Portuguese Prime Minister António Costa has started the journey towards limiting the advantageous digital nomad taxation system as it causes dissatisfaction among local workers because it contributes to a serious housing problem.
Based on his interview with CNN Portugal, he should abolish the NHR Portugal next year. Designed to attract foreign employees, this special taxation regime for expats living in Portugal gives them several tax exemptions and privileges for 10 years.
Thanks to the NHR status, high-demand foreign employees, such as doctors, engineers, and journalists, have a flat 20% tax deducted from their Portuguese income.
At the same time, local workers pay tax that ranges between 14.5% to 48%, according to PwC, a leading global audit company.
“Maintaining this measure for the future is prolonging a measure of fiscal injustice that is not justified, in addition to being a biased way of continuing to inflate the housing market,” Costa added.
This act shouldn’t trouble workers coming to the country before the deadline in 2024. However, further steps and particular changes remain unknown. And there is no information about whether it would affect temporary workers or the newly introduced digital nomad visa either.
The digital nomad visa came into effect in Portugal in October 2022 and it allows workers from outside the E.U. or E.E.A. to stay in the country for one year. Applicants must have a stable income of about €2,800 (around $2,930) per month.
The COVID-19 pandemic boosted the arrival of digital nomads in the country. But it’s natural that the cancellation of the advantageous tax system will make Portugal less attractive for high-value-added international workers.
According to the Nomads List data cited by Politico, there were 15,800 digital nomads living in Lisbon by December 2017. Based on a report from the Portuguese Immigration and Borders Agency (SEF), between 2018 and 2021, there were 45% more foreign residents in the country overall.
Why are digital nomads so attracted to Portugal?
It surely isn’t just the bargain housing and low cost of living in general. The all-year-round mild weather with plenty of sunshine, the ocean, as well as friendly locals play a big part. Moreover, a good number of them speak English. And thanks to the digital nomad visa, relocating there has also become way easier.