With the end of the Non-Habitual Resident ("NHR") regime in 2024, the first quarter of 2025 brought news regarding the regulation of the new Tax Incentive for Scientific Research and Innovation ("IFICI"), also known as NHR 2.0.
At the end of December 2024, an Ordinance regulating the IFICI regime was published, establishing the procedures for the application and the verification of eligibility requirements. Additionally, the Ordinance introduced the list of highly qualified professions and industrial and service activities that are covered by this regime.
This new regime was designed as part of Portugal's strategy to remain competitive on the global context, aiming to attract highly qualified professionals, entrepreneurs and private investors. This measure maintains the special taxation on income from dependent work and self-employment, similar to what was already observed in the previous NHR regime, establishing a fixed tax rate of 20%.
The key feature of the IFICI is the introduction of the exemption method, aimed at eliminating international double taxation, which applies to the vast majority of passive income earned outside of Portugal.
For Luís Nascimento, Partner at ILYA Advisors, it is precisely this aspect that represents the major breakthrough: "The IFICI special regime is exceptionally attractive, particularly in the case of life insurance contracts, as it allows for tax neutrality to be applied in both Luxembourg and Portugal, even in redemption events".
Until now, life insurance contracts, in particular the redemptions, already benefited from favorable tax regime in Portugal. With the introduction of the IFICI regime, and provided that legal and tax requirements are met, Portugal further elevates its strategic position as a leading destination.
The biggest challenge, in the opinion of Sara Simões, also Partner at ILYA Advisors, is to verify the requirements for the application to the IFICI regime and the substance of the life insurance contract: "this regime implies, for those who want to benefit from it, to comply with several requirements, namely having an employment relationship or being a member of the governing bodies, with a company established in Portugal".
The Luxembourg unit-linked life insurance contract is a sophisticated solution aimed at tax optimization, wealth preservation and succession planning. It is a contract concluded between a policyholder and the insurance company, with the possibility of covering the risks associated with the survival or death of the insured person. Additionally, this contract operates as a capitalization tool, allowing for investment in a diverse range of assets, including less traditional alternatives such as private equity. It also stands out for its flexibility and adaptability to today's mobility, being particularly advantageous for its portability within the European Union.
From a tax perspective, life insurance contracts benefit from tax deferral until the moment of redemption. Provided that the legal requirements are met, the income from each redemption can benefit from a significant reduction in the effective tax rate, dropping from 28% to 11.2%.
In this context, the IFICI regime further strengthens the benefits of life insurance contracts, by applying the tax exemption method in Portugal to income generated outside the country.
In conclusion, the introduction of the IFICI regime reaffirms Portugal's commitment to promoting a robust and attractive tax environment for highly qualified professionals, entrepreneurs and private investors. Life insurance contracts stand out as a tool of great security and efficiency, which is now reinforced by the tax neutrality introduced by the new regime.