Once a bastion for luxury real estate and high-net-worth individuals, Portugal is currently at a crossroads. With the imminent ending of Portugal’s Non-Habitual Resident (NHR) tax program, luxury real estate and the Portuguese economy as a whole are bracing for change.
NHR opponents believe ending the program will improve the economy, but real estate experts like Luis Horta e Costa believe this will spell disaster for numerous markets and the overall economy. “Ending NHR will cause disruption in the real estate market, especially for luxury real estate,” he said. “NHR attracted highly qualified, wealthy foreigners to Portugal. Without it, our country will lose an incredible amount of capital and opportunities.” Luis Horta e Costa and other experts explain why the NHR tax program is so beneficial, pending changes to the program, and how the Portuguese luxury real estate market will operate without it.
The End of Portugal’s NHR Tax Program
The Portuguese government approved the NHR in 2009 to fuel the economy. It reduced the income tax rate for ten years for non-Portuguese residents, offering a 20% tax rate on income and a 10% flat tax rate on foreign pensions. The program worked well, attracting high-net-worth residents, investors, remote workers, and retirees.
However, in 2023, the Socialist Party opted to end NHR on December 31, 2023. Fortunately, Prime Minister Antonio Costa’s resignation motivated the Socialist Party to change its position. “Because the current government has resigned, its legislative program, which was due to be approved in parliament, has to be declared null and void. Which means the proposals to end the NHR tax regime are dead in the water, too. But probably not for too much longer,” Lisbon-based tax and investment adviser Aziz shared in an interview with International Adviser. “By the time things have settled, I think we’ll be well into 2024. However, I think it would be a surprise for the NHR tax scheme to survive under a new administration, so while it may be extended perhaps up to the middle or end of 2024, I would urge anyone looking to take advantage of the tax scheme to act fast.”
The fate of the NHR is currently uncertain, but the Socialist Party will allow it to continue in its current state into 2024. Overwhelming feedback showed the public worried about how ending the NHR would affect workers, investors, and retirees planning to move to Portugal. “It is important to create a transitional regime that allows the legitimate expectations of people who have already made the decision to immigrate or return to Portugal to be safeguarded, under penalty of damaging the trust of those who made the same decision, with changing country naturally having a very material impact on anyone’s life,” the Socialist Party shared.
The party is currently proposing a modified version of the NHR. The modified plan changes who benefits from the NHR, as well as the scope and availability of the benefits under the program. Under the proposal, pension income would no longer qualify under the NHR. NHR would also only apply to employees involved in startups, research and development, and other government-approved jobs. The Socialist Party’s proposal would also extend the program to activities in Azores and Madeira, granting the regions the power to manage NHR locally.
The Future of Luxury Real Estate in Portugal, According to Luis Horta E Costa
While NHR isn’t in immediate danger of ending, it still has significant implications for the future of Portugal’s luxury real estate industry. The lack of clarity is causing many foreigners to reconsider investing in Portuguese real estate developments. “It’s causing people to take a step back and go, ‘Okay, Portugal was the easy answer, and now there’s no other easy answer out there. France, Italy, or Spain might be back on the table,” said private wealth manager Alex Ingrim.
“Ending the NHR makes Portugal real estate less attractive to high-net-worth foreigners. In past years, the program encouraged tremendous growth for both the Portuguese economy—and in real estate, specifically,” Luis Horta e Costa added.
Demand for property is increasing substantially across Portugal, contributing to a 6.7% expansion in the Portuguese economy in 2022 and a 5.5% expansion in 2021. In fact, real estate and construction accounted for 7.3% of employment and 8.1% of Portugal’s GDP in 2018. The end of NHR would encourage foreigners to take their money elsewhere, leading to incredible losses for the Portuguese economy.
If the government chooses to end the NHR, luxury real estate—as well as other industries—will have to change direction to sustain its growth. “Foreign investors have been vital in elevating our market. It’s crucial to continue attracting global interest through other means,” Luis Horta e Costa said.
Reimagining Luxury Real Estate in Portugal Beyond 2024
The socialist government is struggling to make sense of the NHR program. Although it extended the deadline through 2024, the program will likely either end completely or transform beyond recognition. Residents, real estate professionals, and investors need to plan now for an inevitable dip in the economy as a result of NHR’s conclusion.
However, looking ahead, Horta e Costa remains optimistic about the luxury real estate market’s potential. “The end of NHR is not the end of growth. It’s a new beginning, a chance to innovate and evolve,” he said.