Portugal Eliminates the Tax Advantages for Ex-Pats
We all know someone who has purchased a place in Portugal. The Portuguese government was keen to attract foreign investment and reduce its deficit and debt, after enduring hardship, austerity and near bankruptcy in the wake of the Great Recession. (Portugal was one of the infamous PIGS countries during the Financial Crisis of 2008, and still has a Debt to GDP of 119%.) As part of its economic recovery plan, foreigners could get a golden VISA by investing and creating jobs in Portugal, and there was a special 10-year tax break for “non-habitual residents.” (Portugal is a socialist country. The personal income tax rate in Portugal can run as high as 48%.)
Policies have changed dramatically this year, however. The Golden VISA has new restrictions, and there is a bureaucratic log-jam on processing them. There is a ban on new Airbnb licenses, except in rural areas. On November 29, 2023, the Portuguese Parliament voted to phase out the NHR tax breaks. Anyone already in the plan will continue through their 10-year period. However, beginning on January 1, 2024, new residents will no longer be eligible.
Why the Change?
While the tax and VISA incentives did indeed attract foreign investment in droves, it also sparked soaring home prices. Over the last eight years, home prices are up 137% (source: Reuters/Confidencial Imobiliario). Rents have rocketed up 65% or more. Portugal is one of the more modest countries in terms of income. The spike in housing costs have forced some workers to live in tents, rather than pay all of their income for rent. Locals are taking to the streets in protest, with many dressed up as the Monopoly mascot, shouting, “Housing is a right.”
On November 29, 2023, the ousted Prime Minister António Costa defended the policies of his government, saying, “Throughout these eight years, we turned the leaf on austerity and took the country from a situation of excessive deficit to one of solid and peaceful budgetary stability that now broadens the freedom of political choices.” Costa resigned on November 7, 2023, over allegations of corruption. A Special Election is scheduled for March 2024. The Socialist Party has the majority of seats in Parliament. The political and unaffordable housing crises, along with higher interest rates, has economists projecting a slowdown in GDP in Portugal from 2.2% in 2023 to 1.5% in 2024.
Everyone Wants to Move to Portugal. Should You?
Portugal is one of the most affordable countries in Europe
Food is cheap
Great public transport
Property rights and judicial effectiveness score high on the Index of Economic Freedom
Housing is unaffordable for the locals. (This creates political instability and can cause clashes with tourists.)
New Airbnb restrictions. (If you’re a part-timer trying to rent out your place, this may be unavailable to you.)
Chasing gains. (Buying high is rarely a good idea, especially when home prices are unaffordable and the tax incentives for ex-pats have dried up. Less demand puts downward pressure on prices.)
Socialist country. (High taxes.)
Political uncertainty, protests and tighter policy toward ex-pats and digital nomads.
Every soul has her own geography. If Portugal is your place, and you’ve fallen in love with the land, the locals and the language, then navigating through the new tax, hosting and VISA laws could be worth it. If you’re looking to make a quick buck, you may be on the wrong side of that trade. Before making any real estate purchase, which can be illiquid and requires capital to maintain, it is very important to answer the 10-Point Checklist that is featured in the Real Estate section of The ABCs of Money, 5th edition.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.