Portugal to ditch tax breaks for foreign residents amid housing crisis

Tax breaks for foreign residents in Portugal are “no longer justified”, Prime Minister Antonio Costa said, promising to close the scheme for new applicants in 2024 after it stoked housing prices in one of western Europe’s poorest nations.

Launched in 2009, the scheme allows people who become residents by spending more than 183 days a year in the country to benefit from a special 20 per cent tax rate on Portuguese-sourced income derived from “high value-added activities”, such as doctors and university teachers.

It was introduced to attract investors and professionals as Portugal suffered from the financial crisis.

Other benefits of the scheme – known as Non-Habitual Resident – include tax exemptions on almost all foreign income if taxed in the country of origin and a 10% flat tax rate on pensions from a foreign source.

Portuguese citizens who lived abroad for five years or more could also apply.

Costa told CNN Portugal late on Monday the scheme had “inflated the housing market”, calling it a “fiscal injustice that is no longer justified”.

“It no longer makes sense,” Costa added, explaining that those who already benefit from it would continue to do so.

The announcement came two days after thousands of people took to the streets of Lisbon and other cities across Portugal to protest against soaring rents and house prices stoked by growing gentrification and record tourism.

Government data show more than 50% of workers earned less than 1,000 euros ($1,046) per month last year, and a 65% increase in Lisbon rents since the start of the tourism boom in 2015 has made apartments unaffordable for many.

Sale prices have jumped 137% in that period, according to housing data specialists Confidencial Imobiliario.

Critics say measures announced by the government earlier this year that include curbs on Airbnb short-term rentals and changes to the country’s golden visa scheme were not enough to tame the crisis, which has also been exacerbated by a chronic shortage of affordable housing.