The Portuguese government is planning to reintroduce tax breaks for foreign residents to attract skilled workers. This decision comes despite past criticism that the previous scheme, launched in 2009, contributed to inflated housing prices. The original “Non-Habitual Resident” scheme offered a special 20% tax rate on Portuguese-sourced income for those residing in Portugal for at least 183 days a year, benefiting individuals engaged in “high value-added activities” like medicine or university teaching. The scheme also included tax exemptions on foreign income and a 10% flat tax rate on pensions from foreign sources. However, the previous government deemed it a “fiscal injustice” and discontinued the scheme last year. Parliament extended it until the end of 2024 for those who had begun their move to Portugal in 2023. According to the Financial Times, the new plan, revealed by Finance Minister Joaquim Miranda Sarmento, will still cover salaries and professional income with tax breaks, but excludes pensions, dividends, and capital gains. Economy Minister Pedro Reis stated, “We are revisiting this scheme (because) we want to attract talent… qualifications that are highly strategic for the country and that add value to our economy.” The government’s approval of this plan came after a cabinet meeting on Thursday. Despite the government’s intentions, it may face hurdles in getting the plan through parliament due to the lack of a majority. Data from 2022 showed that over 74,000 individuals benefited from the tax exemptions scheme, costing the state budget over 1.5 billion euros ($1.62 billion) – an 18.5% annual increase. On Thursday, the government also approved a reduction in the standard corporate income tax rate from 21% to 15% by 2027. Additionally, a new mandatory minimum tax rate of 15% will be implemented for all multinational companies operating in Portugal, as well as large Portuguese companies. Reis announced plans for new incentives aimed at encouraging private investments and mergers among companies to enhance their competitiveness within the European market. Analysts have pointed out that low productivity has been a persistent issue hindering the competitiveness of Portuguese companies. In 2022, labor productivity in Portugal was 28% lower than the average of the 19 Eurozone countries, according to Eurostat data.
