After years of extending invitations to the rest of the world to bring them into their country Mediterranean climate, Portugal may close its doors. But the government’s attempts to prevent more transplants until lucrative tax breaks end may instead trigger a new influx of digital nomads and high-net-worth foreigners.
What changes have taken place in Portuguese tax law?
In February this year, Portugal announced that it would cancel its golden visa program. The program provides fast-track residency status to wealthy buyers who can spend at least €350,000 (about $371,000) to purchase property in Portugal. Currently, investing €500,000 ($530,000) in a Portuguese investment fund is one of the few ways to obtain the country’s golden visa.
Then in October, Portuguese Prime Minister António Costa told CNN Portugal that the country would also end its non-habitual residence (NHB) tax program in 2024.
This allows individuals to reside in Portugal for 10 years and pay a flat rate income tax of 20% on income earned in the country.This is in stark contrast to the tax coverage between 14.5% and 48% For Portuguese citizens.
Closing these schemes is a clear message from the government that foreign investment is not as popular as it once was.
‘People are panicking’
Kaitlin Wichmann holds a D7 visa and has been working as a self-employed digital marketer in Lisbon, Portugal, since 2022. The D7 visa allows non-EU nationals to move to Portugal if they have the funds to support themselves.
Lisbon “checked all the boxes for Wichmann” due to its good weather, affordability and large international community.
She is not alone. Lisbon has become a hub for digital nomads since COVID-19 brought new flexibility to millions of workers. The city was the most popular destination for female nomads last year and the second most popular destination for men, According to the nomadic list. According to statistics, there are currently 13,200 digital nomads working there. website.
She was also able to rent in the city for a quarter of the price in Los Angeles, where she lived briefly before COVID-19 hit.
Wichmann also benefits from the NHB tax scheme, albeit only to around €100 a year, thanks to already low tax rates in her home state of Kansas. Wichman said her friends in town have benefited more from the rules.
But now, she and several other Nomads are alarmed by the proposed tax changes, and she thinks others who haven’t yet taken action may speed up their plans.
“The general sentiment is that people are really disappointed, and I’ve seen on a lot of Facebook groups that people are kind of panicking about trying to move here,” Wichmann said of the planned December deadline to close the NHB.
Nuri Katz, the founder of Apex Capital Partners and an advisor to high-net-worth individuals, some of whom have immigrated to Portugal, says there was a similar panic among his clients to get moves over the line following the end of the Golden Visa program.
“What he (Costa) doesn’t understand is that every time you announce that a project is going to stop or is going to change, you trigger a lot of demand from people trying to join before it changes, and that’s what has happened.
“As soon as they announced it, we had people calling us and saying ‘We’ve got three days, let’s get started.'”
Pedro Banco, managing director of Portugal Residency Consultants, said in an email that he had also seen an increase in clients looking to move to the country in a hurry since the closures were announced.
Katz attributed the government’s move to anger over rising costs of living and real estate prices, calling its implementation “amateur.”
“He blamed foreigners, which is always the easiest way,” Katz said of Costa’s actions.
However, Wichman said she personally felt Lisbon citizens did not share the government’s views.
“The only time I see hate is online,” Wichman said, “but in real life everyone is so passionate.”
Impact on the real estate market
While the soon-to-be-defunct policies were a boon for wealthy foreigners and helped Portugal’s public finances, for the country’s citizens they could lead to inflation.
The non-habitual resident tax bracket leaves already wealthy foreigners with more disposable income than Portuguese residents.
The digital nomad visa, introduced last year, allows workers from outside the EU/EEA to obtain one-year residency if they earn at least €3,040 a month. However, this is more than three times the national minimum wage, and Portuguese citizens are increasingly finding themselves overpriced in the economy.
Data from Portugal shows that house prices have also risen significantly, with the median house price rising by nearly 50% from the beginning of 2019 National Bureau of Statistics.
Daniela Rebouta, sales director at the Lisbon branch of Engel & Volkers, said prices may have been affected by demand from foreign buyers. But it’s unclear to what extent barriers to foreign ownership will alleviate the problem.
Rebta blamed other factors more for rising domestic prices, especially Lisbon.
Rebuta said high interest rates and rising taxes on Portuguese citizens were two reasons, along with the country’s lack of housing supply.
As Katz points out, previous rule changes have prevented foreigners from obtaining visas when buying property in Lisbon or Porto.
according to Engel and Volkswhich has resulted in very few foreign purchases in these cities, with 90% of properties in some areas of the resort Algarve being purchased by foreigners last year.
past researchHowever, it turns out that the demand for Airbnb in Lisbon has led to an increase in housing prices in the city.
Gonçalo Roxo of Your Property Adviser, a house buying agent for wealthy foreigners moving to Portugal. wealth The policy helps bring investment to more rural areas, often through hotel developments rather than people occupying existing housing.
Roxo said the Portuguese government had launched a “virus” targeting foreign tourists, which he said could affect public perceptions of economic migrants in the country. He also saw a surge in attempts to buy property after the golden visa was announced.
Your Property Adviser’s Roxo believes the NHB’s cancellation may act as a deterrent to tourists who may choose to live in Spain. But he added that Portugal’s perks, such as safety and good weather, still appeal to Americans.
Wichmann agreed.
“I love Portugal and I’m happy to pay my taxes.”
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