Portugal’s allure for high-net-worth immigrants may soon be on the rise, thanks to significant changes in its tax policies. In a bold move to address the housing shortage and encourage investment in the country, the Portuguese government has decided to terminate the tax relief program for new residents, a scheme that has been in place since 2009.
Under this scheme, newcomers to Portugal enjoyed a decade of tax benefits, during which their income earned within the country was subject to a favorable 20% tax rate, while income from abroad remained generally exempt. This created a stark contrast for Portuguese citizens who didn’t benefit from such a scheme and faced tax rates of up to 48%. Prime Minister António Costa labeled this situation a “fiscal injustice” that needed rectifying.
The scheme was initially introduced to attract visitors and professionals to Portugal, but its success inadvertently led to a housing crisis and financial instability for residents. Eurostat’s data reveals that Portugal ranks fifth in Europe for the highest house price index, with soaring prices causing concern. Additionally, Portugal’s Harmonized Index of Consumer Prices (HICP), a measure of inflation in the EU, remains relatively low, making it an attractive destination for those seeking more affordable living.
However, the overall living standards in Portugal have dipped below the EU average, largely due to the weight of taxation. A study conducted by the Faculty of Economics of Porto highlights that taxation has grown in importance, overshadowing wealth-generating factors in GDP. This shift has hindered economic growth and resulted in a tax burden of 36.4% of GDP in 2022, well above the EU average and placing Portugal as the fifth-highest in the region.
As Portugal undergoes these significant tax changes, it’s becoming increasingly appealing for high-net-worth individuals seeking a more balanced financial landscape and attractive investment opportunities.
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