Portugal Reinstates Tax Breaks to Attract Foreign Residents
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The Portuguese government is set to bring back tax breaks for foreign residents, aiming to lure highly skilled workers despite past criticisms that the scheme inflated housing prices.
Originally launched in 2009 during a financial crisis, the “Non-Habitual Resident” (NHR) scheme offered a special 20% tax rate on Portuguese-sourced income from high-value activities such as tech workers, doctors or university lecturers for those spending over 183 days a year in Portugal. Additionally, the scheme provided tax exemptions on nearly all foreign income taxed in the country of origin and a flat 10% tax rate on foreign pensions.
Last year, the previous government decided to scrap the scheme, labeling it a “fiscal injustice” as it was driving up housing prices. However, parliament extended it until the end of 2024 for those who could prove they were preparing to move to Portugal in 2023.
Finance Minister Joaquim Miranda Sarmento told the Financial Times that the reinstated plan will continue to cover salaries and professional income, but not pensions, dividends, or capital gains.
“We are revisiting this scheme because we want to attract talent and qualifications that are highly strategic for the country and add value to our economy,”
Economy Minister Pedro Reis
Prime Minister Luis Montenegro's government may face challenges passing the plan through parliament, as it lacks a majority.
Data showed that over 74,000 people benefited from the NHR scheme in 2022, costing the state budget more than 1.5 billion euros ($1.62 billion), an annual increase of 18.5%.
In addition to reinstating the NHR scheme, the government approved a reduction in the standard corporate income tax rate to 15% by 2027 from the current 21%, and a new mandatory minimum tax rate of 15% for all multinationals operating in Portugal and large Portuguese companies.
This initiative could make Portugal a prime destination for skilled professionals and investors
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