Portugal Revives Tax Incentives for Foreign Residents Amid Controversy

The Portuguese government plans to reintroduce tax incentives for foreign residents, previously criticized for raising housing prices, revealed Finance Minister Joaquim Miranda Sarmento on Thursday.

Originally launched in 2009, the regime offered a special 20% tax rate on Portuguese-sourced income.

This applied to residents staying over 183 days annually, particularly in high-value-added fields like medicine and university teaching.

The scheme aimed to attract investors and professionals during the financial crisis, which severely impacted Portugal.

Known as the Non-Habitual Resident (NHR) status, the regime also provided tax exemptions on nearly all foreign income if taxed in its origin country.

Additionally, it offered a flat 10% tax rate on foreign pensions. Portuguese citizens abroad for over five years could also apply.

In October, former Prime Minister António Costa claimed the scheme inflated the real estate market, calling it an “unjustifiable fiscal injustice.”

Consequently, his government decided to end the regime. Despite this, parliament extended the regime until the end of 2024. Applicants had to prove they planned their move to Portugal during 2023.

Portugal Revives Tax Incentives for Foreign Residents Amid Controversy

Minister Sarmento confirmed incentives for salaries and professional income, excluding pensions, dividends, and capital gains, stressing the need for skilled workers and growth.

An official announcement was anticipated after Thursday’s cabinet meeting. However, legislative approval remains a hurdle as Prime Minister Luis Montenegro does not have an absolute majority.

In 2022, over 74,000 people benefited from the tax exemption regime, costing the state budget more than €1.5 billion. This marked an annual increase of 18.5%.

The reintroduction of these tax incentives highlights Portugal’s ongoing struggle to balance attracting foreign talent and managing domestic economic impacts.

The scheme’s future remains uncertain as it awaits legislative scrutiny. Nonetheless, its potential effects on Portugal’s economy and housing market make it a critical issue.

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