In an unforeseen announcement on Monday, October 2, Portugal’s Prime Minister revealed plans to phase out the unique tax regime for new non-habitual residents (NHR) by 2024.
This revelation sent ripples through the real estate sector, as both investors and developers showed immediate concern. Many see this move by the majority government as potentially detrimental to the real estate market’s health, while not necessarily addressing the overarching housing accessibility issue.
Even the Bank of Portugal’s governor chimed in on the Prime Minister’s statement, expressing his reservations about the NHR program being the root cause of the housing market’s challenges. For Mário Centeno, who has previously served in significant roles like the finance minister under António Costa and as the president of the Eurogroup, this shift seems more politically charged than solution-driven.
For those unfamiliar, the Non-Habitual Resident Status (RNH), inaugurated in 2009, provides a substantial reduction in Personal Income Tax (IRS) for a decade to newly arriving foreign residents and Portuguese citizens who are returning after a hiatus of more than five years. This policy aimed to draw skilled non-resident professionals into Portugal, specifically those in high-value-added roles or those with specific intellectual and industrial expertise. Notably, this initiative was also attractive to overseas pension beneficiaries.
João Magalhães Ramalho, a seasoned tax lawyer, emphasized that the NHR is not a blanket exemption on all income sources. He provided an insightful breakdown in Expresso, delineating the intricacies of the tax benefits:
- The scheme primarily favors income derived from specific high-value-added professions, subject to a 20% IRS rate.
- Income from foreign sources, like certain professional earnings, interest, dividends, and real estate capital gains, might benefit from the IRS exemption, given specific conditions.
- From April 1, 2020, foreign pensions obtained by registered NHRs are subject to a 10% IRS tax rate.
The Prime Minister insinuated that this tax regime potentially fuels real estate speculation. However, concrete details regarding this stance remain forthcoming. All eyes are now on the proposed State Budget for 2024 to unveil the nuances of this new approach.
The Real Estate Sector Reacts
Bruno Alves, a partner at PwC, shared how the sudden news caught the market off guard, prompting global inquiries seeking clarity. According to him, the implications of this regime change are profound, impacting both individuals and businesses, especially with a burgeoning tech sector in Portugal that heavily relies on foreign expertise.
The current sentiment is one of apprehension. Portugal’s recent housing policy changes have already injected a dose of uncertainty. Now, with the prospective NHR adjustments, many fear a potential exodus of foreign investment. Krest, a Belgian developer, voiced concerns about these proposed changes potentially exacerbating the existing issues, particularly in an intensely competitive global economic landscape where foreign investments are pivotal.
Several industry stakeholders, including José Cardoso Botelho, CEO of Vanguard Properties, and Miguel Lacerda, Lisbon residential director of Savills Portugal, have expressed the need for clarity, urging the government to provide comprehensive data to truly understand the NHR regime’s impact.
In summation, while the government’s concerns about housing issues in Portugal’s major cities are valid, it remains essential to evaluate any solutions critically to ensure they are not counterproductive.
