Portugal’s parliament has decided to extend tax breaks for foreign residents until the end of next year, despite growing concerns that the scheme has driven housing prices to unaffordable levels for many Portuguese citizens.
Key Takeaways
- Portugal extends tax breaks for foreign residents until the end of 2024.
- Applicants must show they prepared their move to Portugal during 2023.
- The scheme offers a 20% tax rate on Portuguese-sourced income from high value-added activities.
- Tax exemptions on almost all foreign income and a 10% flat tax rate on foreign pensions are included.
- Over 74,000 people benefited from the scheme by the end of 2022.
- The tax exemptions cost the state budget more than 1.5 billion euros last year.
Background of the Scheme
Launched in 2009, the Non-Habitual Resident (NHR) scheme was introduced to attract investors and professionals to Portugal during the financial crisis. The scheme allows individuals who spend more than 183 days a year in Portugal to benefit from a special 20% tax rate on Portuguese-sourced income derived from high value-added activities, such as doctors and university teachers.
Other benefits include tax exemptions on almost all foreign income if it is taxed in the country of origin and a 10% flat tax rate on pensions from a foreign source. Portuguese citizens who have lived abroad for five years or more are also eligible to apply.
Recent Developments
Prime Minister Antonio Costa had promised in October to close the scheme by the end of the year, calling it a "fiscal injustice that is no longer justified." This measure was included in the draft 2024 budget. However, following Costa’s resignation earlier this month, the ruling Socialist Party decided to extend the scheme until the end of next year. The decision was approved in the final vote on the budget bill.
The Socialists stated that it was important to "safeguard the legitimate expectations of people who have already made the decision to immigrate or return to Portugal."
Financial Impact
Official data shows that over 74,000 people had benefited from the NHR scheme by the end of 2022. Last year, the tax exemptions cost the state budget more than 1.5 billion euros, marking an annual increase of 18.5%.
Conclusion
While the extension of the tax breaks aims to attract more foreign residents and professionals to Portugal, it has also sparked criticism due to its impact on housing prices. As the scheme continues, the government will need to balance the benefits of attracting foreign talent with the needs of its local population.