After years of overtures to the rest of the world to bring them to its Mediterranean climate, Portugal might be closing its doors. But attempts by the government to keep away more transplants may have instead set off a fresh influx of digital nomads and high-net-worth foreigners before lucrative tax breaks come to an end.
What happened to Portuguese tax laws?
In February, Portugal announced it would be scrapping its Golden Visa program. The scheme fast-tracked residency status to wealthy buyers who could fork out at least €350,000 (around $371,000) on property in Portugal. Putting €500,000 ($530,000) into a Portuguese investment fund is now among just a handful of ways to secure a golden visa for the country.
Then in October, Portugal’s Prime Minister António Costa told CNN Portugal it would also be winding up its non-habitual residence (NHB) tax scheme in 2024.
This allowed individuals to live for 10 years in Portugal, paying a flat rate income tax of 20% on money earned in the country. This contrasted with a tax band between 14.5% and 48% for Portuguese citizens.
The closure of these schemes is a clear message from the government that foreign investment is less welcome than it used to be.
‘People are panicking’
Kaitlin Wichmann has worked from the Portuguese capital of Lisbon as a self-employed digital marketer since 2022 after moving on a D7 visa, which allows non-EU nationals to move to Portugal if they have the funds to support themselves.
Lisbon “ticked all the boxes” for Wichmann thanks to its good weather, affordability, and large international community.
She’s not alone. Lisbon has become a hub for digital nomads since COVID-19 opened up newfound flexibility for millions of workers. The city was the most popular destination for female nomads last year and the second most popular for men, according to Nomad List. There are 13,200 people working there as digital nomads right now, according to the website.
She was also able to rent in the city for a quarter of the price of Los Angeles, where she briefly lived before COVID-19 struck.
Wichmann benefitted from the NHB tax scheme too, though only to the tune of about €100 a year, thanks to already low tax rates in her home state of Kansas. Friends of hers in the city, Wichmann said, benefitted much more from the rules.
Now though, she and other digital nomads have been rocked by proposed tax changes, and she thinks others who haven’t moved yet might be speeding up their plans.
“The general sentiment is people are really disappointed, and I see on a lot of Facebook groups that people are kind of panicking to try and move here,” Wichmann said of the deadline in December this year for the closure of the NHB scheme.
Nuri Katz, the founder of Apex Capital Partners and an advisor to high-net-worth individuals, some of whom have immigrated to Portugal, says there was a similar panic among his clients to get moves over the line following the end of the Golden Visa program.
“What he [Costa] didn't understand is that whenever you announce that a program is going to stop or it's going to change, you trigger a huge amount of demand from people who are trying to get in before it changes, and that's what has happened.
“As soon as they announced it, we had people calling us saying ‘we have three more days, let's get it in.’”
Pedro Banco, managing director at Portugal Residency Advisors, said in an email he has also seen an increase in clients seeking to rush through their moves to the country since the closures of the schemes were announced.
Katz feels the move by the government was driven by popular anger at the rising cost of living and real estate prices, and described its execution as “amateurish.”
“He was blaming the foreigners, which is always the easiest way,” Katz says of Costa’s move.
However, according to Wichmann, the sentiment of the government is not one she personally sees echoed among Lisbon’s citizens.
“The only time I see hate is online,” Wichmann says, “But everyone in real life is super welcoming.”
Impact on property market
While the soon-to-be-defunct policies were a boon for wealthy foreigners and aided Portugal’s public finances, they have arguably been inflationary for the country’s citizens.
Non-habitual resident tax bands saw already wealthy foreigners with even more disposable income than Portuguese residents.
The digital nomad visa, introduced last year, allows a year of residency for workers from outside the EU/EEA if they earn at least €3,040 a month. That's more than three times the national minimum wage, however, and Portuguese citizens have increasingly found themselves outpriced in their economy.
House prices have surged as well, with the median home nearly 50% more expensive than at the start of 2019, according to Portugal’s National Institute of Statistics.
Daniela Rebouta, a sales director at Engel & Volkers' Lisbon branch, says prices have probably been impacted by demand from foreign buyers. But right now, it’s unclear how much barriers to foreign ownership will alleviate that.
Rebouta blames other factors more for spiraling prices in the country, and in Lisbon in particular.
High interest rates and rising taxes for Portuguese citizens are two causes, as is an inadequate level of housing supply in the country, according to Rebouta.
As Katz points out, previous rule changes already stopped foreigners from getting a visa if they buy properties in Lisbon or Porto.
According to Engel & Volkers, this has left those cities with minimal foreign purchases, while some regions of the holiday location of the Algarve saw 90% of properties bought by foreigners last year.
Studies in the past, though, have shown demand for Airbnbs in Lisbon has contributed to rising house prices in the city.
Gonçalo Roxo of Your Property Adviser, a buying agent for wealthy foreigners moving to Portugal, told Fortune the policy helped bring investment to more rural areas, and usually came through hotel developments, rather than people taking up available homes.
Roxo says there has been a “virus” against foreign visitors initiated by the Portuguese government, which he says could filter down to public sentiment on economic migrants in the country. He also saw an upsurge in attempts to buy properties following the golden visa announcement.
Your Property Adviser’s Roxo thinks the removal of NHB might be a deterrent to visitors, who might choose to live in Spain instead. But he added Portugal’s perks like security and good weather will still make it appealing for Americans.
Wichmann, for her part, agrees.
“I love Portugal, and I’m happy to pay the taxes.”
