Are you considering a move to Portugal? The country's new Incentivised Tax Status (ITS) scheme might make your decision easier. This comprehensive guide breaks down everything US expats need to know about Portugal's latest tax incentive program, which is replacing the popular NHR (Non-Habitual Resident) scheme.
What is Portugal's ITS Scheme?
The Incentivised Tax Status (ITS) is Portugal's latest tax program designed to attract qualified professionals and entrepreneurs from around the world. Implemented in 2024, this new scheme replaces the previous NHR program and focuses on attracting individuals who will actively contribute to Portugal's economy.
Key Features of the ITS Scheme:
20% flat tax rate on employment and self-employment income
50% tax exemption on professional income (capped at €250,000) for 5 years
Exemption from Portuguese wealth tax on foreign assets
10-year duration
Available to qualified professionals from any nationality
Requires Portuguese tax residency
Who Qualifies for the ITS Scheme?
The program is open to qualified professionals who meet specific criteria:
Basic Eligibility Requirements:
Must become a Portuguese tax resident
Cannot have been a Portuguese tax resident in the previous five years
Must work in a qualifying "high-value activity," including:
Business executives and managers
Healthcare professionals
Tech workers
Legal professionals
Hospitality managers
Self-employed professionals
Many other qualified occupations
Hold at least a Level 4 European qualification framework certification (equivalent to a diploma) or demonstrate significant professional experience
Tax Benefits Explained
Income Tax Benefits
20% flat rate on employment and self-employment income
50% tax exemption on professional income up to €250,000 (first 5 years)
Additional 11% social security contribution applies
Special Exemptions
Exemption from Portuguese wealth tax on foreign assets
Zero tax on foreign dividends if taxed at source
Capital gains tax benefits on both movable assets (stocks, shares) and immovable assets (property)
How to Apply for the ITS Scheme
To successfully apply for the ITS scheme, follow these steps:
Obtain appropriate residency visa (options include):
D2 Entrepreneur Visa
D8 Digital Nomad Visa
Golden Visa
Establish residence in Portugal
Secure a Portuguese address
Stay in country for at least 183 days per year
Submit ITS scheme application through qualified legal assistance
Special Considerations for US Expats
US citizens should note that they may be less impacted by the transition from NHR to ITS compared to citizens of other countries, due to existing US tax obligations. However, the impact varies significantly based on individual circumstances. Key points for US citizens:
Continued US tax filing requirements
Potential benefits from foreign earned income exclusion
Need for careful tax planning to maximize benefits
Importance of working with tax professionals familiar with both US and Portuguese systems
Important Considerations
Before applying for the ITS scheme, keep in mind:
You must maintain active employment or business activities
Career breaks longer than six months will terminate your ITS status
The scheme requires actual residency in Portugal
Tax years in Portugal run from January to December
Individual circumstances can significantly affect benefits
Next Steps
If you're considering taking advantage of Portugal's ITS scheme, it's recommended to:
Consult with qualified tax professionals familiar with both US and Portuguese tax systems
Review your current profession's eligibility
Evaluate your long-term residence plans
Consider a fact-finding trip to Portugal
The new ITS scheme represents a significant opportunity for US professionals looking to relocate to Europe while maintaining a favorable tax position. While the program requirements are specific, the benefits can be substantial for those who qualify.
Disclaimer: This article is for informational purposes only and should not be considered tax or legal advice. The ITS program details are based on current information and may be subject to change. Please consult with qualified tax and legal professionals before making any decisions about international relocation or tax planning.
