The number of people taking advantage of Portugal’s various generous tax incentives has risen 44% in a year, including many retirees qualifying for zero tax on their incomes and young people applying for non-habitual resident status.
In just one year, the number of foreigners granted non-resident status increased from 7,414 in 2015 to 10,684 at the end of 2016.
The number of applications for the schemes created in 2009 also has risen steadily, with professionals in certain key occupations paying a reduced rate of 20% income tax (rather that up to 48%) or, in the case of pensioners, enjoying a tax free lifestyle for ten years.
Eurofinesco's Dennis Swing Greene notes the rise in applications for Non Habitual Residency from younger people, "There are two types of applicant: pensioners, who come for a ten-year fiscal holiday, and young people who like the tax system but also want to move here, especially to Lisbon, because they see Portugal as a new Silicon Valley."
The success of the Portuguese regime is reflected in the numbers: between 2009 and 2013 the annual average was around 100 applicants, in 2013 it rose to 1,000 and this year already 6,003 applications have been received by Finanças.
According to data requested by Dinheiro Vivo at the Ministry of Finance, from 2010 up to the end of last year, a total of 13,687 applications were registered.
Although these schemes are not unknown in Europe, some countries have reacted, such as Finland which has moved to change to the double taxation agreement In Spain and now, Portugal. Others are likely to follow with the Dutch government said carefully to be looking at the scheme, having described Portugal as 'a tax haven within Europe.'
Those in favour of these schemes say that even if income tax revenue is lost, the treasury gains from taxes paid when properties are purchased, in general shopping and in the hiring of staff and suppliers.
Those not in favour point to the basic inequality inherent in a system where locals pay full rates of income tax while already well-heeled foreigners pay a far reduced rate, or zero, income tax.
Another forgotten group is made up of foreigners settling in Portugal before these schemes were launched, paying the full rates of income tax on their pension and investment income and helping subsidise newcomers who contribute little to the running of the country’s essential services.
Rosário Gama, from Portugal’s Association of Retirees and Pensioners, said the system is inequal and should not exist and is causing disquiet among those who work here and pay their taxes at the full rate.
Within the EU framework, these schemes are allowable, but for how long? If every EU country adopted the same tax allowance policy as applied in Portugal, and every pensioner moved country, the scemes would be shut down immediately, or a policy of not taxing pensioners would have to be adopted.
Those agreeing with Sra Gama, that the system is inherently unfair, may be in the majority but inequality exists in many tax regimes with the better-off always able to find ways to pay less tax than their poorer neighbours.
__________
For Eurofinesco, click HERE