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Portugal: Threats on the Fiscal El Dorado for Foreigners

Retired citizens in Portugal may no longer have a full exemption on their pensions. Newcomers who reside at least 180 days a year could have a new tax within a few years. This is what the local press says.

Is this the end of an era in Portugal? Created in 2009, the non-habitual resident status (NHR) aims to attract wealthy retired citizens from the European Union (EU) and Switzerland to Portugal. The government has agreed to a total exemption on pensions for newcomers for ten years, provided they stay in Portugal a minimum of 180 days per year.

However, the authorities are currently studying and planning the introduction of a tax for this group of people which was totally free from it. These negotiations are taking place within the framework of the parliamentary debate on the state budget for 2020. The proposal is currently still in the bosom of the finance ministry, according to the local press which estimates that the changes will take several years to intervene.

Launched eleven years ago as the country sank into the European debt crisis, the NHR program is aimed at wealthy people. The objective is in particular to boost the real estate market for second homes, whose sales are proving to be very low compared to other Mediterranean countries. The Lusitanians have carried out targeted promotional campaigns in the countries in the North in order to extol living conditions and tax advantages to retired Europeans looking for a house in the sun.

As a side effect, the NHR has contributed to the real estate overheating in Lisbon and Porto. The increasement in demand has generated enormous pressure on urban housing in Portugal, forcing many citizens to move out of city centers.

The NHR status provokes a fair amount of criticism in Europe, especially in Scandinavia where Sweden and Finland have withdrawn from tax agreements with Portugal, in order not to lose the tax revenues of their elderly citizens. The Portuguese Left Bloc party has also vehemently opposed this regime, which is considered unfair for national retirees who must pay tax on their pensions.

For its part, the fiduciary giant PricewaterhouseCoopers (PwC) has described the NHR as “Europe’s best kept secret”. PwC describes Portugal as a very attractive place for investors, with “very attractive regimes that outperform others in many ways”. It is rumored that pressure from Brussels is behind the upcoming changes to NHR status.

According to the Portuguese press, there are nearly 30,000 residents currently enjoying NHR status in the country. Only 7% of them are young self-employed and entrepreneurs who have launched economic activities there. French-speaking retirees (French and Swiss) are more than 15,000.

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