Portugal looks to curb tax breaks for foreigners

Portugal is set to curb its tax cuts for foreigners, with plans to end zero-tax regime for foreign pensioners and limit ‘golden visa’ residence scheme for wealthy investors

Under plans put forward by the ruling Socialist Party, which has a minority in parliament, the tax reliefs for well-off expatriates would be reduced in favour of more support for region outside the major urban areas.

Currently, the non-habitual resident scheme, introduced at the height of the financial crisis in 2009, exempts expatriates from any tax on foreign-sourced pensions, dividends or employment income for 10 years, provided they spend at least six months or more a year in Portugal.

The scheme is based on a loophole in agreements to prevent double taxation, which leads to a tax exemption since none is required of them either in Portugal or their home countries.

It has resulted in about 30,000 people including about 3,000 Britons basing themselves in Portugal. Sweden and Finland, which have lost tax income from pensioners who have left, have withdrawn from fiscal agreements with Portugal in protest.

The proposed changes would see foreigners with the status of non- regular resident facing a 10% tax on their revenue.

Other reforms include an amendment to the granting of ‘golden visas’ to foreigners who invest at least €500,000 (£423,000) in property. 

Currently the scheme is open to those investing in the popular cities of Lisbon and Porto and the coast. In future it would be restricted to property in inland municipalities, the Azores and Madeira.

Since the scheme launched in 2012, Portugal has issued around 8,200 visas, of which more than half went to Chinese citizen, and has raised €4.8bn of investment.

Both proposals are likely to form part of draft budget plans, but may have difficulty in attracting sufficient support.

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