Portugal Just Became A Bit Less Friendly To Digital Nomads As Country Plans To End Foreign Tax Breaks

This blog originally appeared at Yahoo Finance.

Since the late 2000s financial crisis, Portugal has actively positioned itself as a destination for foreign workers and investors, aiming to revitalize the country’s faltering economy.

Currently, the country’s prime minister has initiated measures to curtail the influx of digital nomads into Portugal, a move prompted by growing discontent among local workers due to programs that have significantly contributed to a severe housing crisis.

During an interview with CNN Portugal, Prime Minister António Costa disclosed plans to terminate Portugal’s non-habitual resident (NHR) program in the coming year.

Under the NHR scheme, individuals who establish tax residency in Portugal benefit from a special tax regime lasting 10 years, as explained by Deloitte. Professionals in “high value-added” professions, such as doctors, tech experts, and journalists, pay a flat 20% tax rate on their income earned in Portugal.

In contrast, Portuguese residents are subject to a progressive income tax scale ranging from 14.5% to 48%, outlined by PwC. Recognizing the inequity of this policy, Costa acknowledged its adverse impact within Portugal.

Costa informed CNN that maintaining the measure perpetuates fiscal injustice and contributes to an unjustified inflation in the housing market. He mentioned that the regime would continue for individuals arriving in the country before the 2024 cutoff date.

It remains uncertain what will replace this scheme, including new paths to attain tax residency in Portugal and the establishment of new income tax brackets.

Fortune’s request for details on how the rule changes would affect digital nomads was unanswered by the prime minister’s office. Additionally, the impact of these modifications on the digital nomad visa introduced last year remains unclear.

Through the D8 visa, non-EU or EEA nationals earning €2,800 per month (about $2,930) can secure a 12-month work visa in the country. While these residents typically pay taxes in their home countries, the alterations in non-habitual resident regulations might also influence short-term workers.

Portugal clamping down on digital nomads?

The adjustment diminishes the allure of Portugal as a destination for affluent migrants. Since the start of the COVID-19 pandemic, many digital nomads have migrated to the country, attracted by its new opportunities for remote work.

As of December last year, Nomad List data, as reported by Politico, indicated 15,800 digital nomads residing in Lisbon. Data from the Portuguese Immigration and Border Service (SEF) indicates a 45% surge in the number of foreigners residing in the country between 2018 and 2021.

According to Nomad List’s recent annual report, almost half of these digital nomads are from the U.S. Lisbon stands as the most sought-after global destination for women and the second most favored for men.

However, recent policy shifts hint at a significant change aimed at dissuading certain prospective visitors, previously seen as having an advantage over native Portuguese workers.

Earlier this year, Portugal announced the discontinuation of its golden visa program, active since 2012, enabling foreigners to acquire Portuguese citizenship by investing in the country, often through property purchases starting at €350,000 (approximately $367,000).

This initiative sparked an investment surge in Portugal, garnering €7.3 billion (around $7.6 billion) between 2012 and 2023, primarily directed into real estate, as per data from the Portuguese Immigration and Border Service. However, this influx of wealth has brought forth social challenges for local residents, notably in the housing market, where Portuguese citizens have found it increasingly difficult to afford homes due to the disparities in the tax regime.

The surge in digital nomads has contributed to a proliferation of Airbnb properties in cities such as Lisbon, diminishing the availability of affordable housing for permanent residents, as highlighted by a report from the Guardian in July. One Lisbon resident, Margarida Custódio, mentioned to the paper that she was allocating 90% of her salary toward rent in Lisbon.

Protesters identified as digital nomads staged demonstrations at a Lisbon web summit in November last year, as detailed by Politico. They expressed discontent over escalating house prices and the effects of Portugal’s policies that favored foreign investments, highlighting concerns about gentrification.