Portugal Puts an End to Special Tax Regime for New Residence in 2024.
In a bid to tackle the shortage of affordable housing, the Portuguese government has decided to end the tax relief scheme for new residents, which has been effective since 2009.
The Portuguese Prime Minister Antonio Costa announced the move, which offers benefits for a ten-year period for people who move to the country, while income earned in Portugal remains subject to a 20 per cent tax rate. The income from abroad is generally exempted from such taxation.
On the other hand, Portuguese citizens who do not benefit from the scheme can be obliged to pay up to 48 per cent in taxes. PM Costa called the scheme a ‘fiscal injustice’.
“It is no longer justified and is a biased way of inflating the housing market, which has reached unsustainable prices,” Prime Minister António Costa
The scheme was initially introduced to attract visitors and professionals to Portugal, but its success is causing residents to suffer from housing and financial crisis.
A report from Eurostat explains that Portugal is the fifth country in Europe for the highest house price index, around 190.17, falling behind Lithuania, Iceland, Czechia and Hungary.
In addition, data by Eurostat show that the Harmonised Index of Consumer Prices (HICP), which refers to the measure of inflation in the European Union (EU) and reflects change over time in the prices paid by households for a representative basket of goods and services, is generally low for Portugal.
In general, Portugal has the sixth cheapest prices of HICP – around 113.03 for 2022, falling behind Iceland, Ireland, Greece, Cyprus and Switzerland.
The most recent data for HICP, which was recorded in June, shows that Portugal had a rate of 119.79, being ranked seventh in Europe.
Living standards have experienced a drop compared to the European Union average, with the weight of taxation being one of the key factors, as a study by the Faculty of Economics of Porto has revealed.
The study also shows that “the weight of wealth-generating factors in GDP has shrunk in favour of taxes and contributions, unlike the EU, also helping to explain our lower economic growth, as it is necessary to first generate wealth before sharing it. Faculty of Economics of Porto
The same revealed that the share of the State has been increasingly going up, with the maximum tax burden of 36.4 per cent of GDP in 2022, which, after it is related to the standard of living, is converted into a tax effort of 17 per cent above the EU average, placing the country in the fifth highest position in the region.
