The Non-Habitual Resident (NHR) program once made Portugal a haven for high-income foreigners.
Eager for NHR tax breaks, they invested in the Portuguese economy and real estate market for the long term. However, the new socialist government in Portugal is rolling back NHR benefits, creating big problems for NHR beneficiaries and the Portuguese economy.
As Portugal navigates this transitional phase, understanding the potential effects and future trends is paramount for investors, developers, and policy-makers alike. “Ending this program will not only disrupt the real estate market, but it could stop attracting highly qualified, wealthy foreigners to Portugal,” explains Portuguese real estate developer and Square View co-founder Luis Horta e Costa.
Real estate experts Luis Horta e Costa, Maryline Valente, and others share their perspectives on what ending NHR means for the future of Portuguese real estate.
Understanding the NHR Program
Implemented in 2010, the NHR program offered substantial tax benefits for ten years, including tax exemptions on foreign income and reduced tax rates on Portuguese income for eligible individuals. The primary purpose of the NHR program was to boost the Portuguese economy by attracting foreign investment and talent. It offered a lucrative deal for expatriates: a lower tax rate on Portuguese-derived income and exemptions on foreign-sourced income. This scheme was particularly appealing to retirees and professionals in high-value industries. The influx of affluent residents under the NHR regime stimulated the real estate market, as these individuals often invested in property, contributing to the burgeoning property sector and local economies.
The NHR program came into effect during a period of economic strain in Portugal after the 2008 global financial crisis. “The introduction of NHR significantly boosted the real estate sector,” Luis Horta e Costa explains. “Cities like Lisbon and Porto saw a surge in property prices and development projects. Over time, we saw the NHR make Europe a prime destination for foreign investment and growth.”
Luis Horta e Costa, Experts, Explain the Current State of NHR
As beneficial as NHR was to the real estate sector, the new Portuguese government plans to end this program, citing rising housing prices. However, real estate experts believe ending NHR will do little to combat this issue—and potentially hurt countless industries nationwide.
Fortunately, NHR won’t end immediately. A transitional phase is in effect through 2024, giving applicants and current participants time to plan for the impending changes. “Looks like the socialists didn’t want to abruptly end the regime and decided to extend it for another year,” says Portuguese tax lawyer Maryline Valente. “They’ve opened a window and given some oxygen to the regime, but it’s still strange that, with a law starting next year, they’re imposing several new requirements,” she says. “In a way, the regulations are restrictive because they limit the time period for qualification.”
The transitional phase brings a series of modifications to the NHR program, including new tax rates and eligibility requirements. For example, the new NHR has a narrower scope, offering benefits to university professors, scientists, and qualified startups. If an individual qualifies under the strict new criteria, they can receive a flat 20% tax rate and other tax benefits. The transitional regime also allows for autonomous NHR programs in Azores and Madeira, which can make their own rules.
Post-NHR Real Estate Predictions
The end of NHR has already begun to affect the real estate market. Experts note a shift in investment patterns, with some investors becoming cautious due to the reduced tax benefits. “The loss of foreign capital is going to put unnecessary pressure on Portugal’s real estate market,” says Luis Horta e Costa.
NHR participants are already making big changes to their real estate portfolios. “Failing to plan for the future can have serious financial consequences. However, by taking proactive steps, you can safeguard your income, assets, and wealth for the future,” says NHR participant Marcel Léger. Experts at Portugal Pathways add, “Many affluent expats are lulled into a sense of complacency by the NHR tax regime’s low tax rates. They fail to realise that these benefits are temporary, and that failing to plan early enough for the future could have serious financial consequences.”
Foreign investors, particularly those attracted to the lucrative tax benefits of the NHR program, are likely to reconsider their investments in Portugal. The program’s cessation could lead to a withdrawal of highly qualified, wealthy foreigners, who have been instrumental in improving the Portuguese real estate market, especially in prime locations like Lisbon and Porto. This loss of capital could lead to a significant slump in real estate, especially in the high-end property market.
The long-term economic implications of the NHR program’s conclusion are concerning. A decline in real estate investment may have ripple effects on the broader economy. For example, the reduction in foreign capital could affect construction, tourism, and related sectors, potentially leading to slower economic growth and fewer job opportunities.
Adapting To Change in a Post-NHR Portugal
The conclusion of NHR marks the end of tax-driven investment in Portugal. While there will definitely be some challenges in the interim, Portuguese real estate investors are changing their approaches to embrace market adjustments and shifts in investor behavior. “The end of NHR is not the end of investment opportunities in Portugal,” Luis Horta e Costa says. “It’s a new chapter that calls for diversified and innovative investment strategies.”
Read more:
Luis Horta e Costa, Others On the Landscape of Real Estate Post-NHR