Americans are rushing to Portugal to get ahead of changes in tax policy that will eliminate financial benefits for expats who relocate to the country.
An end to tax breaks for so-called “non-habitual residents” in Portugal, announced by the prime minister in October as part of a broader push to address the country’s housing crisis, has led to a surge of Americans filing for tax residency.
Portugal attracted a flood of expats in the pandemic, thanks to cheaper property prices, a warm climate and beneficial tax and visa programs. But political pressure tied to rising housing prices has fueled a recent crackdown on perks for foreigners. And the looming elimination of the tax breaks has many scrambling to file paperwork to make sure they qualify for the program, which can save people hundreds of thousands of euros over 10 years.
“People are panicking, rushing, trying to see how they get in before it all goes away,” said Daniela Lopes Costa, a tax lawyer in Lisbon.
‘Worth It’
Boise, Idaho-based Matt Booth hurried to secure his tax benefits. Initially planning to move in January to the Algarve, where he and his wife bought a townhouse for €380,000 in 2021, the 51-year-old physical therapist pushed up his relocation date by a few weeks to make sure he qualifies.
He spent about $1,800 (€1,668) on flights, close to $3,000 on tax experts and lost four days of work to fly to Portugal in early October and file his business application in person. He estimates he will save about half a million euros in the coming 10 years under the existing program.
“It was very stressful and chaotic but in the long term it’s obviously worth it,” he said.
Americans living abroad still pay US taxes. But the non-habitual resident tax system allows expats relocating to Portugal to pay a flat 20% tax on income and 10% levy on pensions for 10 years. That’s less than the progressive tax regime for locals, which requires residents with annual incomes surpassing about €79,000 to pay a 48% tax.
The generous system for non-residents was set up in 2009 in a bid to attract foreign capital. It has proved successful: The government said in July that a total of 89,000 people had benefitted from the system so far. And last year alone, expats in the program paid €1.4 billion in taxes.
In recent years, the program has come under fire. Some politicians and locals have blamed the tax regime, in addition to so-called golden visas, for fueling the country’s housing problems, arguing that wealthy foreigners have driven up home prices.
As a result, the golden visa program was restricted in July and the special tax breaks are being phased out.
Portugal Prime Minister Antonio Costa resigned last month amid a corruption scandal, but his government is still in place and the tax changes were included in a budget passed Nov. 29. Costa had initially said people would no longer be able to apply for the tax breaks after this year. While that deadline was extended, people hoping to qualify still have to show they were making plans to move in 2023.
‘Big Expense’
William Jones, a 40-year-old resident of Asheville, North Carolina, moved quickly when the changes were announced. The consultant for an IT company traveled with his wife to Portugal in November to file documents that showcased plans to live in the country. To establish residency, the couple is renting out an apartment for €1,000 a month in Cascais even though they plan on moving there in June. The whole ordeal cost them about $15,000, including $2,500 on flights, €315 for a tax consultant, money for a nanny for their one- and three-year-old kids and €8,000 on eight months’ rent.
“It’s a big expense but if we didn’t get the regime, we’d end up spending about €300,000 more in taxes over 10 years,” he said. “So it’s worth the investment.”
Some expats who only had vague plans to move to Portugal have dropped the idea because of the looming tax policy changes. Others are trying to avoid getting taxed at all.
Norris Merritt, who lives in White Salmon, Washington, won’t become a tax resident if the non-habitual-resident system is gone by the time he gets his visa. A former software consultant, the 71-year-old retiree bought his house in the Algarve two years ago for €500,000 but is still waiting for his visa appointment. Without it, he can’t apply for the tax breaks.
For now, Merritt plans on being in the country less than 183 days in a year to avoid paying Portuguese taxes on his pension.
“I just have to count my days,” he said. “But in the end, Portugal is going to lose a lot of money with these new restrictions.”
This article was provided by Bloomberg News.
