Portugal’s new government is set to reintroduce tax incentives aimed at attracting highly skilled foreigners, part of a comprehensive strategy involving 60 measures to stimulate economic growth. The tax incentives will offer a 20% flat rate of income tax specifically on salaries and professional income, explained Joaquim Miranda Sarmento, the Finance Minister, emphasizing that “dividends, capital gains, and pensions” will not be eligible for this tax break.
Key Takeaways
- Portugal reintroduces tax incentives to attract skilled foreigners.
- A 20% flat rate of income tax will apply to salaries and professional income.
- Dividends, capital gains, and pensions are excluded from the tax break.
- The initiative is part of a broader strategy involving 60 measures to stimulate economic growth.
- The previous administration faced criticism for including retirees in the tax break.
- Portuguese companies welcome the new measures, especially in sectors facing labor shortages.
A Balanced Approach to Economic Growth
“We need skilled workers and economic growth. We will have to balance that with more affordable houses. Obviously, if we have just one side of the policy, there will be more affordable houses but less economic growth. So we have to balance these two parts,” Sarmento said.
This adjustment comes after criticism during the previous administration, which initially exempted pensions from taxation but later implemented a 10% flat rate, drawing objections from Nordic countries concerned about tax avoidance.
Addressing Demographic Concerns
The inclusion of retirees in the previous regime was odd, remarked Nuno Cunha Barnabé, a tax partner at Lisbon law firm Abreu Advogados, reflecting on the policy shift. “It was against demographics. It didn’t make sense,” he said. “We already have an old population. Attracting pensioners puts more burden on our health system. We need to attract young people.”
Industry Response
Portuguese companies, especially in sectors facing shortages of skilled labor like engineering, research, and management, have welcomed these measures enthusiastically. They anticipate that the tax incentives will enhance Portugal’s appeal as a destination for professionals seeking favorable tax conditions and employment opportunities.
“This will attract some people. It’s not sufficient, but it’s something the government can do,” said a representative from the business community.