After actively inviting the world to experience its Mediterranean climate for years, Portugal seems to be considering a change in direction. Efforts by the government to restrict further migration might have inadvertently sparked a new wave of digital nomads and wealthy foreigners before the conclusion of beneficial tax incentives.
What happened to Portuguese tax laws?
Portugal made headlines in February with its decision to terminate the Golden Visa program. This initiative had expedited residency status for affluent purchasers who invested a minimum of €350,000 (approximately $371,000) in property within Portugal. Presently, allocating €500,000 ($530,000) to a Portuguese investment fund remains one of the few avenues to attain a golden visa for the country.
Later, in October, Portugal’s Prime Minister, António Costa, disclosed to CNN Portugal the intended conclusion of its non-habitual residence (NHR) tax scheme by 2024.
Under this arrangement, individuals could reside in Portugal for a decade, subject to a fixed-rate income tax of 20% on earnings within the country. This differed from the tax range of 14.5% to 48% applicable to Portuguese citizens.
The termination of these programs reflects a decisive stance by the government, signaling a reduced enthusiasm for foreign investment compared to earlier periods.
“People are panicking”
Since 2022, Kaitlin Wichmann has operated as a self-employed digital marketer in Lisbon, Portugal, having relocated on a D7 visa—an option accessible to non-EU nationals demonstrating sufficient financial support.
Lisbon became an ideal choice for Wichmann due to its favorable climate, cost-effectiveness, and vibrant international community, ticking all the right boxes for her preferences.
She’s not the only one. Lisbon has emerged as a central hub for digital nomads following the newfound flexibility ushered in by COVID-19, appealing to millions of professionals. As per Nomad List, the city topped the list as the most sought-after destination for female nomads last year and secured the second spot for men. Currently, around 13,200 individuals operate as digital nomads in Lisbon, as reported on the website.
Renting in the city cost her just a quarter of what she would pay in Los Angeles, where she briefly resided before the onset of COVID-19.
Although Kaitlin Wichmann derived some benefit from the NHB tax scheme, the gains were relatively modest—about €100 annually—owing to the already low tax rates in her home state of Kansas. However, Wichmann noted that her acquaintances in the city reaped more substantial advantages from these regulations.
Presently, proposed tax alterations have unsettled her and other digital nomads, prompting thoughts that those contemplating a move might hasten their plans.
Wichmann shared, “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,” referencing the upcoming deadline in December for the closure of the NHB scheme.
Nuri Katz, the founder of Apex Capital Partners and an advisor to affluent individuals, some of whom have relocated to Portugal, witnessed a rush among his clients to expedite their moves following the termination of the Golden Visa program.
“When an announcement is made that a program will cease or undergo alterations, it sparks a surge in demand from those aiming to act before the changes take effect, and that’s precisely what occurred. Immediately after the announcement, we received calls with people saying, ‘We have three more days, let’s get it in,’” mentioned Katz.
Pedro Banco, the managing director at Portugal Residency Advisors, noted via email an upsurge in clients endeavoring to expedite their relocation plans to the country subsequent to the announcement of the scheme closures.
Katz believes the government’s decision stemmed from public dissatisfaction with escalating living costs and real estate prices. He critiqued the execution as “amateurish,” attributing it to blaming foreigners, which, according to Katz, is the easiest route.
Contrary to the government’s sentiment, Kaitlin Wichmann highlighted that such negativity isn’t mirrored among the locals in Lisbon. “The only time I see hate is online. But everyone in real life is super welcoming,” she remarked.
Impact on property market
While the soon-to-be-abolished policies proved advantageous for affluent foreigners and contributed to Portugal’s public finances, they arguably fueled inflation for the nation’s citizens.
Tax brackets for non-habitual residents resulted in already affluent foreigners having considerably more disposable income compared to Portuguese residents.
Introduced last year, the digital nomad visa offers a year of residency to non-EU/EEA workers earning a minimum of €3,040 monthly. However, this amount, which surpasses the national minimum wage by more than threefold, has led to Portuguese citizens feeling increasingly priced out of their own economy.
Additionally, housing prices have surged, as noted by Portugal’s National Institute of Statistics, revealing a nearly 50% increase in median home prices since the beginning of 2019.
Daniela Rebouta, a sales director at Engel & Volkers’ Lisbon branch, suggests that prices might have been influenced by foreign buyers’ demand. However, the extent to which barriers to foreign ownership will ease this situation remains uncertain.
Rebouta attributes the escalating prices more to other factors, especially in Lisbon.
She highlights high interest rates and increased taxes for Portuguese citizens as significant causes, along with a shortage of housing supply in the country.
Nuri Katz also notes that prior rule alterations had already restricted foreigners from obtaining a visa if they purchased properties in Lisbon or Porto.
According to Engel & Volkers, these cities experienced minimal foreign purchases, whereas in certain regions like the Algarve, approximately 90% of properties were bought by foreigners last year.
Previous studies have indicated that the demand for Airbnbs in Lisbon has played a role in driving up house prices in the city.
Gonçalo Roxo from Your Property Advisor, catering to affluent foreigners relocating to Portugal, shared with Fortune that the policy had redirected investment toward more rural areas, often through hotel developments instead of people purchasing available homes.
Roxo described a “virus” against foreign visitors initiated by the Portuguese government, which he believes could influence public sentiment toward economic migrants in the country. He also noted an increase in attempts to purchase properties following the golden visa announcement.
Roxo from Your Property Advisor suggests that the removal of NHB might deter some visitors, potentially leading them to choose Spain instead. However, he noted that Portugal’s advantages, such as security and favorable weather, will likely continue to attract Americans.
On the same note, Wichmann shares a similar viewpoint.
“I love Portugal, and I’m happy to pay the taxes.”
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