Portugal's government is set to reintroduce tax breaks for foreign residents on Thursday, despite earlier criticism that the scheme was driving up house prices in the country. Finance Minister Joaquim Miranda Sarmento said the measure was needed to attract skilled workers and boost economic growth. The tax breaks, which were first introduced in 2009, allowed residents who spent more than 183 days a year to benefit from a reduced tax rate on income from high-income activities. While the initiative has attracted much investment, its implications for the property market have been the subject of much debate.
Former Prime Minister Antonio Costa has previously voiced concerns that the program was creating "fiscal injustice" and driving up the cost of housing, especially in the context of the economic hardships many locals are experiencing. However, as the finance minister noted, the package of measures to attract foreign residents still includes tax breaks on salaries and professional income, but preferences for pensions, dividends and capital gains are being abolished. This decision, which must be approved by lawmakers, also affects Portuguese citizens who have lived abroad for more than five years and want to return.
The new tax breaks are set to be part of a strategy to ensure Portugal’s economy remains competitive and growing. But how they will impact the housing market and the country’s social balance remains an open question. As the government awaits a formal announcement after a cabinet meeting, it faces pressure to convince the public of the wisdom of its actions as Prime Minister Luis Montenegro governs without a clear majority, making decision-making difficult.
A formal announcement was expected after a cabinet meeting later on Thursday, but the scheme still needs to be approved by lawmakers, which could prove difficult as Prime Minister Luis Montenegro governs without a clear majority.
The data showed that more than 74,000 people have benefited from the tax breaks in 2022, costing the state budget more than €1.5 billion ($1.62 billion), up 18.5% year-on-year.
