Portugal’s new centre-right government plans to reinstate controversial tax concessions that attracted a “wave” of foreigners to the country, but will ensure that wealthy expatriate pensioners cannot benefit from the privilege.
Joaquim Miranda Sarmento, the finance minister, told the Financial Times that the move would “attract some people” to the country as part of a package of 60 measures unveiled on Thursday to boost growth.
The tax exemptions were introduced in 2009 to help Portugal’s recovery from the financial crisis and then abolished last year by the previous socialist government. Mr Sarmento called them a “tax injustice”, which he blamed for pushing up house prices in one of the eurozone’s lowest-income economies.
Miranda Sarmento, who serves in a fragile government lacking a parliamentary majority, said the reinstated regime would include the same flat 20% income tax rate but would only cover “salaries and professional income”.
“Dividends, capital gains and pensions will be excluded, which has been a problem between Portugal and countries like Finland or Sweden,” he said.
Scandinavian countries led the way in complaints that the tax breaks were attracting retirees who had stopped paying taxes in their home countries. Portugal initially exempted pensions from tax but later introduced a flat 10% rate in response to criticism from EU members, while capital gains were only exempted in a few cases.
Nuno Cunha Barnabé, a partner at law firm Abreu Advogados in Lisbon, said the inclusion of pensioners in the previous regime was odd. “It was against demographic evolution. It didn’t make sense. We already have an elderly population. Attracting retirees puts more strain on our health system. We need to attract young people,” he said.
The minority government of Prime Minister Luís Montenegro will have to win the approval of opposing MPs for the special tax regime. It will need the support of the Socialist Party or the far-right Chega party, both of which oppose the tax breaks.
Miranda Sarmento said the initiative is vital to attract highly skilled foreign workers who will help boost growth, adding that he is confident that opposition parties will support the move or let it pass with abstention.
Large Portuguese companies are likely to welcome the return of the 20% rate. They say they are finding it difficult to attract engineers, researchers and managers from abroad who are willing to pay Portugal’s 48% top marginal tax rate, which is levied on the portion of income above the €81,199 threshold.
“That will attract some people. It’s not sufficient, but it’s something the government can do,” said Miranda Sarmento.
He added that the government would not reverse the previous government’s decision to end the “golden visa” linked to property purchases worth 500,000 euros or more.
Special tax relief will also be available to Portuguese citizens who have lived abroad. To qualify under the previous version of the law, beneficiaries had to become tax residents of Portugal, either by living more than 183 days a year in the country or by having permanent residence there but still having legal residence elsewhere.
