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Portugal to Raise Taxes on Non-Habitual Residents

Portugal NHR & Golden Visa

Portugal’s Socialist Party plans to implement several changes to the 2020 budget including ramping up taxes on pensions for non-habitual residents and placing stricter requirements for receiving the country’s popular Golden Visa.

More specifically, the ruling party hopes to raise taxes on non-habitual residents from 0 to 10 percent and curtail applications for the Golden Visa via real estate acquisitions in either Lisbon or Porto.

In a press conference announcing the decision, Catarina Mendes of the Socialist Party said, “Foreigners with non-habitual resident status cease to be tax exempt and will be subject to a tax rate of 10% on their income.”

The Portuguese government is also looking into applying a 20 percent tax on the performance fees and royalties of non-habitual residents.

Nuna Cunha Barnabé of Lisbon-based Abreu Advogados told the Financial Times, “The zero per cent tax that Portugal applies to cross-border pensions is not sustainable in today’s world.”

However, he added, “Taxing royalties and performance fees will put off the kind of people that have helped put Portugal on the map.”

As explained by The Telegraph, many British, French and Scandinavian retirees have moved to Portugal to benefit from this tax regime, which “allowed expats to pay no tax for 10 years on foreign income,” either as “pension income, dividends, rental income and non-Portuguese employment income.”

Ultimately, this tax hike might not discourage retirees, particularly from the UK, from moving to Portugal.

Jason Porter, who handles business development for Blevins Franks, a financial advice firm that helps UK citizens living abroad, said, “Portugal has been under some pressure from the rest of the EU and specifically several Scandinavian states to limit the benefits of the NHR regime.”

“It is debatable whether this [new measure] will actually restrict the number of British expatriates moving to Portugal. While 10pc is obviously more than 0pc it is not 45pc, the top rate of tax in the UK,” Porter concluded.

Changes to Portugal’s Golden Visa: Pressure Away from Lisbon & Porto?

Changes to Portugal’s Golden Visa: Pressure Away from Lisbon & Porto?

On the other hand, making the purchase of properties in Lisbon and Porto ineligible for the Golden Visa might lead to a significant drop in interest in this program.

As reported by The Financial Times, “property investments in the two cities are estimated to represent about two-thirds of the total to date.”

Since 2012, approximately eight thousand foreign individuals have received a Golden Visa, having invested anywhere between 250 and 500 thousand Euros.

Most of these sums—close to 4.8 billion Euros—has gone into the real estate sector, particularly in Portugal’s two largest cities.

These investments, according to Reuters, have led to “house prices soaring and contributing to the growing issue of rising rents for locals in the two main cities.”

Therefore, the government believes it is necessary to encourage investment in other regions of the country.

According to the plan, the overall goal is to target ““low density regions and activities leading to job creation and regeneration of urban areas and cultural heritage.”

However, Victoria Li, who’s been helping Chinese investors with Portugal’s Golden Visa, believes her clients will not be interested in alternative investment options.

“People aren’t interested in investing in anything beyond houses,” Li told Reuters. “It’s too risky, they don’t see potential for growth in sectors beyond tourism. They are doing this for the visa for them and their children, not for the investment.”

All of these proposed changes come following growing concerns within the European Union with regards to unfair tax structures and residency and citizenship-by-investment schemes.

Share with us your thoughts on these changes to Portugal’s tax regime and visa procedures!

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