Portugal’s relationship with foreign workers has taken a new turn as the country considers reinstating controversial tax breaks that its former prime minister called “fiscal injustice.”
The country’s Prime Minister, Joaquim Miranda Sarmento, told the The Financial Times that his centre-right government would present a bill on Thursday aimed at reintroducing tax breaks to attract foreigners to Portugal.
Sarmento said the change is part of a package of laws aimed at boosting the Portuguese economy and “attracting people to the country.”
The country abolished the 20% flat tax rate In October, skilled foreign workers will be subject to the same progressive tax rate as Portuguese citizens, ranging from 14.5% to 48%.
The move was intended to discourage highly skilled foreigners from emigrating to Portugal, who would face higher taxes on income earned there.
Portugal has made a U-turn and decided to no longer apply a flat rate of 20% to the “wages and professional income” of foreign workers, and no longer to all their income as before. This means that dividends, capital gains and retirement pensions will not benefit from tax relief.
The move marks the latest twist in the country’s complex relationship with foreign workers.
The confusion of migrants in Portugal
The country has been seeking to attract young, skilled foreigners since its economy was devastated by the global financial crisis in 2009. As the COVID-19 pandemic has changed working patterns, Portugal’s capital, Lisbon, has become home to newly dubbed “digital nomads.”
Critics of the immigration influx see it as devastating the cost of living for Portuguese residents, who are among the lowest-paid workers in the EU. They also blame the domino effect of rising incomes on soaring property prices in the country, making housing even more unaffordable.
When the tax breaks were scrapped last October, then-prime minister António Costa described them as a “fiscal injustice” and a “biased way” of inflating the property market.
Migration advisers told Fortune last October that the decision to remove these tax breaks may have been inadvertent. created a brief swell new applicants rushing to immigrate to Portugal before the law is changed.
Portugal also made sweeping changes to its “Golden Visa” program last year, which previously allowed foreigners to obtain residency by purchasing real estate worth at least €500,000 ($540,000). The country has scrapped that option, meaning only higher-value investment options were available to prospective residents.
As Portugal further liberalises its approach to skilled foreigners, it remains tough on its taxes for older immigrants. Exempting pensions from tax breaks is expected to discourage older people from migrating to the country for sunshine and higher incomes.
Demographic crisis
Due to a continent-wide population ageing crisis, Portugal is engaged in a demographic battle with other European economies.
However, long described as the most migrant-friendly country in the EU, Portugal is becoming increasingly selective in who it takes in under its right-wing government.
In June, the country announced that it would abandon its “expression of interest“the immigration clause, which allowed non-EU citizens to come to the country without guaranteed employment and apply for residency after one year of paying social security contributions.
The removal of this clause appears to target low-income migrants from countries such as India, Nepal and Bangladesh, who benefit most from it.