The once tepid tech ecosystem in Portugal has come alive in a blaze of activity since 2010, and it quivers on the cusp of a thriving international market. Ricardo Marvão, head of a prestigious innovation consultancy firm, Beta-i, is an avid spectator of this phenomenal transformation that Portugal has undergone within a decade.
Foreign tech tycoons and their expertise have swarmed to the country, setting up innovation centres, backing start-ups, and establishing collective workspaces. The country’s comparatively relaxed tax regime forms a significant part of this allure, coupled with the long stretches of sun-drenched coastline that serve as a welcome change for overseas novices.
Foreigners residing in Portugal are treated to a steady tax rate of 20% for ten years under the ‘Non-Habitual Resident’ (NHR) status. This tax structure offers a considerable advantage over the variable tax rate of 15% to 48% for local residents. Add to this the prospect of golden visas that trade investments for Portugal’s nationality, making the country ripe with opportunity.
Statistical evidence vindicates Marvão’s observations – a study from Portugal’s national audit office indicates that the number of foreigners residing under this tax structure in 2022 was 74,258, marking a 28% growth from the preceding year.
However, after a long decade of prosperity, the system might be nearing a tipping point.
The Portuguese administration unveiled plans in October to phase out the existing tax scheme for newcomers starting 2024. Existing beneficiaries will see no change in their tax rates until the end of their ten-year stint. In its stead, the government plans to implement a new, more strategic initiative focusing primarily on attracting international scientists and researchers. Although the details remain ambiguous, the announcement triggered waves of concern among foreign beneficiaries.
Marvão was quick to reassure them, assuring them that despite the change, the Portuguese government was steadfast about maintaining benefits for current NHR status holders. He recognizes that these tax incentives have played a pivotal role in attracting formidable talent into the country, filling the knowledge gap that once plagued Portugal’s tech ecosystem.
Despite this, the government has been criticized for allegedly stoking the housing crisis, with protests erupting over skyscraping rents and land prices across Lisbon and other Portuguese cities.
Rita de La Feria, a Portuguese tax analyst and academic at the University of Leeds, aligns with the government’s decision. She argues that these tax incentives inevitably escalate competition among countries to snag in-demand professionals, hindering European cohesion and draining the country’s revenue.
A tech worker stationed in Portugal since 2016 agrees with De La Feria. Whilst understanding the necessity of these tax breaks, he also concedes that it is time for them to cease. For all its charm, if the tax continues to soar, he might consider relocating, a sentiment echoed by Swedish software designer, Felix Lange, who is on the fence about moving despite the end of his NHR term.
Indeed, Portugal has grown independently of these tax benefits, and now stands tall on its own prowess. With the tech boom, only time will tell if Portugal can continue attracting and retaining talent without the tax breaks that once drew the masses to its sun-drenched shores.
