double taxation, is also relevant.
The new regime is intended for individuals who become resident in Portugal and have not been resident there in any of the previous five years. They must also receive income from eligible activities listed in Article 58-A(1) of the EBF. Non-exhaustive examples include higher education teaching and scientific research, qualified jobs and membership of corporate bodies covered by contractual benefits for productive investment, and highly qualified professions.
The personal income tax benefit consists of a special 20% rate on net category A and B income arising from the activities listed in Article 58-A. Taxpayers may enjoy the regime for 10 consecutive years from the year they register as resident in Portugal, while retaining the option to aggregate income. That option would be justified in the unlikely event that their effective tax rate were below the special rate.
Entitlement to IFICI in each year of that period depends on the taxpayer being regarded as tax-resident in Portugal at some point in that year and continuing to receive income each year from an eligible activity listed in Article 58-A(1) of the EBF.
Taxpayers are considered to continue receiving income from an eligible activity where a new activity begins within a maximum of six months after the previous activity ends.
A taxpayer who has not used the regime for one or more years of the qualifying period may resume it in any remaining year, starting in the year in which they again become tax-resident in Portugal and receive income from an eligible activity.
Beneficiaries register with the body whose competence depends on the activity concerned. For example, Article 58-A designates the Fundação para a Ciência e Tecnologia, I. P. (FCT), for activities under Article 58-A(1)(a) of the EBF; the Agência para o Investimento e Comércio Externo de Portugal (AICEP), E. P. E., for those under point (b); and the Autoridade Tributária e Aduaneira (AT), for those under point (c).
IFICI does not affect the rules eliminating international juridical double taxation. Article 81 of the IRS Code was also amended by the State Budget for 2024. Its new wording provides for exemption of foreign-source income in categories A, B, E, F and G, with mandatory aggregation to determine the rate applying to other income, whether or not that foreign income is actually taxed in the other State.
In conclusion, compared with ERNH, IFICI has a narrower scope in terms of both beneficiaries and eligible activities. Its impact on the Portuguese economy will therefore undoubtedly be smaller. The open question is whether the new government, which took office after the budget for 2024 was adopted, intends to retain or change the tax incentive for scientific research and innovation.
Dr. Pedro Emanuel de OLIVEIRA
Lawyer