Portugal as a retirement haven: end of an era?

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Published 2020-03-09 07:53

The amendment has sent shockwaves across the expat community in Portugal. On the 27th of January, the Portuguese government announced it would be reconsidering the fiscal advantages non habitual residents benefit from: tax exemption on foreign earned assets is officially over. Does this mean the end is in sight for Portugal as an expat destination?

Heavily affected by the 2009 financial crises, Portugal launched the exemption scheme as a financial rescue plan. The aim being to attract foreign capital to boost the economy. The scheme initially attracted middle class professionals and investors. Already famous for its pleasant climate, easy living and landscapes, Portugal is then seen as a tax haven. At first, the working population was given an advantage, for example, investors obtained a residence permit a lot more easily. But in 2013, these tax incentives extended to retirees. Non-habitual residents are exempted from tax on their pensions during the first 10 years of living in the country. A considerable advantage which placed Portugal as a top expat destination.

Growth ensued...

After the financial crisis, in 2015, Portugal is back on the track of economic growth. With better days ahead for Portugal, the country is now beginning to reconsider the exemption scheme for expats. Catarina Mendes, leader of the socialist parliamentary group, said in a press conference that foreign residents having the non habitual resident will not be exempted from taxes anymore. Instead, they will be taxed 10% on their income. The new measure is not, however, retroactive, meaning that it can only be applied to new expats and not to anyone who had been living in the country the amendment.

Regarding investment, investors will need to invest at least 500,000 euros in regions outside of big cities (continental regions, autonomous regions (Azores and Madeira). Because foreign investment was previously mainly concentrated in urban areas, this has led to strong real estate pressure. Rents have increased, residential areas have become popular tourist accommodation.

Whether this amendment will affect or not Portugal as an expat destination is yet to be demonstrated. At the same time, Portugal is also urging its citizens settled abroad to return. Through the “regressar” program, launched in 2019, the Portuguese government proposes to cover repatriation costs, tax cuts and financial assistance of up to 6,536 euros to lure back the Portuguese citizens who left during the financial crisis. Indeed, Portugal now more than ever needs professionals and skilled citizens back as it faces another challenge: lack of labour in regions deemed less attractive.