PM admits ‘NHR’ is biased way of inflating housing market
Portugal’s prime minister António Costa has announced the end of the special NHR tax regime for non-habitual residents – long hailed as ‘Europe’s best kept tax secret’.
In interview with TVI/CNN Portugal on Monday, the PM admitted the regime “is a biased way of inflating the housing market, which has reached unsustainable prices”.
It is a move that has long been ‘predicted’ by the industry that sustains foreign investment in Portugal: indeed, pressure for the axing of NHR has been building since 2016 when Finland pulled its own citizens out of the regime, describing it as a ‘tax holiday’ for pensioners living in Portugal who, Finland believed, should have been contributing fully to public coffers.
A year later, Sweden’s then finance minister Magdalena Andersson (who went on to become prime minister) described herself as “disgusted” at the concept that wealthy retirees were being offered tax perks.
Socialist policy makers nonetheless held out for the regime for another seven years – until now.
Mr Costa told his interviewers that as of 2024, the government has decided not to prolong “a measure of fiscal injustice that is no longer justified and is a biased form of inflating the housing market, which has reached unsustainable prices”.
If one considers the PM’s words, it is clear PS Socialists have been aware all along how ‘unjustified’ NHR was, in terms of giving tax breaks to foreigners when national citizens were left to pay ‘the full whack’.
It is just that in the face of a housing crisis that is taking thousands onto the streets in protest; that is seeing teachers and nurses living in tents on campsites (as they cannot afford the cost of a monthly rental); that is seeing families struggle desperately to pay home loans, it is time to call a halt to some of the policies that have brought the country to this social drama.
“There was a time when it was necessary,” the PM said. “This measure made sense. In the first 10 years, 59% of people who had benefited continued to reside in Portugal, in spite of the regime having ended (NHR provided a form of ‘tax amnesty’ for 10 years only). But right now, it does not make sense.”
Where does this leave pensioners already benefiting from the regime that has brought many thousands to this country as ‘non-habitual residents’? “Who has it, will keep it,” Costa assured. The regime is simply ending as of 2024 (no exact date yet given).
The rest of the interview was given over to the much more pressing national issues of trying to ease citizens’ desperate financial struggles. The government is negotiating income tax reductions with employers and unions and committed to increasing the national minimum wage next year to at least €810. No-one needs reminding that this sum doesn’t even cover a monthly rental in many parts of the country.
NHR and why it was brought in at all
Portugal’s non-habitual residents’ regime was an inspired ‘creation’ on the back of 2008’s financial crisis, which left the country crippled by debt and on its way to requesting a €79 billion bailout. It essentially encouraged foreigners to invest in Portugal, with the offer of a 10-year blanket tax amnesty.
Thousands took up the opportunity – to the delight and ‘miraculous recovery’ of a then ailing real estate market, and with undeniable instant knock-on effects to the economy.
As the years went by – and as complaints ‘internally’ centred on the iniquity of giving wealthy foreigners tax breaks when hard-working nationals had nothing of the kind – PS Socialists tweaked the regime to the point where it is now: work-age applicants have to pay a flat rate of tax of 20% on their income; pensioners just 10%.
But the reality of 14 years in which investors have been attracted to this country has taken house prices into the ‘stratosphere’ from the point of view of people living on Portuguese wages – contributing to the impossible ‘crisis’ of today in which young people have little hope of leaving home and living independently for years after finishing their education, and couples are delaying having children because they simply cannot afford them.
Further pledges by Costa
At a point of heightened financial, social and, to a large extent, ‘economic’ drama (Romania’s standard of living has now overtaken that of Portugal, seeing the country slip even further down the European ladder), Mr Costa has pledged government focus on trying to improve the lot of national citizens. Tax cuts to the end of this legislature will extend to €2 billion, he told his interviewers – and pensioners can look forward next year to a 6.5% increase in their allowances.
There is still a ‘long way to go’: unions are calling for a national minimum wage of €830; the employers’ confederation has even suggested a 15-month year for workers “who fulfill certain conditions”. But all players appear to be united in trying to improve the financial lot of nationals who, after all, are the ones who vote parties in, and out, of office.
As to the issue of teachers, and their uphill struggle to recover the six years, six months and 23 days of service ‘vaporised’ by previous administrations, Mr Costa remains resolute, however: “I’m not going to commit myself to something that I know cannot be fulfilled and which is unsustainable for the country,” he said.
In fact, the PM referred to the teachers’ ambition to fully recover all the years frozen as “illusions” that are “not as important as right now” as the discussion about digital textbooks in schools, and pupils’ use of mobile phones…
“My wife was a teacher, so, unfortunately, I am very familiar with teachers’ frustrations,” he told his interviewers. “They had expectations of retirement age and career progression that have been frustrated.”
By Natasha Donn
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“Attraction to live here remains as strong as ever”
Commenting on the PM’s announcement on Monday, Gavin Scott, Senior Partner for Portugal at Blevins Franks, international tax and wealth management advisers, said:
“Despite the proposed change, Portugal will continue to offer an attractive tax regime with no wealth tax, gift tax or inheritance tax.
“These changes emphasise the need for professional advice in order to benefit fully from all of the tax advantages, but the attraction to live here remains as strong as ever.
“People are attracted to the sun, security and lifestyle in Portugal and that will continue to be the case. There are few places that rival what Portugal offers, including the tax regime, with careful planning.
“We have been advising clients on Portuguese tax planning for over 25 years; the taxation system has evolved considerably in that time and will continue to do so but the attraction of retiring to Portugal is undiminished.”
