The Death of NHR?

The When, Why, and What of the PM's Announcement

Last week I was on a call with an American woman planning an exploratory trip to Spain and Portugal. She mentioned she was leaning toward Portugal because of the tax benefits associated with NHR. I asked when she intended to move. “Probably in 2 or 3 years,” she responded. Houston, we may have a problem!

Is NHR dead?

On 2 October 2023

One week ago, Prime Minister António Costa appeared on a TVI news program and announced, "Não faz mais sentido" (It no longer makes sense…) to continue the NHR program. Today we look at:

• When Portugal instituted NHR;

• Why there are calls to end it; and

• What this means for you.

When?

I assume you remember the global recession/credit crisis in 2008 and 9. Well, Portugal was hit pretty hard. The economy recorded zero growth in 2008 and actually contracted by 2.5% in 2009. Its deficit hit 9.4% of GDP. House prices in Portugal declined 4% on average per year between 2007 and 2013. The government instituted a number of difficult measures:

• It froze public hiring and required some public employees to take a pay cut;

• The VAT was increased from 21% to 23%;

• Tax allowances and non-contributory social security schemes were trimmed;

• Tolls were added to motorways; and

• The Portugal Telecom pension plan (€2.8 billion) was transferred to the State.

In 2009 they also introduced NHR. It was sold as a program that would attract high-value foreign residents to live in Portugal. They hoped some of these people would be professionals (e.g. doctors) who would only pay 20% income tax over the first 10 years. They expected many retirees would contribute to the Portuguese economy by spending money…including in real estate.

Current make-up of Portuguese Parliament.

Why?

The chart above represents the current makeup of the Portuguese Parliament. The Portuguese Socialist party won the last election … in fact, to many observers’ surprise they won an absolute majority. They are joined by other left leaning parties such as the Left Bloc, the Greens, the Unitary Democratic Coalition, and the People-Animals-Nature Party. For five years, the Left Bloc (the five brown seats above) has been calling for NHR to be ended. There are two reasons:

• The first is an ethical argument. It is kind of like why I don’t eat meat. Will my not eatting meat fundamentally change the meat industry? No. Will my not eatting meat save the planet? Unfortunately, no. But is it the right thing to do? In my opinion it is the ethical choice. The left argues that it is unethical to provide substantial tax benefits to “rich” foreigners while taxing Portuguese that are struggling to get by.

“Maintaining this measure for the future is prolonging a measure of fiscal injustice that is not justifiable” — António Costa

• The second is the impact on housing. A Portugal Resident headline on 1 October 2023 sums it up: “Thousands take to streets protesting against Portugal’s housing crisis”. One can argue that AL’s (Airbnb type accomodations) have gutted many neighborhoods in Lisbon and Porto. However, for many, there is little doubt that the Golden Visa real estate program, and the influx of wealthier immigrants paying inflated prices for real estate has had an impact.

Portugal is one of Western Europe's poorest countries with an average monthly wage of around 1,200 euros ($1,268), 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 skyrocketed 137% in that period, according to housing data specialists Confidencial Imobiliario. — Reuters

Thousands took to the street in over 20 cities and towns on Saturday … the Prime Minister’s comments were made on Monday.

What?

So what does all this mean to you? If you have already migrated to Portugal…absolutely nothing. You will still receive the benefits of NHR for your current term.¹

If you are currently applying for a visa, you will likely not be effected. The Prime Minister suggested that the program would “end” in 2024. Last I looked there are 12 months in 2024 … so the jury is out on when this might take effect. ²

But if you are one of those people that is waiting for a child to finish high school, to turn 62 so you can start collecting Social Security, for your pension to kick in, or an elderly relative to pass away … beware. If a major attraction to Portugal is NHR, you may have to reconsider your plans. As I wrote last week, Portuguese tax rates are significantly higher than what you are paying in the US.

This post is not intended to dissuade anyone from moving to Portugal. Historically, 59% of those who received NHR benefits choose to continue to live In Portugal after those benefits expired. While we first viewed our move to Portugal as a four to five year “escape” from the US, we decided pretty quickly to remain in Portugal forever. Of course no one can predict the future. We make the best decisions we can based on the information that is currently available. Do we know for certain that NHR will end next year? No. But if I was a betting person…

Até a próxima semana, fica bem

Nanc

1. If you have not applied for NHR, do so as soon as you are able (I.e. immediately following your SEF residency appointment).

2. As recently as February of this year Costa was asked about ending NHR and he was quoted as saying, “we can’t kill the goose that laid the golden egg”.