From investors to developers: the real estate market reacted immediately, showing signs of concern about yet another measure by the majority Government, which could compromise the health of the sector, without solving the problem of access to housing.
The governor of the Bank of Portugal (BdP) himself has also commented on the prime minister's words, saying that he is not “completely” convinced that programs such as non-habitual residents are the problem in the housing market. For Mário Centeno, former finance minister under António Costa and former president of the Eurogroup, the end of the regime is a political issue.
The Non-Habitual Resident Status (RNH) was created in 2009. It is a special regime that offers a reduction in Personal Income Tax (IRS), for 10 years, to new foreign residents (of any nationality) and to Portuguese citizens who are returning after more than 5 years, “with a view to attracting qualified non-resident professionals to Portugal in activities with high added value or intellectual, industrial property or know-how, as well as beneficiaries of pensions obtained abroad”.
"It is important to emphasize that the NHR does not grant an exemption on all income. It is necessary to distinguish between income originating in Portugal and income from a foreign source. In the case of income from a Portuguese source, no exemption applies", highlights the lawyer João Magalhães Ramalho. In an article published in Expresso, the partner in the Tax team at Telles also explains that:
- this regime only benefits income from work dependent and independent of the application of a 20% IRS rate, but only when it results from the exercise of activities with high added value defined by ordinance;
- in the case of income from abroad, the IRS exemption is applied to some professional income (in some cases the 20% IRS rate), interest, dividends, rents and real estate capital gains (provided that, in most cases, do not originate offshore). But no longer, as regards the majority of capital gains on securities and income from funds, income that is taxed;
- foreign pensions received by registered NHRs from April 1, 2020 are taxed at the IRS rate of 10%.
The prime minister said that the regime is “a biased way” of contributing to real estate speculation, but did not provide further details about what is coming. But so far it is just a political stance, and it is still necessary to wait for the proposed State Budget for 2024 (OE2024) to find out the contours of the new law, according to an official source from the Prime Minister's and reported by Negócios.
Real estate caught by surprise
The end of the NHR tax benefit took the market by surprise. Bruno Alves, partner at PwC, told Negócios that “the news spread very quickly” and that they received requests for clarification from all over the world about what was happening. According to the official, the regime “has a lot of impact, not only for people, but also for companies”, being “very structural”.
“We have many technology companies in Portugal at the moment, which have many foreigners in the technology field on their staff who are here because of the regime”. The announcement “created some concern at national and international level and was a surprise for all of us”, highlights the tax specialist to the newspaper.
In Portugal, after the wave of uncertainty generated by Mais Habitação, the market now fears that changes to this tax regime will drive investment away from the country. In a statement sent to newsrooms, to which idealista/news had access, Krest argues that the Government's plan to end the NHR regime “raises serious concerns for investors in Portugal”. “Although we recognise the Government's concerns regarding the housing crisis in the main Portuguese cities and the challenges of housing accessibility, we are deeply concerned that the proposed solutions could worsen the current situation”, argues the Belgian developer.
“In the current global economic panorama, in which competition for foreign investment is fierce, these signs of uncertainty could have a negative impact”, he adds, stressing that “foreign investors, who have played a vital role in Portugal’s economic development, can reconsider the risk factor associated with future investments in the country”.
Other promoters and consultants interviewed by ECO raise the same concerns, and fear that the future of foreign investment in Portugal is at risk. They therefore want the Government to publish data to understand the “real impact” of the regime on non-habitual residents. Hugo Santos Ferreira, president of the Portuguese Association of Real Estate Developers and Investors (APPII), considers that “it would be very pertinent to make a correct assessment of this measure”, to understand its influence on the real estate market.
For José Cardoso Botelho, CEO of Vanguard Properties, interviewed by the same publication, “the problem of housing for the middle class was not affected by non-habitual residents nor, as has been seen before, by golden visas”.
“Investment by non-habitual residents is not at all related to house price inflation. This type of private investor can only rent a space, they do not need to make a purchase. Therefore, this factor does not contribute to the rise in housing prices in the country”, says Miguel Lacerda, Lisbon residential director of the consultancy Savills Portugal, also cited by ECO.