Article in partnership with Day Translations.
Portugal decided to change its tax rules for digital nomads such as non-EU foreign investors (source: Fortune).
For many years Portugal has been one of the favourite European destinations for digital nomads and remote workers for a number of reasons, mainly the favourable weather and the high quality of life coupled with low cost of living.
For non-EU digital nomads, in particular, Portugal was a top location because of the low tax rate applied to earned income. Compared to the tax rate applied to locals’ earnings, foreigners could benefit from a preferential treatment because their income was taxed at 20%. Locals who are high earners could be taxed up to almot 50% of their income, instead.
Portugal Tax Changes from 2024
In the run up to Portugal changing its tax treatment to non-EU foreign residents, many international workers rushed to move to the country before 2024, when the new tax regime takes effect.
Announcing new tax measures can have downsides such as these, because it can cause for some people to act before rules change to take advantage of more beneficial taxation.
Portugal used to have a Golden Visa programme which enabled non-EU citizens who were planning to live and work in the country to get a visa by investing either in property or an investment fund and secure their place. The minimum investment was 350,000 euro to buy a property in Portugal or transferring 500,000 euro into a Portuguese investment fund.
Alongside this scheme, Portugal is also withdrawing its residence rules, which previously enabled non-Portuguese citizens from outside the EU living in the country for 10 years to be taxed at 20% on their income.
Portugal’s Cost of Living Has Gone Up
Portugal boasted a low cost of living for many years, however due to the influx of foreign investors needing properties, prices of accommodation and other services have gone up. This has angered native Portuguese people who have had to move out of popular areas because of higher prices and low availability of houses.
This phenomenon was mostly happening in large towns such as Lisbon.
In early 2023 it was calculated that Portugal’s immigrant community totalled more than 750,000 people (source: Portugal.com). The increase from the previous years was about 60,000 people. Out of the 750,000 total, about 230,000 or almost a third were Brazilian people. Other nationalities included people from India, the United Kingdom, Italy, Angola and Capo Verde. There are also a few tens of thousands of people from China and Nepal who live in Portugal.
2021 figures for Portugal state that the total population was just over 10 million, which is comparable to the total population of Sweden and the Czech Republic (Czechia). If we look at figures reported in the media from census data, the number of houses in Portugal is lower than 6 million (source: The Portugal News), of which 12% were vacant and 70% are occupied by their owner.
Portugal’s digital nomad visa is still valid and the requirement for non-EU citizens is that they have to earn more than 3,040 euro a month. Foreigners who are high earners have put pressure on the housing market, causing house prices to become more expensive.
It is unclear how many non-Portuguese people will leave Portugal as a result of a different taxation system and higher costs. It’s probable that a percentage of them will move on to other European countries offering digital nomad visas.