Portugal says it will stop granting a tax break to foreign pensioners from 2024, since the exemption has been helping to drive up property prices in the midst of a housing crisis.
“Maintaining such a measure in the future would be tantamount to prolonging a measure of tax injustice that is unjustified," Prime Minister Antonio Costa said in an interview on CNN Portugal television on Monday evening.
"It would be a roundabout way of continuing to drive up prices in the housing market,” the head of the Socialist government added. However, he specified that existing exemptions would remain in force.
Created in 2009 for foreigners living at least half the year in Portugal, the ten-year exemption was total until 2020. Since then, new arrivals have been able to benefit from a reduced tax rate of 10%.
The measure, which became really effective after the procedure was simplified in 2012, was aimed at attracting foreign capital to the country which, at the time, was hit hard by the debt crisis.
It benefited some 10,000 people, mostly French, British or Italian retirees, who settled mainly in the Lisbon region or in the seaside resorts of the Algarve (south) and who, in fact, largely contributed to the revival of the property market.
Like the 'golden visas' granted to wealthy investors from countries outside the European Union or the tax regime designed to attract 'digital nomads,' the scheme was regularly cited among factors behind the surge in property prices.
Between 2012 and 2021, the cost of housing rose by 78% in Portugal, compared with 35% in the European Union as a whole, according to a study by the Portuguese Francisco Manuel dos Santos Foundation.
In the second quarter of 2023, median rent jumped by a further 11% year-on-year, according to official data published last week.
Against this backdrop, thousands of Portuguese took to the streets of Lisbon and around 20 other cities across the country on Saturday, demanding tougher action from the government.
“I do not hide a certain frustration, not to say a big frustration, to see that reality has been much more dynamic than the capacity for political response,” the Prime Minister admitted in Monday evening’s interview.
His executive recently adopted a package of measures aimed at curbing property prices. It includes an end to golden visas and the compulsory letting of flats vacant for more than two years in the most densely populated regions.
And, to help almost a million families, the government decided last week to allow borrowers to benefit from a reduced rate for two years.
