PSA: You Can Now Benefit From Tax Breaks In Portugal Yet Again. Leaving The U.S. For This Attractive Destination Is Looking Better Than Ever

Portugal is back on the map for those looking to benefit from tax breaks. In a complete 180, the country's finance minister, Joaquim Miranda Sarmento, recently announced an updated nonhabitual resident (NHR) tax regime to attract highly skilled foreigners, including Americans.

The reintroduced tax regime is, in many ways, a lot different from its predecessor. While the flat income tax rate of 20% will remain, it will only apply to salaries and professional income. 

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It will exclude dividends, capital gains, and pensions, which should please Nordic countries and ease their worries about their retirees exploiting tax breaks and avoiding taxes in their home countries. Pensions were exempt from tax in the past, but later, the country introduced a 10% flat rate.

"We need skilled workers and economic growth. We must balance this with affordable housing," stated Sarmento. Nuno Cunha Barnabé, a tax partner at Lisbon law firm Abreu Advogados, shared a similar sentiment with FT, saying that including retirees in the previous scheme was counterproductive given Portugal's aging population and housing shortage.

Why the Changes?

The previous NHR scheme, which started in 2009 and ended last year, was criticized for raising housing prices and being a "fiscal injustice." It offered a 20% tax rate on income earned in Portugal for high-value jobs and gave tax exemptions on almost all foreign income if it was already taxed in the country it came from. 

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Nordic nations, particularly Finland and Sweden, led the charge against these exemptions, arguing they encouraged retirees to evade taxes back home. Portugal's current administration aims to avoid these pitfalls by attracting young, skilled professionals instead of retirees.

Support and Opposition

The reintroduction of the NHR regime comes as part of a broader economic stimulus package comprising 60 initiatives. This package aims to stimulate growth and address Portugal's housing crisis, which is driving young people away. Sarmento is confident that opposition parties, including the Socialist Party (PS) and far-right CHEGA, will support or at least not obstruct the initiative.

Big Portuguese companies will likely welcome the new measure, as it can help address the shortage of skilled professionals. The Finance Minister mentioned that companies struggle to attract engineers, researchers, and managers due to the high 48% top marginal tax rate on incomes above €81,199 ($88,000). The 20% flat rate could make Portugal a more attractive destination for these professionals.

Why Many Americans Are Considering Relocating To Portugal

Portugal is known for its high quality of life and a safe and friendly environment. Not to mention, it also has great weather, beautiful scenery, and rich culture. Cities like Lisbon and Porto are lively and exciting. The Algarve has amazing beaches, and Douro Valley is perfect for enjoying nature and relaxing.

The cost of living in Portugal is relatively low compared to many parts of the U.S. Housing, health care, and daily expenses are generally more affordable, so those moving here typically enjoy a more comfortable lifestyle than in the major American cities they come from.

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