In 2024, Portugal plans to phase out income tax exemptions for foreigners who live in the country part-time, according to Le Monde, a move aimed at mitigating the ongoing housing affordability crisis. This policy change marks a significant shift from the measures initiated in 2009, which were designed to attract foreign capital in the aftermath of the 2008 financial downturn. Initially, these rules provided complete tax exemption to foreign residents, which was later modified to offer a partial exemption.
Approximately 10,000 individuals, predominantly from France, the UK, and Italy, have taken advantage of these tax benefits, settling mainly in Lisbon and the Algarve region. The policy applied to foreigners residing in Portugal for at least half of the year. Until 2020, this arrangement meant their income was entirely exempt from taxation, after which the policy was adjusted to offer a reduced tax rate.
However, this tax incentive has been linked to a substantial increase in housing costs over the past decade. Prime Minister Antonio Costa has criticized the exemptions as a form of “fiscal injustice.” To underscore the impact, housing prices in Portugal surged by 78% between 2012 and 2021, a stark contrast to the 35% average increase across the European Union, as reported by the Francisco Manuel dos Santos foundation.
The rising housing costs have sparked public outcry, leading to widespread demonstrations in Lisbon and 20 other Portuguese cities. Protesters have called for more robust government intervention to tackle the escalating issue of unaffordable housing.
In response to these concerns, Costa, in a CNN interview, emphasized the need to abolish this tax measure, describing its continuation as perpetuating unjustifiable fiscal inequality and contributing to the escalation of housing prices.
In addition to ending the tax exemption, the Portuguese administration has announced other significant measures that directly affect foreigners. These include mandating the rental of apartments that have remained vacant for more than two years. Furthermore, in February, the government disclosed plans to terminate the issuance of “golden visas” to affluent non-Portuguese investors, a double-whammy for foreigners interested in moving to Portugal.
More recently, a decision to reduce borrowing rates for two years was made, a move expected to benefit approximately one million Portuguese families. These comprehensive steps signify a concerted effort by Portugal to balance attracting foreign investment while maintaining housing affordability for its residents.
