Through the Non-Habitual Residency (NHR) program, foreign taxpayers gained generous tax privileges in Portugal. However, there the program ended in January 2024.
Following the economic crisis of 2008, the Portuguese government took a number of steps to bring in wealthy foreign investors into the country. Two programs played a significant role in this recuperation: the Portuguese passvisa program and the Non-Habitual Residency (NHR) program. Both of these programs helped get the Portuguese real estate market back on its feet while making it tougher for the local Portuguese to keep up with the prices.
The NHR program, in particular, attracted a large number of European pensioners to choose Portugal as their retirement destination. Many French, Scandinavian, and Italian retirees settled in Portugal. The pensioners have been exempt from paying tax on their income for a period of ten years.
This led to some negative reactions in EU member states, as they did not want to lose tax-paying pensioners to Portugal. Some countries were more active in forcing Portuguese politicians to come up with a change in the program. These included Finland, Sweden, Holland, and France.
On behalf of the Finnish newspaper Helsingin Sanomat, journalist Pilvikki Kause went on a mission to trace prominent Finnish CEOs, who claimed to have moved to Portugal under the NHR program. It turned out a good number of these high net worth individuals were not necessarily living in Portugal, but just making use of the tax advantages. The findings created a turmoil in Finland, pushing the Finnish government to put pressure on the Portuguese government.
The domestic and foreign policy pressure on the government of Prime Minister António Costa seems to be paying off. As a result of the reactions and the rising prices for the local Portuguese, the minority socialist government in Portugal wants to get rid of the tax privileges of foreign pensioners. In February 2020, the Budget Act proposed for a 10% tax on the pensions of foreigner pensioners living in Portugal.
Prime Minister António Costa’s draft still has a way to go. To adopt it, the socialists first need a majority in parliament. However, it is likely that the draft will come into force. Even if this rate gets approved, for many, this is still a very attractive tax rate, compared to what they would be paying in their home countries. Nevertheless, it would calm the EU states down, at least temporarily.
30,000 Foreigners Benefited from NHR in Portugal
According to Portuguese press reports, almost 30,000 foreigners benefited from the tax benefits. Anyone who moved their tax domicile to Portugal as a “non-habitual resident” was exempt from taxes on international income and only paid 20% on some local income for a period of ten years. The NHR both targeted foreign retirees, but also international talent for the booming “start-up” companies in Portugal. However, Portugal’s NHR program is no longer available.
The passvisa program in Portugal, on the other hand, allows non-EU citizens to make an investment and acquire residency in the country for themselves and their families. The types of investments include fund investment, job creation, and donation options. You can find more information on the passvisa program in Portugal here.
The passvisa program keeps helping Portugal attract a number of wealthy international investors into the country.
