By Brian Tora
By the time you have picked up this latest edition of this magazine, you may know the result of the General Election, called by Prime Minister Antonio Costa for the end of January. The reason for the government deciding to go to the country was the defeat of its budgetary plans for the coming year. This is the problem with leading an administration that does not have a majority in Parliament. You need the support of other parties to get legislation through, which was not forthcoming for the Budget.
Portugal actually seems to be doing quite nicely at present. As well as having lower inflation than most of Europe, though at 2.7% for the end of last year it is the highest for nine years, expectations remain for some robust growth for the year just ended and for the year to come. Foreign tourists may have been in shorter supply than in the past, thanks to the pandemic, but foreign immigrants contribute hugely to the wealth of the country. While the indigenous population has been in decline recently, the number of foreigners choosing to make their home in Portugal continues to rise and presently accounts for more than 5% of the total population – significantly more in the Algarve.
Attracting foreigners to become residents has been a core aim for some years now but has not always been welcomed elsewhere in the European Union. The two main policies – the Investment Residence Permit, or Golden Visa (ARI), and Non-Habitual Residency (NHR) – are believed to have brought in billions of euros to the country. Indeed, in the nine years since it was introduced, ARI is believed to have attracted over six billion euros of inward investment.
But the government has been under pressure to reduce the benefits these schemes offer. NHR, which seeks to attract wealthy retired people to the country, recently introduced a 10% tax rate on foreign pensions for the first ten years of residency, whereas before no tax had been payable. Even so, critics of the scheme remain and recently Sweden abandoned its double taxation agreement with Portugal to allow it to tax Swedish retirees on their pensions even if they lived here.
Similarly, the criteria to gain a Golden Visa has been raised. The minimum investment requirement is now 500,000€, though it can be both less and more, depending on the route taken to qualify. Bear in mind that Portugal is not alone in offering tax incentives to encourage wealthy immigrants. Indeed, according to a report commissioned by the European Union, the number of countries that offer these schemes rose from five to 26 in the period between 1995 and 2020, raising concerns that harm will be done to the ability to collect taxes within the EU.
Those considering moving to the Algarve to enjoy the slower pace of life and better weather conditions that exist when compared with Northern Europe need to be aware that circumstances can change – and quite quickly too. There is an old saying in the financial world that you should never allow the tax tail to wag the investment dog. In other words, there are more important considerations than just the tax implications of what you do. Still, it makes sense to be aware of the likely consequences of dealing with the taxman.
Did you realise that the euro was introduced a little over twenty years ago?
I remember driving through France to attend a New Year’s Eve party on the Mediterranean coast, paying autoroute tolls in francs on the way down and euros when driving back. And it cost more on the return journey.
Have you still got any old escudos? If so, you only have to the end of February to exchange them for euros. You have been warned.
Brain Tora is a financial journalist and broadcaster
