Planning relocation? Portugal intends on abolishing tax benefits for foreigners

Due to the public protest against the high cost of living, Prime Minister Antonio Costa announced that from 2024, the country will no longer grant tax benefits to foreigners. This change requires the approval of the parliament. This tax benefit benefits 75,000 foreign residents, and last year the state coffers 1.4 billion euros in lost income tax collection. Residents already enrolled in the program should not be affected by the abolishment.

Prime Minister of Portugal António Costa announced that his government has decided to cancel tax benefits for foreign residents in the country, after a wide public protest due to the increase in the cost of living and housing prices. The tax benefits given to those who choose to immigrate to Portugal are considered particularly generous and are a major consideration for many who move their residence and their tax residency to the country.

In an interview given to TVI and CNN Portugal, Kosta claimed that the government has decided not to extend “a measure of fiscal injustice, which is no longer justified and which is a biased way to inflate the housing market, which has reached unsustainable prices.” According to Costa, starting in 2024, the tax benefit known as NHR will end for new residents, preserving the benefit for those who are already entitled to it or will register in the near future only. At this stage, it is only a statement, and it is not yet known what steps the government will actually make when, and the effect it will have on foreigners who wish to immigrate to the country or for those already living in it.

The “non-habitual resident” (NHR – non-habitual resident) program was launched in 2009, its goal is to attract foreign investors and various professionals to relocate to Portugal, granting tax benefits to those who meet the criteria, hold a sought-after profession and live in the country. For example, for those with a high income, there is a possible taxation of 20% on income for a decade and an exemption from paying social security in the first year, This, while the progressive taxation in Portugal can reach a rate of 48% for those with high incomes.

“There was a time when it was necessary,” said Costa “For the first ten years, 59% of the people who benefited from the program stayed in Portugal, even after their benefit ended. But at this stage it no longer makes sense.” The cancellation of the tax benefit may also affect the decision of Israeli companies and citizens who are examining the possibility of relocation to Portugal after Israeli interest in the country has increased in recent years.

During the past year, there has been a lively protest in Portugal due to the increase in the cost of living on one side and the eroding wages on the opposite (wages in Portugal are considered among the lowest in the European Union). According to data from ‘Eurostat’ the statistical office of the European Union, apartment prices in the EU decreased by an average of 1.1% in the second quarter of this year compared to the same period last year – compared to an increase of 8.7% in Portugal, the fourth highest among the Eurozone countries.

The surge in housing prices in Portugal in recent years is attributed, among other things, to the tax benefits given over the years to foreigners relocating to the country. Portugal has allowed foreign citizens to obtain a “golden visa” once they purchase property in certain areas, valued more than half a million Euros. This benefit has also been changed in recent days. Property prices in Portugal jumped in 2022 by about 18.7%, according to the housing price index of Confidential Imobiliário, a Portuguese database that provides statistics on the prices of real estate transactions.

This is the sharpest growth in the last 30 years, when in 1991 only, the growth rate recorded from year to year was higher than the previous year. Since 2016, housing prices in the country have doubled. The reason for this is not only foreign investments but also the structure of the local market. While the local population is facing a housing crisis, in Lisbon alone there are about 48 thousand empty apartments.

How many foreign residents benefit from the NHR?
Although the tax benefits for foreigners arouse resentment among the public in the country, only about 75,000 residents are currently entitled to it. However, this number has steadily increased in recent years (in 2018 the number was around 26,000 residents, and in 2022, more than 16,000 residents were added, the highest number of residents added in one year). In total, those entitled to the NHR benefit “cost” the state coffers 1.4 billion euros last year only in lost income tax collection. However, many of them would not have immigrated to Portugal at all without those benefits, and the same figure does not take into account the high incomes of those entitled to the benefit and thus also the final high amounts that enter the state coffers.

Joao Ascenso, partner and director of the AAMTLegal law firm specializing in tax and immigration consulting, explains that the change must pass through orderly legislation in Parliament. “These are laws that are usually passed as part of the state budget, which is presented by October 10 every year. This means that only then will we know in what way the government wants to implement this legislation. Anyone who signs up for this benefit by the end of the year should be protected against its cancellation. The prime minister’s party (the Socialist Party) has a majority in parliament, so the likelihood of canceling the NHR program is realistic. I am confident that residents already enrolled in the program should not be affected by the cancellation of the NHR. In parallel decisions that reached the country’s Constitutional Court, it is considered illegal to retroactively deny rights granted to taxpayers.”

Assenso emphasizes that those who wish to benefit from the NHR should act quickly. “The tax benefit intended for individuals is the easiest benefit to implement, so our recommendation is to start the process as quickly as possible in order to stay in the ‘safe time window’ until the end of the year. At the same time, it is recommended to examine additional benefits that exist in Portugal. As far as companies interested in moving to Portugal, investors and funds are concerned, there are different and diverse tax benefits that can be relevant and are worth examining.”

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