Portugal to scrap ‘unjust’ tax breaks for foreign residents

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Tax breaks for foreign residents in Portugal are “no longer justified”, the prime minister, Antonio Costa, has declared, promising to close the scheme for new applicants in 2024 after it stoked housing prices in one of western Europe’s poorest nations.

Launched in 2009, the scheme allows people who become residents by spending more than 183 days a year in the country to benefit from a special 20% tax rate on Portuguese-sourced income derived from “high value-added activities“”, such as doctors and university teachers.

 

It was introduced to attract investors and professionals as Portugal suffered from the financial crisis.

Other benefits of the scheme – known as Non-Habitual Resident – include tax exemptions on almost all foreign income if taxed in the country of origin and a 10% flat tax rate on pensions from a foreign source.

Portuguese citizens who lived abroad for five years or more could also apply.

Costa told CNN Portugal late on Monday the scheme had “inflated the housing market”, calling it a “fiscal injustice that is no longer justified”.

“It no longer makes sense,” Costa added, explaining that those who already benefit from it would continue to do so.

The announcement came two days after thousands of people took to the streets of Lisbon and other cities across Portugal to protest against soaring rents and house prices stoked by growing gentrification and record tourism.

Government data show more than 50% of workers earned less than €1,000 (£866) a month last year, and a 65% increase in Lisbon rents since the start of the tourism boom in 2015 has made flats unaffordable for many.

 

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