Yesterday (15 November) it was announced in the Portuguese press that the NHR system might be phased out in one year time, meaning that expats might have until December 2024 for apply for the tax scheme.  This extension on the deadline is still to be confirmed and approved by the same government, says Joana Mendonça, Head of Legal at Global Citizen Solutions.

The year 2023 has proven to be particularly interesting for Portugal, marked by the discontinuation of the Golden Visa real estate program, a potentially significant shift in its expat fiscal initiatives, and, more recently, a political crisis culminating in the resignation of the Prime Minister.

It is therefore worthwhile to take a brief retrospective glance for a nuanced view, in the hope of discerning the direction of the new tides.

In the ever-evolving landscape of global finance and politics, nations frequently find themselves at a crossroads, making pivotal decisions that shape their economic destinies. Portugal, nestled on the Iberian Peninsula, has recently undergone significant changes that are set to redefine the landscape of investments in the coming year.

In February 2023, the then-Prime Minister Antonio Costa announced the end of the Golden Visa, which was subsequently followed by a package presenting a series of measures to address the housing shortage in Portugal.

A few months later, the government disclosed that only the real estate investment route for the Golden Visa would be reinstated, preserving the successful program in a new version that the government hoped would inflict no further damage to the tight housing market in Portugal. However, as industry players were given little time to acclimate to the new scenario, Costa's government threw another curveball by declaring the termination of the Non-Habitual Residency fiscal residency (NHR) program.

The recent political crisis in Portugal has also prompted questions about the potential economic repercussions. Antonio Costa, who had been in power since 2015, stepped down over alleged illegalities involving his government in lithium and hydrogen projects. The country's president, Marcelo Rebelo de Souza, salvaged the State Budget planned for 2024 in an effort to restore some confidence with international markets. Nevertheless, new elections are scheduled to take place in March.

Undoubtedly some uncertainties linger, but it is crucial to view these challenges as opportunities for growth and reform. The economy has been slowing down in the last quarters, but Portugal performed well during Covid times and according to the American S&P Global Ratings, Costa´s exit has not risked Portugal credit ratings now on BBB+.   Changes will certainly bring a departure from the initial status quo, but it is evident that no fiscal system remains static. Nations, like Portugal, navigate through peaks and troughs, adapting to the ever-shifting demands of a globalized world. 

For the past decade Portugal positioned itself as an appealing destination for those seeking tax efficiency on passive income. Since the announced end of the appealing non habitual fiscal system (some benefits include 10-year exemption on international dividends) was announced, we received calls from clients - mostly from the UK, who don´t want to miss out on the tax scheme and apply for residency in Portugal.  But the end of one chapter, such as the Golden Visa for real estate, is the prelude to another, offering fresh possibilities and avenues for investors.

However, one lesson we learnt in the past three months working with clients looking at ways to become more tax efficient in Europe is that we cannot discuss Portugal's fiscal landscape without acknowledging the individual financial context. The European continent is witnessing a spectrum of approaches to taxation, each tailored to attract specific types of investors.  Portugal presents a fiscal system favourable for passive income earners, however Spain emerges as an attractive option for those with active income, while Italy positions itself as a haven for High-Net-Worth Individuals.  As investors recalibrate their strategies, it is essential to recognize that the cyclical nature of economic evolution propels us towards new horizons.

Italy, with its distinctive tax regimes, has emerged as a noteworthy contender for those seeking fiscal benefits. The country offers three special tax regimes that enable residents to enjoy a remarkably low tax rate. These regimes cater to various scenarios, such as retirees, professionals, and entrepreneurs, providing a nuanced approach to taxation. For those considering Italy, the Representative Office Visa presents an intriguing option, this visa offers residency without the need for substantial investments or a physical presence in the country, providing an accessible avenue for individuals seeking Italian residency without the traditional constraints.

We've all been on a rollercoaster of change, but it's starting to be time to gain some perspective. The scenario is changing, and it is clearly the end of a cycle, which is not necessarily bad, although it may frustrate expectations. However, the elimination and/or alteration of programs does not mean that this space does not give way to new measures and incentives with different directions or purposes.

Portugal, in particular, has been a pioneer and successful in several instruments for attracting investment and foreign talent. The fact that these instruments are now being rethought and changed does not mean that Portugal's interest or even its attractiveness has disappeared. It seems to me that it just means that a new cycle is still being designed and thought out, which could even be leveraged by this political reset caused by the fall of the most recent Government. This reset could give rise to a different landscape in the country's international positioning.

On the other hand, Europe, which often operates at the same pace, with several countries taking similar decision-making directions, continues to benefit from its intrinsic variety. Where a type of incentive is lacking in Portugal, a similar opportunity will eventually arise in a nearby country, possibly even improved, benefiting from the experience already recorded in a partner country.

Increasingly, the global world allows us to have a very wide range of options and enables us to choose a solution that is best suited to each person's needs. Policies increasingly seek to keep up with the frenetic progress of the demand economy; they don't always get it right, neither in timing nor in objective, but demand and supply always end up finding a way to meet. And that's what will end up happening.

In conclusion, Portugal's recent fiscal adjustments are part of a larger narrative that underscores the adaptability and resilience of nations in the face of change.  Portugal remains a compelling option in the realm of tax planning, and as the political and economic landscape transforms, opportunities abound for those willing to explore uncharted territories within the European Union, including the enticing prospects offered by Spain or Italy's distinctive tax regimes and residency options.

By Joana Mendonça, head of legal at Global Citizen Solutions