Through the Non-Habitual Residency (NHR) program, foreign taxpayers gained generous tax privileges in Portugal. However, there is a chance the advantages will be over soon. All the retirees moving to Algarve and Lisbon could need to pay taxes on their pensions.
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 Golden Visa 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 Benefit from NHR in Portugal
According to Portuguese press reports, almost 30,000 foreigners are currently benefiting from the tax benefits. In general, Portugal is particularly generous towards wealthy foreigners. Anyone who moves their tax domicile to Portugal as a “non-habitual resident” is exempt from taxes on international income and only pays 20% on some local income for a period of ten years. The NHR both targets foreign retirees, but also international talent for the booming “start-up” companies in Portugal.
The Golden Visa 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 real estate, capital transfer, fund investment, among others. With that Portugal was able to collect roughly 5 billion euros as of 2020. You can find more information on the Golden Visa program in Portugal here.
Both the NHR and Golden Visa programs helped Portugal attract a number of wealthy international investors into the country. With the growing reactions from the EU, it is unclear how these programs will change. Though many already opted in to reap the benefits.