Portugal’s non-habitual resident (NHR) regime allows foreign pensioners to benefit from a zero tax rate if they meet certain conditions. The NHR regime attracted to Portugal more than 9,000 pensioners. It is often regarded as “Europe’s best-kept tax secret”.

However, not everyone was impressed by the creation of a no-tax territory in the EU. For example, Sweden and Finland complained that, if the NHR regime is combined with bilateral tax treaties, it may reduce the effective tax rate on private pensions to zero.

As a result of the international pressure, the ruling party in Portugal (the Socialist party) proposed legislative changes which, if adopted, will raise the tax rate applying to pensions of non-habitual residents from 0% to 10%. This will significantly decrease the attractiveness of the NHR regime as Portugal will have to compete with other EU countries offering low tax rates. For example, the rate of personal and corporate income taxes in Bulgaria is just 10%. The Balkan country has not changed its tax rates for a long time and attracted many foreigners, including pensioners. Pensions are not taxed in Bulgaria!

In addition to increasing the tax rates applying to pensioners who are non-habitual residents, the new legislative changes excluded purchases in Lisbon and Porto from eligibility for obtaining the so-called golden visas. Golden visas allow non-EU citizens to become EU residents if they meet certain conditions, one of which is purchasing properties in Portugal valued at EUR 500,000 or more. Such visas are often deemed to be the road towards Portuguese citizenship. Within the time period between 2012 and 2019, Portugal issued more than 8,200 golden visas. Half of them were given to Chinese citizens.

Making purchases in Porto and Lisbon ineligible for golden visas is expected to have a profound impact on the golden visa program. This is because property investments in those two cities represent 2/3 of all property investments made under the program.

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