New regime will “exclude dividends, capital gains and pensions”
Portugal’s finance minister has announced plans to reintroduce the non-habitual resident (NHR) tax regime for foreigners but with major changes, such as the elimination of some of the most controversial measures from the previous scheme.
The goal is to attract “highly-skilled foreign workers who will help boost growth in Portugal” whilst ensuring that wealthy expat pensioners cannot benefit from the perk.
Speaking to the Financial Times, Joaquim Miranda Sarmento said the government would unveil the plan on Thursday to “attract some people” to the country as part of a package of measures aimed at stimulating growth.
The new NHR regime is set to include the same 20% flat rate of income tax but only cover “salaries and professional income,” the minister told FT.
“It will exclude dividends, capital gains and pensions, which was a problem between Portugal and countries like Finland or Sweden,” he said.
As FT explains, the Nordic nations “led complaints that the tax break was luring retirees who stopped paying tax in their home countries.” While Portugal initially made pensions exempt from tax, it later introduced a 10% flat rate in response to criticism from EU members, while capitals gains were only exempt in a few cases.
The previous regime had been introduced in 2009 but was scrapped last year by the previous Socialist government, which called it a “fiscal injustice” and blamed it for driving up house prices.
Nuno Cunha Barnabé, a tax partner at Lisbon law firm Abreu Advogados cited by FT, said the inclusion of retirees in the previous regime had made Portugal an anomaly.
“It was against demographics. It didn’t make sense,” he said. “We already have an old population. Attracting pensioners puts more burden on our health system. We need to attract young people.”
However, for this reintroduction of tax breaks for foreigners to pass in Parliament, the centre-right minority government led by Prime Minister Luís Montenegro will need to secure support from other parties, such as the Socialist party (PS) or far-right CHEGA, which “both dislike the tax breaks,” FT points out.
Miranda Sarmento said the initiative is crucial to attracting highly skilled foreign workers who would help to boost growth, adding that he is confident opposition parties would support the move or let it pass by abstaining.
FT reports that big Portuguese companies are likely to welcome the return of the 20% rate, saying that they struggle to attract overseas engineers, researchers and managers willing to pay Portugal’s 48% top marginal tax rate, which is imposed on the portion of incomes above a threshold of €81,199.
“This will attract some people. It’s not sufficient, but it’s something the government can do,” Miranda Sarmento said. He added that the government would not reverse the previous administration’s decision to end “golden visas” linked to €500,000-plus property purchases.
The special tax breaks would also be available to Portuguese citizens who have lived abroad. To qualify under the previous version of the law, beneficiaries had to become tax residents in Portugal — either by spending more than 183 days a year or having a permanent home in the country — but remain legally domiciled elsewhere.
Miranda Sarmento also said the tax plan does not clash with the government’s parallel efforts to tackle the country’s housing crisis, which is stoking a “brain drain” of young people unable to find decent homes.
“We need skilled workers and economic growth. We will have to balance that with more affordable houses,” he said. “Obviously if we have just one side of the policy, there will be more affordable houses, but less economic growth. So, we have to balance these two parts.”
The finance ministry noted that the tax regime does not include any requirement to purchase property.
