Thinking about packing for Portugal? The country has just become a little less welcoming to digital nomads, after it voted to end tax breaks for foreigners. 

In recent years, Portugal has embraced foreign residents and investors as a means to grow the country’s economy, through the so-called golden visa and D7 schemes — the former attracting high-net-worth individuals wanting to buy a second passport through investment, while the latter drawing skilled workers who earn their income either from a passive income or remote work.  The D7 is intended for freelancers and remote workers with a monthly income of at least €822 (the Portuguese minimum wage), which equates to just more than R16,650 a month. 

But now the country is clamping down on the number of digital nomad visitors because their presence is driving a housing crisis.

Prime Minister António Costa has reportedly said he plans to put an end to the country’s non-habitual resident (NHR) regime next year, as per CNN Portugal. 

Earlier this year, Portugal also approved a plan to end its golden visa programme for foreign property buyers due to a surge in property prices, which was making housing less affordable for locals. 

Costa told CNN Portugal that while it once made sense to have a special tax for non-habitual residents, it no longer does. Those who qualify currently can get flat tax rates of 10% on pensions and 20% on income.

“Keeping that measure for the future is extending a measure of tax injustice that isn’t justified, and is also a way of continuing to inflate the housing market. It shouldn’t be inflated, quite the opposite, as prices that are absolutely unsustainable have been reached.”

In July, Portugal’s finance ministry said about 89,000 people have benefited from the non-habitual resident regime. 

Under the laws aimed at welcoming foreign workers, people who become tax-resident in Portugal are subject to a special tax regime for a period of 10 years under the NHR scheme, Deloitte explains, if their income is derived from high-value-added activities of a scientific, artistic or technical nature, such as doctors, tech workers, and journalists.

But Portuguese residents are taxed on their worldwide income at rates varying from 14.5% to 48%.

This disparity between locals and foreigners was unfair and creating more harm than good, Costa told CNN. “Maintaining this measure for the future is prolonging a measure of fiscal injustice that is not justified, in addition to being a biased way of continuing to inflate the housing market.” 

The current regime will remain in place for those coming to the country prior to an unclear cutoff date sometime in 2024.

It’s also not yet clear how the rule change will affect the so-called digital nomad “D8” visa, which was introduced in October last year. Under this visa, foreigners from outside the EU or EEA need to earn at least €2,800 a month (R56,726 a month) to qualify for a 12-month visa to work in the country. These workers pay taxes in their own countries.

The golden visa was introduced in 2012 to allow foreigners the opportunity to obtain Portuguese citizenship in exchange for investment. The minimum investment for a home was at least €350,000 (R7.09-million).

It drove an investment boom in Portugal, generating around €7.3-billion up to 2023, data from the Portuguese Immigration and Border Service shows. 

Bloomberg reports that as home prices soared in cities like Lisbon, the government moved to end the golden visa programme and placed caps on rent increases. 

‘New era’

Sarah Young, investment migration manager at Sable International, explains that Costa has effectively promulgated the “More Housing” bill which includes substantial changes to the Portugal Golden Visa. 

“The new legislation was implemented as at 1 October 2023 and the new regulations are expected to be published later this week. The ruling eliminates all qualifying real estate investment paths for Golden Visa purposes and so it will no longer be possible for investors to purchase property to qualify for Portuguese residency-by-investment. However, the programme has not been completely terminated, but rather has entered a new era, and it remains open and available to investors via a (€500,000 or R10.1-million) investment into an approved fund.”

The Portuguese government has kept the golden visa scheme open for investment in other sectors to test whether it can “survive” without the property component but it has also withdrawn the option to make a capital transfer of at least €1.5-million (R30.4-million) to Portugal, adds Dani Van Vuuren, business development consultant from Sovereign Trust SA.

“The changes will not be applied retroactively and the rights of renewal for family reunification and permanent residency applications are safeguarded,” she says. 

Non-EU nationals still have a few options:  

• Establishing a single-shareholder private limited company creating at least 10 sustainable jobs that are based in Portugal.
• Investing at least €500,000 in an accredited public or private institution involved in qualifying scientific research that will benefit the national scientific and technological infrastructure.
• Investing at least €250,000 in an accredited institution conducting qualifying projects to, or in support of, artistic production, or the maintenance or recovery of cultural heritage.
• Investing at least €500,000 in an investment fund or venture capital fund for the acquisition of units with a maturity of at least five years from date of purchase. To qualify, the fund must be registered in Portugal and have at least 60% of its capital invested in Portugal.
• Investing at least €500,000 for either the incorporation of a new company headquartered in Portugal that leads to the creation of five new job positions that are sustained for three consecutive years, or a capital injection in an existing company headquartered in Portugal that leads to the maintenance of at least 10 existing job positions.

Van Vuuren says the investment route — while not as straightforward as the property route — still offers a wide variety of options to non-EU investors who want to gain a Portuguese passport.

“These choices allow each investor to continue to choose an asset class that fits into their own narrative and personal plan, whether that is via investment funds, cultural or scientific research or pursuing active business activities.” DM